Economics Principles Applications and Tools 8th Edition Test Bank Arthur O ullivan34

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Economics Principles Applications and Tools 8th Edition Test Bank Arthur O ullivan34

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Macroeconomics: Prin., Apps, & Tools, 8e (OSullivan) TB2
Chapter 4 Demand, Supply, and Market Equilibrium

4.1 The Demand Curve

1) A perfectly competitive market is a market that has:
A) many buyers.
B) many sellers.
C) no single buyer or seller who can affect the price.
D) All of the above are correct.
Answer: D
Diff: 1
Topic: Supply and Demand
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

2) If a competitive market operates perfectly, it relies on:
A) the number of people buying goods.
B) the laws of supply and demand.
C) how many products can be produced for sale.
D) how much people are willing to pay for the products.
Answer: B
Diff: 1
Topic: Supply and Demand
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

3) The quantity of a product that consumers are willing and able to buy at a given price is called the:
A) quantity demanded.
B) quantity supplied.
C) demand for a good.
D) demand schedule.
Answer: A
Diff: 1
Topic: The Demand Curve
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

4) Quantity demanded is defined as the:
A) quantity of a product that consumers are willing and able to buy at a given price.
B) quantity of a product that sellers are willing and able to buy at a given level of income.
C) quantity of a product that consumers and producers are willing and able to buy, given their level of preference.
D) quantity of a product that consumers are willing and able to sell at a given price.
Answer: A
Diff: 1
Topic: The Demand Curve
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

5) A change in the quantity demanded of a product is the result of a change in:
A) the price of the product.
B) the price of related goods.
C) consumer income.
D) the cost of producing the product.
Answer: A
Diff: 1
Topic: The Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

6) A change in the quantity demanded of a product cannot be the result of a change in:
A) the buyers preference.
B) the price of related goods.
C) consumer income.
D) All of the above are correct.
Answer: D
Diff: 1
Topic: The Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

7) When a demand curve is drawn, which of the following is held constant?
A) peoples income
B) peoples preferences
C) prices of related goods
D) All of the above are held constant when constructing a demand curve.
Answer: D
Diff: 1
Topic: The Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
8) When a demand curve is drawn, which of the following is not held constant?
A) peoples income
B) peoples preferences
C) prices of related goods
D) the price of the good
Answer: D
Diff: 1
Topic: The Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

9) A demand curve is defined as the relationship between:
A) the price of a good and the quantity of that good that consumers are willing to buy.
B) the price of a good and the quantity of that good that producers are willing to sell.
C) the income of consumers and the quantity of a good that consumers are willing to buy.
D) the income of consumers and the quantity of a good that producers are willing to sell.
Answer: A
Diff: 1
Topic: The Demand Curve
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

10) The law of demand states that the quantity demanded of a product increases as:
A) consumer income rises.
B) the prices of other products fall.
C) the price of the product rises.
D) the price of the product falls.
Answer: D
Diff: 1
Topic: The Demand Curve
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

11) Typically, a demand curve will represent what relationship?
A) the current desire for purchases of fad products as opposed to other products
B) how much the products costs and the quantity of it produced
C) how many people are willing to buy and the quantities each will purchase
D) the price and the quantity demanded by the buyers
Answer: D
Diff: 1
Topic: The Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
12) The law of demand can be defined as:
A) a lot of people wanting the same thing.
B) the higher the price, the smaller the quantity demanded, ceteris paribus.
C) people are willing to make limited sacrifices to acquire products.
D) none of the above.
Answer: B
Diff: 2
Topic: The Individual Demand Curve and the Law of Demand
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

13) In considering the relationships between price and quantity demanded, ceteris paribus means economists assume that:
A) price increases affect quantity.
B) quantity increases affect prices.
C) either price or quantity can affect demand.
D) all other variables remain unchanged.
Answer: D
Diff: 2
Topic: The Individual Demand Curve and the Law of Demand
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

14) When there is a change in the quantity demanded it means that the:
A) hours the customer can buy products each day have increased.
B) number of products in inventory have increased.
C) quantity a consumer is willing to buy changes when the price changes.
D) selling price of the products has not changed.
Answer: C
Diff: 2
Topic: The Individual Demand Curve and the Law of Demand
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

15) The market demand curve:
A) shows the relationship between the price of a good and the quantity that all consumers together are willing to buy.
B) is drawn assuming that variables such as income and tastes are fixed.
C) is drawn assuming that the number of consumers is fixed.
D) all of the above.
Answer: D
Diff: 1
Topic: From Individual Demand to Market Demand
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
16) Suppose that there are only three consumers of a product. At a price of $3 per unit, the first consumer would buy 6 units of the product, the second consumer would buy 5 units, and the third consumer would buy 7 units of the product. If you drew a market demand curve for this product, the quantity demanded at a price of $3 would be:
A) 18 units.
B) 11 units.
C) 13 units.
D) unable to be determined based on the information provided.
Answer: A
Diff: 1
Topic: From Individual Demand to Market Demand
Skill: Analytical
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

