Chapter 3 Economics

1. Markets, viewed from the perspective of the supply and demand model:
A. assume many buyers and many sellers of a standardized product.
B. assume market power so that buyers and sellers bargain with one another.
C. do not exist in the real-world economy.
D. are approximated by markets in which a single seller determines price.
assume many buyers and many sellers of a standardized product.
2. The law of demand states that, other things equal:
A. price and quantity demanded are inversely related.
B. the larger the number of buyers in a market, the lower will be product price.
C. price and quantity demanded are directly related.
D. consumers will buy more of a product at high prices than at low prices.
price and quantity demanded are inversely related.
3. A demand curve:
A. shows the relationship between price and quantity supplied.
B. indicates the quantity demanded at each price in a series of prices.
C. graphs as an upsloping line.
D. shows the relationship between income and spending.
indicates the quantity demanded at each price in a series of prices.
4. When the price of a product rises, consumers with a given money income shift their purchases to other
products whose prices are now relatively lower. This statement describes:
A. an inferior good.
B. the rationing function of prices.
C. the substitution effect.
D. the income effect.
the substitution effect.
5. If two goods are complements:
A. they are consumed independently.
B. an increase in the price of one will increase the demand for the other.
C. a decrease in the price of one will increase the demand for the other.
D. they are necessarily inferior goods.
a decrease in the price of one will increase the demand for the other.
6. The demand for most products varies directly with changes in consumer incomes. Such products are known
as:
A. complementary goods.
B. competitive goods.
C. inferior goods.
D. normal goods.
normal goods.
7. In moving along a demand curve, which of the following is not held constant?
A. The price of the product for which the demand curve is relevant.
B. Price expectations.
C. Consumer incomes.
D. Prices of complementary goods.
The price of the product for which the demand curve is relevant.
8. The supply curve shows the relationship between:
A. price and quantity supplied.
B. production costs and the amount demanded.
C. total business revenues and quantity supplied.
D. physical inputs of resources and the resulting units of output.
price and quantity supplied.
9. Productive efficiency refers to:
A. the use of the least-cost method of production.
B. the production of the product mix most wanted by society.
C. the full employment of all available resources.
D. production at some point inside of the production possibilities curve.
the use of the least-cost method of production.
10. Allocative efficiency is concerned with:
A. producing the combination of goods most desired by society.
B. achieving the full employment of all available resources.
C. producing every good with the least-cost combination of inputs.
D. reducing the concavity of the production possibilities curve.
producing the combination of goods most desired by society.
11. The relationship between quantity supplied and price is _____ and the relationship between quantity
demanded and price is _____.
A. direct; inverse
B. inverse; direct
C. inverse; inverse
D. direct; direct
direct; inverse
12. When the price of a product increases, a consumer is able to buy less of it with a given money income. This
describes the:
A. cost effect.
B. inflationary effect.
C. income effect.
D. substitution effect.
income effect.
13. The income and substitution effects account for:
A. the upward-sloping supply curve.
B. the downward-sloping demand curve.
C. movements along a given supply curve.
D. shifts in the demand curve.
the downward-sloping demand curve.
14. An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will
increase the demand for bicycles. This prediction assumes that:
A. there are many goods that are substitutes for bicycles.
B. there are many goods that are complementary to bicycles.
C. there are few goods that are substitutes for bicycles.
D. bicycles are normal goods
bicycles are normal goods
15. Blu-ray players and Blu-ray discs are:
A. complementary goods.
B. substitute goods.
C. independent goods.
D. inferior goods.
complementary goods.
16. Which of the following statements is correct?
A. An increase in the price of C will decrease the demand for complementary product D.
B. A decrease in income will decrease the demand for an inferior good.
C. An increase in income will reduce the demand for a normal good.
D. A decline in the price of X will increase the demand for substitute product Y.
An increase in the price of C will decrease the demand for complementary product D.
17. A shift to the right in the demand curve for product A can be most reasonably explained by saying that:
A. consumer incomes have declined, and consumers now want to buy less of A at each possible price.
B. the price of A has increased and, as a result, consumers want to purchase less of it.
C. consumer preferences have changed in favor of A so that they now want to buy more at each possible price.
D. the price of A has declined and, as a result, consumers want to purchase more of it.
consumer preferences have changed in favor of A so that they now want to buy more at each possible price.
Which of the following will cause the demand curve for product A to shift to the left?
A. Population growth that causes an expansion in the number of persons consuming A.
B. An increase in money income if A is a normal good.
C. A decrease in the price of complementary product C.
D. An increase in money income if A is an inferior good.
An increase in money income if A is an inferior good.
