Econ Chapter 3 – Test Questions

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Which statement is consistent with the law of demand?

– A reduction in market price will lead to a decrease in quantity demanded.

– A reduction in market price will lead to an increase in quantity demanded.

– An increase in market price will lead to an increase in quantity demanded.

– At a zero price quantity demanded will be equal to zero.

– A reduction in market price will lead to an increase in quantity demanded.

Which of the following characteristics lead to a downward-sloping demand curve? Select all that apply.

– Increasing opportunity costs

– Increasing marginal benefit

– Diminishing preferences for a particular good

– A decline in the price of a related good

– An increase in purchasing power as market price decreases

– Diminishing marginal utility

– An increase in purchasing power as market price decreases – Diminishing marginal utility

How is a market demand curve derived from individual demand curves?

– Add up quantities demanded by all individual consumers for each price

– Calculate the average quantity demanded among all consumers

– Add up prices paid for each unit demanded by individuals

– Use the largest quantity demanded among all consumers for each price

– Add up quantities demanded by all individual consumers for each price

Which statement is consistent with the law of supply?

– An increase in market price will lead to an increase in quantity supplied.

– At a zero price quantity supplied will be infinite.

– A reduction in market price will lead to an increase in quantity supplied.

– An increase in market price will lead to a decrease in quantity supplied.

– An increase in market price will lead to an increase in quantity supplied.

Which of the following characteristics leads to a upward-sloping supply curve? Select all that apply.

– Increasing opportunity costs

– Increasing marginal costs

– Diminishing marginal utility

– A decrease in resource prices

– An increase in resource prices

– Increasing labor productivity

– Increasing opportunity costs – Increasing marginal costs

How do you derive a market supply curve from individual supply curves?

– Calculate the average quantity supplied among all producers

– Add up quantities supplied by all individual producers for each price

– Add up prices paid for each unit supplied by producers

– Use the largest quantity supplied among all producers for each price

– Add up quantities supplied by all individual producers for each price

In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the following?

– increase
– decrease

a. The supply of cattle hides:

b. Hide prices:

c. The supply of leather goods:

d. The price of leather goods:

a.) decrease b.) increase c.) decrease d.) increase

What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500?

– increase
– decrease
– no change
– cannot be determined

a. Small automobiles become more fashionable: .

b. The price of large automobiles rises (with the price of small autos remaining the same): .

c. Income declines and small autos are an inferior good: .

d. Consumers anticipate that the price of small autos will greatly come down in the near future: .

e. The price of gasoline substantially drops: .

a.) – increase b.) – increase c.) – increase d.) – decrease e.) – cannot be determined

What effect will each of the following have on the supply of auto tires? (Keeping all else constant)

– Increase
– Decrease
– No change

a. A technological advance in the methods of producing tires: .

b. A decline in the number of firms in the tire industry: .

c. An increase in the prices of rubber used in the production of tires: .

d. The expectation that the equilibrium price of auto tires will be lower in the future than currently: .

e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production. (with no change in the price of auto tires): .

f. The levying of a per-unit tax on each auto tire sold: .

g. The granting of a 50-cent-per-unit subsidy for each auto tire produced: .

a.) – Increase b.) – Decrease c.) – Decrease d.) – Increase e.) – Increase f.) – Decrease g.) – Increase

Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be ________ of memory chips.

– surplus
– shortage
– equilibrium quantity

– surplus

A price ceiling will result in a shortage only if the ceiling price is _________ the equilibrium price.

– less than
– greater than
– equal to

– less than

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity increase or decrease, or are the answers indeterminate because they depend on the magnitudes of the shifts?

– Increases
– Decreases
– Indeterminate

a. Supply decreases and demand is constant.

Price:
Quantity

b. Demand decreases and supply is constant.

Price:
Quantity:

c. Supply increases and demand is constant.

Price:
Quantity:

d. Demand increases and supply increases.

Price:
Quantity:

e. Demand increases and supply is constant.

Price:
Quantity:

f. Supply increases and demand decreases.

Price:
Quantity:

g. Demand increases and supply decreases.

Price:
Quantity:

h. Demand decreases and supply decreases.

Price:
Quantity:

a.) – Increases – Decreases b.) – Decreases – Decreases c.) – Decreases – Increases d.) – Indeterminate – Increases e.) – Increases – Increases f.) – Decreases – Indeterminate g.) – Increases – Indeterminate h.) – Indeterminate – Decreases

Will the equilibrium price of orange juice increase or decrease in each of the following situations?

– increase
– decrease
– indeterminate

a. A medical study reporting that orange juice reduces cancer is released at the same time that a freak storm destroys half of the orange crop in Florida: ___________ .

b. The prices of all beverages except orange juice fall by half while unexpectedly perfect weather in Florida results in an orange crop that is 20 percent larger than normal:__________ .

a.) – increase b.) – decrease

A price ceiling will result in a shortage only if the ceiling price is _________ the equilibrium price.

– greater than
– less than
– faster than
– equal to

– less than

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