17) The market demand curve is:
A) negatively sloped.
B) upward sloping.
C) always vertical
D) always horizontal.
Answer: A
Diff: 2
Topic: From Individual Demand to Market Demand
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

18) The market demand curve is:
A) downward sloping and is flatter than an individuals demand curve.
B) upward sloping and is flatter than an individuals demand curve.
C) downward sloping and is steeper than an individuals demand curve.
D) upward sloping and is steeper than an individuals demand curve.
Answer: A
Diff: 2
Topic: From Individual Demand to Market Demand
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

Figure 4.1

19) Refer to Figure 4.1 that shows Mary and Toms individual demand curves for meals per week at Fratellis Italian Restaurant. Assuming Mary and Tom are the only consumers in the market, what is the market quantity demanded at a price of $15?
A) 1
B) 2
C) 3
D) 9
Answer: C
Diff: 2
Topic: From Individual Demand to Market Demand, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

20) Refer to Figure 4.1 that shows Mary and Toms individual demand curves for meals per week at Fratellis Italian Restaurant. Assuming Mary and Tom are the only consumers in the market, what is the market quantity demanded at a price of $10?
A) 2
B) 4
C) 6
D) 8
Answer: C
Diff: 2
Topic: From Individual Demand to Market Demand, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.
21) Refer to Figure 4.1 that shows Mary and Toms individual demand curves for meals per week at Fratellis Italian Restaurant. Assuming Mary and Tom are the only consumers in the market, if the market quantity demanded is 6, the price must be:
A) $5.
B) $10.
C) $15.
D) $20.
Answer: B
Diff: 2
Topic: From Individual Demand to Market Demand, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

22) Refer to Figure 4.1 that shows Mary and Toms individual demand curves for meals per week at Fratellis Italian Restaurant. Assuming Mary and Tom are the only consumers in the market, if the market quantity demanded is 3 the price must be:
A) $5.
B) $10.
C) $15.
D) $20.
Answer: C
Diff: 2
Topic: From Individual Demand to Market Demand, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

23) Refer to Figure 4.1 that shows Mary and Toms individual demand curves for meals per week at Fratellis Italian Restaurant. Assuming Mary and Tom are the only consumers in the market, if the market quantity demanded is 9 the price must be:
A) $5.
B) $10.
C) $15.
D) $20.
Answer: A
Diff: 2
Topic: From Individual Demand to Market Demand, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.
Recall Application 1, Law of Demand and Cigarettes, to answer the following questions:

24) In the application, what was the reason why the government decreased the tax rates of cigarettes?
A) to discourage smuggling of cigarettes from the United States
B) to encourage smoking
C) to discourage smoking
D) to give in to consumer demands of lower taxes in the country
Answer: A
Diff: 1
Topic: Application 1, Law of Demand and Cigarettes
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

25) In the application, what was/were the reason(s) why a lower price of cigarettes will increase the quantity demanded for cigarettes?
A) Lower prices make current smokers smoke more cigarettes.
B) Lower prices encourage people to start smoking.
C) Lower prices encourage people to quit smoking.
D) A and B are both correct.
Answer: D
Diff: 2
Topic: Application 1, Law of Demand and Cigarettes
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

26) In the application, when the government lowered the price of cigarettes by lowering the tax rates, the response of the consumer was:
A) an increase in quantity demanded.
B) an increase in demand.
C) a decrease in demand.
D) a decrease in quantity demanded.
Answer: A
Diff: 2
Topic: Application 1, Law of Demand and Cigarettes
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

27) The model of supply and demand is the most important tool of economic analysis.
Answer: TRUE
Diff: 1
Topic: Supply and Demand
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
28) As the price of a product rises, the demand for the product falls.
Answer: FALSE
Diff: 1
Topic: The Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

29) The substitution effect of a price change implies that as the price of a good falls, people are likely to buy less of the good whose price has fallen.
Answer: FALSE
Diff: 2
Topic: The Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

30) On the demand side of a market, consumers indicate to producers what they are willing to buy, in what quantity, and at what price.
Answer: TRUE
Diff: 1
Topic: The Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

31) The market demand curve shows the relationship between the price and the quantity demanded by all consumers, everything else being equal.
Answer: TRUE
Diff: 2
Topic: From Individual Demand to Market Demand
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

32) Suppose that the price of apples decreases and the quantity of apples in the market decreases. Suggest two reasons why this might have happened.
Answer: The most likely explanation is that the demand for apples decreased. This could be due to the price of oranges falling, or perhaps due to concerns about the safety of apples (i.e., pesticide use).
Diff: 1
Topic: The Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
33) What is a change in quantity demanded? How is a change in quantity demanded illustrated in a demand diagram?
Answer: A change in quantity demanded refers to a change in the amount that consumers are willing to buy as a result of a change in the price. According to the law of demand, a higher price will decrease the quantity demanded while a lower price will decrease the quantity demanded.