19. A decrease in the price of digital cameras will:
A. cause the demand curve for memory cards to become vertical.
B. shift the demand curve for memory cards to the right.
C. shift the demand curve for memory cards to the left.
D. not affect the demand for memory cards.
shift the demand curve for memory cards to the right.
20. If consumer incomes increase, the demand for product X:
A. will necessarily remain unchanged.
B. may shift either to the right or left.
C. will necessarily shift to the right.
D. will necessarily shift to the left.
may shift either to the right or left.
21. Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an
increase in the price of pizza to:
A. reduce the demand for tacos and increase the demand for soda.
B. reduce the demand for soda and increase the demand for tacos.
C. increase the demand for both soda and tacos.
D. reduce the demand for both soda and tacos.
reduce the demand for soda and increase the demand for tacos.
22. In which of the following statements are the terms “demand” and “quantity demanded” used correctly?
A. When the price of ice cream rose, the demand for both ice cream and ice cream toppings fell.
B. When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream
toppings fell.
C. When the price of ice cream rose, the demand for ice cream fell, and the quantity demanded of ice cream
toppings fell.
D. None of these statements use the terms correctly.
When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream
toppings fell.
23. The law of supply indicates that, other things equal:
A. producers will offer more of a product at high prices than at low prices.
B. the product supply curve is downsloping.
C. consumers will purchase less of a good at high prices than at low prices.
D. producers will offer more of a product at low prices than at high prices.
producers will offer more of a product at high prices than at low prices.
24. If producers must obtain higher prices than before to produce a given level of output, then the following has
occurred:
A. A decrease in demand.
B. An increase in demand.
C. A decrease in supply.
D. An increase in supply
A decrease in supply.
25. In moving along a supply curve, which of the following is not held constant?
A. The number of firms producing this good.
B. Expectations about the future price of the product.
C. Techniques used in producing this product.
D. The price of the product for which the supply curve is relevant.
The price of the product for which the supply curve is relevant.
26.
Refer to the diagram. A price of $60 in this market will result in:
A. equilibrium.
B. a shortage of 50 units.
C. a surplus of 50 units.
D. a surplus of 100 units
a surplus of 100 units
27. A surplus of a product will arise when price is:
A. above equilibrium, with the result that quantity demanded exceeds quantity supplied.
B. above equilibrium, with the result that quantity supplied exceeds quantity demanded.
C. below equilibrium, with the result that quantity demanded exceeds quantity supplied.
D. below equilibrium, with the result that quantity supplied exceeds quantity demanded.
above equilibrium, with the result that quantity supplied exceeds quantity demanded.
28. Since their introduction, prices of Blu-ray players have fallen and the quantity purchased has increased. This
statement:
A. suggests that the supply of Blu-ray players has increased.
B. suggests that the demand for Blu-ray players has increased.
C. constitutes an exception to the law of demand in that they suggest an upward-sloping demand curve.
D. constitutes an exception to the law of supply in that they suggest a downward-sloping supply curve.
suggests that the supply of Blu-ray players has increased.
29.
Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for
automobiles?
A. A only.
B. B only.
C. C only.
D. D only.
D only.
30.
Which of the diagrams illustrate(s) the effect of a decline in the price of personal computers on the market for
software?
A. A only.
B. A and D.
C. B only.
D. D only.
A only.
31.
Which of the diagrams illustrate(s) the effect of a decrease in incomes on the market for secondhand clothing?
A. A and C.
B. A only.
C. B only.
D. C only.
A only.
32.
Refer to the diagram. A government-set price floor is best illustrated by:
A. price A.
B. quantity E.
C. price C.
D. price B.
price C.
33.
Refer to the diagram. A government-set price ceiling is best illustrated by:
A. price A.
B. quantity E.
C. price C.
D. price B.
price A.
34. Which of the following is a consequence of rent controls established to keep housing affordable for the
poor?
A. Less rental housing is available as prospective landlords find it unprofitable to rent at restricted prices.
B. The quality of rental housing declines as landlords lack the funds and incentive to maintain properties.
C. Apartment buildings are torn down in favor of office buildings, shopping malls, and other buildings where
rents are not controlled.
D. All of these are consequences of rent controls.
All of these are consequences of rent controls.
35. Which of the following statements is true about price ceilings?
A. Price ceilings cause goods to be rationed.
B. Price ceilings cause goods to be rationed by some other means than legally determined market prices.
C. Ration coupons are the only way to ration goods when price ceilings are in place.
D. All of the other statements are correct.
Price ceilings cause goods to be rationed by some other means than legally determined market prices.