In a demand diagram, the change in the quantity demanded is illustrated as a movement upward or downward along the same demand curve.
Diff: 2
Topic: The Demand Curve
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

34) What is the law of demand?
Answer: The law of demand states that there is a negative relationship between the price and the quantity demanded, ceteris paribus. According to the law of demand, a higher price will decrease the quantity demanded while a lower price will decrease the quantity demanded.
Diff: 2
Topic: The Demand Curve
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

35) What is the difference between an individual demand curve and a market demand curve?
Answer: An individual demand curve is a curve that shows the relationship between the price of a good and quantity demanded by an one consumer, ceteris paribus. A market demand curve is a curve showing the relationship between price and quantity demanded by all consumers, ceteris paribus.
Diff: 2
Topic: From Individual Demand to Market Demand
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

36) Between an individual demand curve and a market demand curve, which one has a steeper slope?
Answer: An individual demand curve is usually steeper, because for the same change in the price, the individual demand curve will change quantity demanded by a smaller amount.
Diff: 2
Topic: From Individual Demand to Market Demand
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
4.2 The Supply Curve

1) A supply curve is defined as the relationship between:
A) the price of a good and the quantity that consumers are willing to buy.
B) the price of a good and the quantity that producers are willing to sell.
C) the income of consumers and the quantity of a product that consumers are willing to buy.
D) the income of consumers and the quantity of a product that producers are willing to sell.
Answer: B
Diff: 1
Topic: The Supply Curve
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

2) A table that shows the price of a product and the quantity of that product that a seller is willing to sell is called the:
A) supply schedule.
B) supply curve.
C) demand schedule.
D) demand curve.
Answer: A
Diff: 1
Topic: The Supply Curve
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

3) The law of supply states that:
A) firms supply more of a product as consumer income rises.
B) firms supply more of a product as consumer income falls.
C) firms supply more of a product as the price of the product rises.
D) firms supply more of a product as the price of the product falls.
Answer: C
Diff: 1
Topic: The Supply Curve
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

4) If the law of supply holds, then the supply curve can never:
A) slope downwards.
B) be concave.
C) shift to the right.
D) shift to the left.
Answer: A
Diff: 2
Topic: The Supply Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
5) When a supply curve is drawn, which of the following is held constant?
A) the amount of taxes or subsidies that a firm pays or receives
B) the number of sellers in a market
C) prices of inputs
D) All of the above are held constant when constructing a supply curve.
Answer: D
Diff: 1
Topic: The Supply Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

6) When a supply curve is drawn, which of the following is not held constant?
A) taxes and subsidies
B) the state of production technology
C) prices of inputs
D) the price of the good
Answer: D
Diff: 1
Topic: The Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

7) A minimum supply price is defined as:
A) the lowest price at which a product is made available for sale.
B) the lowest price at which a product is bought.
C) the lowest cost to produce a good.
D) the lowest price at which other sellers also want to sell the good.
Answer: A
Diff: 2
Topic: The Supply Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

8) If a computer company will sell a laptop only if the price is $400 or higher, then $400 is known as:
A) the minimum supply price.
B) the input cost price.
C) the minimum production cost.
D) the minimum average cost.
Answer: A
Diff: 2
Topic: The Supply Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
9) The market supply curve for a particular good:
A) shows the relationship between the price of the good and the quantity that all producers together are willing to sell.
B) is drawn assuming that the other variables besides product price that affect supply are fixed.
C) is drawn assuming that the number of producers is fixed.
D) all of the above
Answer: D
Diff: 1
Topic: From Individual Supply to Market Supply
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

10) If at a price of $1000, 8 different laptop manufacturers are willing to sell 20 laptops each. If the 8 manufacturers are the only sellers of laptops in the market, then at a price of $1000, there are ________ laptops supplied in the market.
A) 160
B) 8
C) 20
D) 820
Answer: A
Diff: 1
Topic: From Individual Supply to Market Supply
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

11) At a price of $1000, Dell Computer Co. is willing to sell 20 laptops and Compaq is willing to sell 40 laptops. IBM will only sell laptops if the price is $1300 or higher. At $1000, the market supply for laptops is:
A) 60.
B) 800.
C) 20.
D) 40.
Answer: A
Diff: 1
Topic: From Individual Supply to Market Supply
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
12) At a price of $1000, Dell Computer Co. is willing to sell 20 laptops and Compaq is willing to sell 40 laptops. IBM will only sell laptops if the price is $1300 or higher. From the point of view of IBM, $1300 is the:
A) minimum supply price.
B) minimum cost.
C) the equilibrium price.
D) minimum loss price.
Answer: A
Diff: 1
Topic: From Individual Supply to Market Supply
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

13) The market supply curve is:
A) negatively sloped.
B) upward sloping.
C) always vertical
D) always horizontal.
Answer: B
Diff: 2
Topic: From Individual Supply to Market Supply
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

14) The market supply curve is:
A) downward sloping and is flatter than an individuals supply curve.
B) upward sloping and is flatter than an individuals supply curve.
C) downward sloping and is steeper than an individuals supply curve.
D) upward sloping and is steeper than an individuals supply curve.
Answer: B
Diff: 2
Topic: From Individual Supply to Market Supply
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

15) Why is the market supply curve positively sloped?
A) At a higher price, more firms enter the market willing to sell the product or service.
B) At a higher price, fewer firms enter the market willing to sell the product or service.
C) At a higher price, the firms already in the market and are willing to sell a larger quantity of the product or service.
D) Both A and C are correct.
Answer: D
Diff: 2
Topic: Why is the Market Supply Curve Positively Sloped?
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

16) Suppose that the price for fully electric vehicle made by Toyota increases. The quantity of fully electric cars sold in the market will:
A) increase, because Toyota would be willing to sell more fully electric vehicles.
B) decrease, because Toyota believes that to maintain the higher prices, it must sell a smaller quantity.
C) increase, because other auto manufacturers would want to enter the market and also sell fully electric vehicles.
D) Both A and C are correct.
Answer: D
Diff: 2
Topic: Why is the Market Supply Curve Positively Sloped?
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

Recall Application 2, Law of Supply and Woolympics, to answer the following questions:

17) According to the Application, which of the following is the most likely reason for the falling prices of wool worldwide?
A) lower demand for wool.
B) the Law of Supply.
C) higher demand for wool.
D) lower quantity supplied of wool.
Answer: A
Diff: 2
Topic: Application 2, Law of Supply and Woolympics
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

18) According to the Application, which of the following is the result of the falling prices of wool worldwide?
A) lower demand for wool.
B) higher demand for synthetic fibers.
C) higher demand for wool.
D) lower quantity supplied of wool.
Answer: D
Diff: 2
Topic: Application 2, Law of Supply and Woolympics
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

19) According to the Application, the policies proposed to help raise the price of wool focuses on:
A) lowering the demand for wool.
B) raising the supply for synthetic fibers.
C) raising the demand for wool.
D) raising the supply for wool.
Answer: D
Diff: 2
Topic: Application 2, Law of Supply and Woolympics
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

20) According to the Application, why might introducing sheep shearing not be an effective policy to raise wool prices?
A) Increased sheep shearing might decrease the demand for wool.
B) Increased sheep searing might increase the demand for wool substitutes.
C) Increased sheep shearing will definitely increase the demand for wool, causing the prices to drop.
D) Increased sheep shearing will definitely increase the supply of wool, causing the prices to drop.
Answer: D
Diff: 2
Topic: Application 2, Law of Supply and Woolympics
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

21) As the price of a product rises, the quantity supplied increases.
Answer: TRUE
Diff: 1
Topic: The Supply Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

22) On the supply side of a market, producers indicate to consumers what they are willing to sell, in what quantity, and at what price.
Answer: TRUE
Diff: 1
Topic: The Supply Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

4.3 Market Equilibrium: Bringing Demand and Supply Together

1) Suppose that the quantity supplied of pizza exceeds the quantity demanded for pizza. We would expect that:
A) the price of pizza will increase.
B) the price of pizza will decrease.
C) the supply will decrease to meet the demand.
D) the demand will increase to meet the supply.
Answer: B
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

2) If we observe that the price is rising in the sugar market, it could be due to:
A) an excess supply of sugar.
B) an excess demand for sugar.
C) an increase in the supply of sugar.
D) a decrease in the demand for sugar.
Answer: B
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

3) When consumers are willing to buy more than producers are willing to sell:
A) there is excess supply of the product in the market.
B) there is excess demand for the product in the market.
C) the market is in equilibrium.
D) the demand curve will shift until the quantity supplied equals the quantity demanded.
Answer: B
Diff: 1
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

4) What happens if the price of a product is below the equilibrium price?
A) The buyers will stop purchasing a cheap product.
B) The producer will lower the price to make more profit.
C) There will be an excess demand for the product.
D) none of the above
Answer: C
Diff: 1
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
5) Suppose that the current price in a market for Pizza is $9. At that price, the quantity demanded is 519 and the quantity supplied is 400. At the current price, the market is experiencing:
A) an excess demand of 119 pizzas.
B) an equilibrium.
C) an excess supply of $119.
D) an excess demand of 500 pizzas.
Answer: A
Diff: 1
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

6) Suppose that the current price in a market for Pizza is $9. At that price, the quantity demanded is 519 and the quantity supplied is 400. In this market, we would expect that:
A) the price of pizzas would increase.
B) the price of pizzas would decrease.
C) buyers would want to buy more pizza in the future.
D) sellers would want to sell fewer pizzas in the future.
Answer: A
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

7) Suppose that the quantity demanded for cars exceeds the quantity supplied of cars. We would expect that:
A) the price of cars will increase.
B) the price of cars will decrease.
C) the supply will increase to meet the demand.
D) the demand will decrease to meet the supply.
Answer: A
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Analytical
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

8) Suppose that the quantity supplied of cars exceeds the quantity of cars demanded. We would expect that:
A) the price of cars will increase.
B) the price of cars will decrease.
C) the supply will increase to meet the demand.
D) the demand will decrease to meet the supply.
Answer: B
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.
9) Suppose that a market for a product is in equilibrium at a price of $5 per unit. At any price above $5 per unit:
A) there will be an excess demand for the product.
B) there will be an excess supply of the product.
C) the quantity supplied of the product will be greater than the quantity demanded of that product.
D) both B and C.
Answer: D
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

10) Suppose that a market for a product is in equilibrium at a price of $5 per unit. At any price below $5 per unit:
A) there will be an excess demand for the product.
B) there will be an excess supply of the product.
C) the quantity supplied of the product will be greater than the quantity demanded of that product.
D) both B and C.
Answer: A
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

Figure 4.2

11) In Figure 4.2, which of the panels depicts a market in which there is an excess demand for a product?
A) Panel A
B) Panel B
C) Panel C
D) None of the panels depicts a market in which there is an excess demand for a product.
Answer: B
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.
12) In Figure 4.2, which of the panels depicts a market in which there is an excess supply of a product?
A) Panel A
B) Panel B
C) Panel C
D) None of the panels depicts a market in which there is an excess supply of a product.
Answer: C
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

13) Figure 4.2 depicts three market situations. Which of the panels depicts a market in which the price is likely to rise?
A) Panel A
B) Panel B
C) Panel C
D) None of the panels depicts a market in which the price is likely to rise.
Answer: B
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

14) Figure 4.2 depicts three market situations. Which of the panels depicts a market in which the price is likely to fall?
A) Panel A
B) Panel B
C) Panel C
D) None of the panels depicts a market in which the price is likely to fall.
Answer: C
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

Figure 4.3

15) Figure 4.3 illustrates the supply and demand for blue jeans. If the actual price of blue jeans is $30, there is:
A) excess demand of 40 pairs of blue jeans.
B) excess supply of 40 pairs of blue jeans.
C) excess demand of 50 pairs of blue jeans.
D) excess supply of 50 pairs of blue jeans.
Answer: A
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

16) Figure 4.3 illustrates the supply and demand for blue jeans. If the actual price of blue jeans is $50, there is:
A) excess demand of 40 pairs of blue jeans.
B) excess supply of 40 pairs of blue jeans.
C) excess demand of 50 pairs of blue jeans.
D) excess supply of 50 pairs of blue jeans.
Answer: D
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

17) Figure 4.3 illustrates the supply and demand for blue jeans. If the actual price of blue jeans is $30, we would expect the price of blue jeans to ________, the quantity demanded of blue jeans to ________, and the quantity supplied of blue jeans ________.
A) increase; increase; increase
B) increase; decrease; increase
C) decrease; increase; decrease
D) decrease; decrease; increase
Answer: B
Diff: 3
Topic: Market Equilibrium: Bringing Demand and Supply Together, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

18) Figure 4.3 illustrates the supply and demand for blue jeans. If the actual price of blue jeans is $50, we would expect the price of blue jeans to ________, the quantity demanded of blue jeans to ________, and the quantity supplied of blue jeans to ________.
A) increase; increase; increase
B) increase; decrease; increase
C) decrease; increase; decrease
D) decrease; decrease; increase
Answer: C
Diff: 3
Topic: Market Equilibrium: Bringing Demand and Supply Together, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

19) Figure 4.3 illustrates the supply and demand for blue jeans. If the actual price of blue jeans is $30, we would expect that:
A) demand will decrease until quantity demanded equals quantity supplied.
B) supply will increase until quantity demanded equals quantity supplied.
C) price will increase until quantity demanded equals quantity supplied.
D) there will be no change since the market is in equilibrium.
Answer: C
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.
20) Figure 4.3 illustrates the supply and demand for blue jeans. If the actual price of blue jeans is $50, we would expect that:
A) demand will increase until quantity demanded equals quantity supplied.
B) supply will decrease until quantity demanded equals quantity supplied.
C) price will decrease until quantity demanded equals quantity supplied.
D) no change will occur since the market is in equilibrium.
Answer: C
Diff: 2
Topic: Market Equilibrium: Bringing Demand and Supply Together, graph
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

21) A government sometimes creates an excess supply of a product by setting a minimum price at which the product may be sold to consumers. This is sometimes called a:
A) price ceiling.
B) price floor.
C) tax.
D) none of the above
Answer: B
Diff: 1
Topic: Excess Supply Causes the Price to Drop
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: List ways in which governments intervene in markets and explain the consequences of such intervention

22) Rent control is an example of the government imposing:
A) a price ceiling.
B) an equilibrium price.
C) a price floor.
D) a minimum supply price.
Answer: A
Diff: 1
Topic: Excess Demand Causes the Price to Rise
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: List ways in which governments intervene in markets and explain the consequences of such intervention

23) If the government imposes a price ceiling that is above the equilibrium price, then the market will experience:
A) an equilibrium.
B) a shortage.
C) an excess supply.
D) no scarcity.
Answer: A
Diff: 1
Topic: Excess Demand Causes the Price to Rise
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: List ways in which governments intervene in markets and explain the consequences of such intervention
24) If the government imposes a price ceiling that is below the equilibrium price, then the market will experience:
A) an equilibrium.
B) a shortage.
C) an excess supply.
D) no scarcity.
Answer: B
Diff: 3
Topic: Excess Demand Causes the Price to Rise
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: List ways in which governments intervene in markets and explain the consequences of such intervention

25) If the government imposes a price floor that is below the equilibrium price, then the market will experience:
A) an equilibrium.
B) a shortage.
C) an excess supply.
D) no scarcity.
Answer: A
Diff: 3
Topic: Excess Supply Causes the Price to Drop
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: List ways in which governments intervene in markets and explain the consequences of such intervention

26) If the government imposes a price floor that is above the equilibrium price, then the market will experience:
A) an equilibrium.
B) a shortage.
C) an excess supply.
D) an increase in demand.
Answer: C
Diff: 2
Topic: Excess Supply Causes the Price to Drop
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: List ways in which governments intervene in markets and explain the consequences of such intervention
27) Suppose that the equilibrium rent for apartments in San Francisco is $1200 per month. If the City of San Francisco legislates that apartment owners cannot charge rent higher than $1000, then the apartment market in San Francisco will experience:
A) an equilibrium.
B) a shortage.
C) an excess supply.
D) an increase in supply.
Answer: B
Diff: 2
Topic: Excess Demand Causes the Price to Rise
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: List ways in which governments intervene in markets and explain the consequences of such intervention

28) Suppose that the equilibrium rent for apartments in San Francisco is $1200 per month. If the City of San Francisco legislates that apartment owners cannot charge rent higher than $1900, then the apartment market in San Francisco will experience:
A) an equilibrium.
B) a shortage.
C) an excess supply.
D) an increase in supply.
Answer: A
Diff: 2
Topic: Excess Demand Causes the Price to Rise
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: List ways in which governments intervene in markets and explain the consequences of such intervention

Recall Application 3, Shrinking Wine Lakes, to answer the following questions:

29) From the Application, we can infer that the presence of wine lakes indicate that the market is experiencing:
A) an equilibrium.
B) a shortage.
C) a surplus.
D) All of the above are correct.
Answer: C
Diff: 2
Topic: Application 3, Shrinking Wine Lakes
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.
30) From the Application, we can infer that if the government stops intervening in the market, then the:
A) prices will drop.
B) prices will rise.
C) the supply will decrease.
D) the demand will increase.
Answer: A
Diff: 2
Topic: Application 3, Shrinking Wine Lakes
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

31) From the Application, we can infer that the wine lakes will grow faster if:
A) the government set minimum prices further above the equilibrium.
B) the government set maximum prices further below the equilibrium.
C) the government set maximum prices further above the equilibrium.
D) the government set minimum prices further below the equilibrium.
Answer: A
Diff: 2
Topic: Application 3, Shrinking Wine Lakes
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

32) From the Application, we can infer that the wine lakes will disappear if:
A) the government set the price at the equilibrium.
B) the government set minimum prices below the equilibrium.
C) the government set maximum prices above the equilibrium.
D) All of the above are correct.
Answer: D
Diff: 3
Topic: Application 3, Shrinking Wine Lakes
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.

33) From the Application, we can infer that the wine lakes will disappear if:
A) the government set the minimum price below the equilibrium.
B) the government set minimum prices above the equilibrium.
C) the government takes over the production of wine.
D) All of the above are correct.
Answer: A
Diff: 3
Topic: Application 3, Shrinking Wine Lakes
Skill: Analytical
AACSB: Analytic Skills
Learning Outcome: Explain how supply and demand function in competitive markets.
34) Minimum wage laws are examples of:
A) price ceilings.
B) equilibrium prices.
C) price floors.
D) minimum supply prices.
Answer: C
Diff: 1
Topic: Excess Supply Causes the Price to Drop
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: List ways in which governments intervene in markets and explain the consequences of such intervention

35) Excess supply in an unregulated market will cause the price of a product to fall.
Answer: TRUE
Diff: 1
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

36) Excess demand in an unregulated market will cause the price of a product to fall.
Answer: FALSE
Diff: 1
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

37) If a market is in equilibrium, there is not any pressure to change the price upward or downward. Is this a true or false assumption?
Answer: TRUE
Diff: 1
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

38) Governments occasionally get involved in creating a market equilibrium by setting a maximum price that is less than the equilibrium price, resulting in a permanent excess demand for the products.
Answer: TRUE
Diff: 1
Topic: Excess Demand Causes the Price to Rise
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: List ways in which governments intervene in markets and explain the consequences of such intervention
39) ________ occurs in a market when consumers are willing to buy more than producers are willing to sell, or can supply
Answer: Excess demand
Diff: 1
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

40) When the quantity of a product demanded by buyers equals the quantity supplied, it is called ________.
Answer: market equilibrium
Diff: 1
Topic: Market Equilibrium: Bringing Demand and Supply Together
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

41) If a government creates an excess demand for a product by setting a maximum price, it is sometimes called a ________.
Answer: price ceiling
Diff: 1
Topic: Excess Demand Causes the Price to Rise
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

42) A surplus occurs when producers are willing to sell more than consumers are willing to buy. This is called an ________.
Answer: excess supply
Diff: 1
Topic: Excess Supply Causes the Price to Drop
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

43) A permanent excess supply of a product is possible when the government sets a minimum price that is ________ than the equilibrium price.
Answer: greater
Diff: 1
Topic: Excess Supply Causes the Price to Drop
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: List ways in which governments intervene in markets and explain the consequences of such intervention
44) Explain how an excess supply would lead to a decrease in prices in an unregulated market.
Answer: With an excess supply, the quantity available for sale exceeds the amount that buyers are willing to buy at that price. If sellers are anxious to sell the product, then they know that they have to lower prices in order to entice more individuals to buy that product. If they do not lower the price, the excess supply would persist.
Diff: 1
Topic: Excess Supply Causes the Price to Drop
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

45) Explain how an excess demand would lead to an increase in prices in an unregulated market.
Answer: With an excess demand, the quantity available for sale is less the amount that buyers are willing to buy at that price. If buyers are anxious to buy the few goods available for sale, then they know that they have to bid up the prices. If they do not bid up the price, the excess demand would persist.
Diff: 1
Topic: Excess Demand Causes the Price to Rise
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

4.4 Market Effects of Changes in Demand

1) Judy demands more peanuts as her income increases. From this, we can conclude that, for Judy:
A) peanuts are a normal good.
B) peanuts are an inferior good.
C) peanuts are a complementary good.
D) peanuts are a substitute good.
Answer: A
Diff: 1
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

2) When Marys income increases, she purchases fewer hamburgers. We can conclude that for Mary, hamburger is a(n) ________ good.
A) normal
B) inferior
C) substitute
D) complementary
Answer: B
Diff: 1
Topic: Decreases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

3) When Toms income decreases, he purchases more hamburgers. We can conclude that for Tom, hamburger is a(n) ________ good.
A) substitute
B) complementary
C) normal
D) inferior
Answer: D
Diff: 1
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

4) Becky demands more raisins as her income increases. From this, we can conclude that, for Becky:
A) raisins are an inferior good.
B) raisins are a complementary good.
C) raisins are a normal good.
D) raisins are a substitute good.
Answer: C
Diff: 1
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

5) A normal good is defined as a good for which demand decreases when:
A) the price increases.
B) income increases.
C) the price decreases.
D) income decreases.
Answer: D
Diff: 1
Topic: Decreases in Demand Shift the Demand Curve
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

6) Two goods are substitutes if:
A) the supply of one good decreases when the price of the other increases.
B) the supply of one good decreases when the price of the other decreases.
C) the demand for one good decreases when the price of the other increases.
D) the demand for one good decreases when the price of the other decreases.
Answer: D
Diff: 2
Topic: Decreases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
7) The effect of income on the demand for normal goods is such that:
A) as the price of a normal good falls, people are likely to buy less of the good.
B) as the price of a good falls, people are likely to buy more of all normal goods.
C) as the price of a good falls, people are likely to buy less of all normal goods.
D) both A and C.
Answer: B
Diff: 1
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

8) If an increase in income results in a decrease in the demand for Honda Civics, then Honda Civics are considered:
A) normal goods.
B) inferior goods.
C) substitute goods.
D) complementary goods.
Answer: B
Diff: 1
Topic: Decreases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

9) If an increase in income results in an increase in the demand for Honda Civics, then Honda Civics are considered:
A) normal goods.
B) inferior goods.
C) substitute goods.
D) complementary goods.
Answer: A
Diff: 1
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

10) If incomes increase and Honda Civics are considered normal goods, then:
A) the demand for Honda Civics will increase.
B) the quantity demanded for Honda Civics will increase.
C) the demand for Honda Civics will decrease.
D) the quantity demanded for Honda Civics will decrease.
Answer: A
Diff: 1
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
11) Relative to hotdogs, hotdog buns are considered:
A) complements.
B) substitutes.
C) inputs.
D) luxury goods.
Answer: A
Diff: 1
Topic: Market Effects of Changes in Demand
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

12) Which of the following are most likely to be considered substitutes to pizzas?
A) hamburgers
B) cheese
C) pepperoni
D) soda
Answer: A
Diff: 1
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

13) Which of the following is the least likely complement for hamburgers?
A) beef
B) cheese
C) hamburger buns
D) soda
Answer: A
Diff: 1
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

14) Which of the following is the most likely complement for hamburgers?
A) soda
B) beef
C) hamburger buns
D) All of the above are complements.
Answer: A
Diff: 1
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
15) If incomes increase and Honda Civics are considered inferior goods, then:
A) the demand for Honda Civics will increase.
B) the quantity demanded for Honda Civics will increase.
C) the demand for Honda Civics will decrease.
D) the quantity demanded for Honda Civics will decrease.
Answer: C
Diff: 1
Topic: Decreases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

16) As consumers prefer smaller and more fuel-efficient cars, the:
A) demand for SUVs will decrease.
B) quantity demanded for SUVs will rise.
C) demand for SUVs will increase.
D) quantity demanded for SUVs will fall.
Answer: A
Diff: 1
Topic: Decreases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

17) Assume that butter and margarine are substitutes. When the price of butter increases:
A) the demand for margarine increases.
B) the demand for margarine decreases.
C) the supply of margarine increases.
D) the supply of margarine decreases.
Answer: A
Diff: 2
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

18) When the price of apples goes up:
A) the demand for apples will decrease.
B) the demand for apples will increase.
C) the quantity demanded for apples will decrease.
D) the quantity demanded for apples will increase.
Answer: C
Diff: 1
Topic: Change in Quantity Demand versus Change in Demand
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
19) Assume that chicken and beef are substitutes. When the price of beef increases:
A) the demand for chicken decreases.
B) the demand for chicken increases.
C) the supply of chicken increases.
D) the supply of chicken decreases.
Answer: B
Diff: 1
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

20) When the price of peanuts falls:
A) the demand for peanuts decreases.
B) the demand for peanuts increases.
C) the quantity demanded of peanuts decreases.
D) the quantity demanded of peanuts increases.
Answer: D
Diff: 1
Topic: Change in Quantity Demand versus Change in Demand
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

21) Assume that compact discs and compact disc players are complements. When the price of compact disc players decreases:
A) the demand for compact discs increases.
B) the demand for compact discs decreases.
C) the supply of compact discs increases.
D) the supply of compact discs decreases.
Answer: A
Diff: 1
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

22) Suppose that a product benefits from a successful advertising campaign. The result is that:
A) the demand for the product increases.
B) the demand for the product decreases.
C) the supply of the product increases.
D) the supply of the product decreases.
Answer: A
Diff: 3
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.
23) Suppose that consumers expect that the price of a product will increase in the future. The result is that:
A) the current demand for the product increases.
B) the current demand for the product decreases.
C) the current supply of the product increases.
D) the current supply of the product decreases.
Answer: A
Diff: 2
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

24) Two goods are complements if:
A) the supply of one good decreases when the price of the other increases.
B) the supply of one good decreases when the price of the other decreases.
C) the demand for one good decreases when the price of the other increases.
D) the demand for one good decreases when the price of the other decreases.
Answer: C
Diff: 1
Topic: Decreases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

25) Suppose you have 2 goods, X and Y. If the price of X increases and you buy more Y, then X and Y are:
A) substitutes.
B) normal goods.
C) complements.
D) inferior goods.
Answer: A
Diff: 2
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

26) Suppose you have 2 goods, X and Y. If the price of X decreases and you buy more Y, then X and Y are:
A) substitutes.
B) normal goods.
C) complements.
D) inferior goods.
Answer: C
Diff: 2
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

27) Suppose that consumption of oat bran is found to reduce cholesterol and improve health. The result is that:
A) the demand for oat bran decreases.
B) the demand for oat bran increases.
C) the supply of oat bran increases.
D) Both A and C are correct.
Answer: B
Diff: 1
Topic: Increases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

28) Suppose that consumers expect the price of a product to decrease in the future. The result is that:
A) the current demand for the product increases.
B) the current demand for the product decreases.
C) the current supply of the product increases.
D) the current supply of the product decreases.
Answer: B
Diff: 1
Topic: Decreases in Demand Shift the Demand Curve
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Explain how supply and demand function in competitive markets.

Figure 4.4

29) Figure 4.4 illustrates the demand for guitars. An increase in the demand for guitars is represented by the movement from:
A) point B to point C.
B) point B to point A.
C) D1 to D0.
D) D1 to D2.
Answer: D
Diff: 1
Topic: Change in Quantity Demand versus Change in Demand, graph
Skill: Con

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