Essentials of Economics Bradley Schiller 11th Edition- Test Bank

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Sample Test

Chapter 03 Test Bank KEY

1. The goals of the principal participants in the economy are to maximize

1. income for consumers, profits for business, and taxes for government.

2. goods and services for consumers, scarce resources for businesses, and money for government.

3. happiness for consumers, profits for businesses, and general welfare for government.

4. goods and services for consumers, scarce resources for businesses, and general welfare for government.

Consumers strive to maximize their own happiness, businesses try to maximize profits, government agencies attempt to maximize social welfare.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Participants

2. For consumers, most market activity can be explained by the goal of

1. charitable responsibility.

2. maximizing income.

3. profit maximization.

4. maximizing happiness.

Consumers strive to achieve happiness.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Participants

3. Which of the following is a goal of businesses?

1. to maximize happiness

2. to maximize profits given resource constraints

3. to produce the greatest quantity of goods

4. to maximize general welfare

Businesses try to maximize profits.

4. For government, most market activity can be explained by the goal of

1. public welfare maximization.

2. social responsibility.

3. utility maximization.

4. charitable responsibility.

Government agencies attempt to maximize social welfare.

5. Which of the following is a constraint that motivates economic interactions?

1. the outsourcing of jobs

2. the limited resources that individuals have

3. the limited profit margin for individuals

4. the inability of individuals to take on risk

An element common to all participants is limited resources.

6. Economic interactions with others are necessary because

1. resources are limited.

2. people are lazy.

3. advertising makes us want additional goods and services.

4. some people are rich and others are poor.

Because of inability as individuals to produce all the things we desire, interaction with others is necessary.

7. A market

1. is any place (physical or digital) where goods are bought and sold.

2. must have a physical location so buyers and sellers can meet.

3. does not exist for the exchange of illegal goods and services.

4. must be approved by the government before it can exist.

A market exists anywhere goods are bought and sold.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Participants

8. A market exists for the sale and purchase of

1. computer services, but not nuclear warheads.

2. nuclear warheads, but not illegal drugs.

3. illegal drugs, but not medical services.

4. illegal drugs, computer services, and nuclear warheads.

A market is not defined by the type of goods bought and sold. A market exists when any goods are bought and sold.

9. People benefit by participating in the market because

1. resources are no longer limited.

2. it facilitates specialization, increased production, and increased consumption.

3. buyers and sellers have the same goals.

4. participants in the market do not have to make choices.

Specialization is necessary due to inability to produce all things desired and the limited amount of time to produce all desired goods.

10. Market participants include

1. business firms and consumers, but not foreigners.

2. consumers only.

3. consumers, business firms, governments, and foreigners.

4. foreigners, but not business firms.

Market participants includes consumers, business firms, governments, and foreigners.

11. Which of the following is not a factor of production?

1. land

2. wages

3. labor

4. capital

Wages are not considered a factor of production because they are not a resource used to produce a good or service. Instead, they are a payment to a factor of production (labor) in exchange for labor provided.

12. Any place where factors of production are exchanged is a

1. private-goods market.

2. stock market.

3. product market.

4. factor market.

Market participants buy or sell land, labor-hours, or capital that can be used in the production process.

13. Consumers act as _______ factors of production in the _______ market.

1. sellers; product

2. sellers; factor

3. buyers; product

4. buyers; factor

We assume that households (consumers) own the factors of production and provide these to firms in factor markets.

14. Producers _______ factors of production in the _______ market.

1. Buy; factor

2. Sell; stock

3. Buy; stock

4. Sell; product

Producers buy factors, such as labor, in the factor market.

15. A market in which finished goods and services are exchanged is a

1. financial market.

2. intermediate-goods market.

3. factor market.

4. product market.

The exchange of final goods and services occurs in the product market.

16. Which of the following participates in the product market?

1. consumers only.

2. consumers, governments, and foreigners.

3. governments and consumers only.

4. foreigners only.

Consumers, government, and foreigners are three of the four groups that participate in the market. Firms can also participate if they buy goods and services from another firm.

17. In the U.S. economy, foreigners participate in

1. the factor market only.

2. the product market only.

3. both the product and factor markets.

4. Foreigners do not participate in the U.S. economy.

Foreigners participate in the product and factor market through imports and exports. Their purchases can either be of final goods and services (in the product market) or of the factors of production (in the factor market).

18. The direct exchange of one good for another, without the use of money as a medium of exchange, is known as

1. welfare.

2. barter.

3. imports.

4. demand.

The two-way of exchange of one good for another is known as barter.

19. Consumers provide money as an inflow to which of the following markets?

1. product markets

2. factor markets

3. foreign direct investment markets

4. both product markets and factor markets

Consumers provide dollars to the product market each time they purchase a final good or service. Consumers receive money from factor markets. Foreign direct investment markets are not described by a simple circular flow model.

20. Producers

1. provide dollars to the product market.

2. purchase factors of production from the factor market.

3. do not participate in the factor market.

4. provide factors of production to the product market.

Producers purchase factors such as land, labor, and capital goods from the factor market.

21. In order to demand a good, the buyer must

1. want the good very much.

2. be both willing and able to pay for it.

3. think that the good has significant utility.

4. be aware of the opportunity costs.

A demand exists only if someone is both willing and able to pay for the goods.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Demand

22. Which of the following situations is sufficient to represent current demand for a car?

1. You have plenty of money to buy it, but you can’t decide if you want a motorcycle or a car.

2. You have enough money to buy it and you are willing to spend the money on the car.

3. You’ve decided you want a car and you can possibly borrow the money from a bank.

4. You want to buy a motorcycle and a car and you’ll have enough money for both in two years.

Demand exists only if someone is willing and currently able to pay for the goods.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Demand

23. A demand schedule refers to the combinations of price and quantity that represent the

1. concerns of regulators

2. preferences of businesses

3. desires of consumers

4. demands of producers

A demand schedule shows quantities of a good a consumer is willing and able to buy at alternative prices in a given time.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Demand

24. Ceteris paribus, a change in which of the following would be LEAST likely to cause a shift in the demand curve for jackets?

1. income

2. taste

3. the price of jackets

4. the price of sweaters

A change in the price to own—or the price of the good or service in question—is reflected by movement along the demand curve. The remaining options would all likely change the quantity demanded at all prices and be reflected by a shift in the entire demand curve.

25. According to the law of demand, a demand curve

1. is upward-sloping.

2. is downward-sloping.

3. is a horizontal, or flat, line.

4. can slope either upward or downward based on consumer behavior.

As price falls, people tend to purchase more, ceteris paribus.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Demand

26. The quantity of a good demanded in a given time period increases as the price falls, ceteris paribus. This is known as

1. Say’s Law.

2. the law of ceteris paribus.

3. the law of demand.

4. the opportunity-cost law.

The Law of Demand shows an inverse relationship. As price falls, quantity demanded will rise, ceteris paribus.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Demand

27. Ceteris paribus, the law of demand says that

1. price and quantity demanded are inversely related.

2. price is constant along a particular demand curve.

3. the demand curve will shift rightward as price increases.

4. businesses will produce more as price increases.

The law of demand shows an inverse relationship. As price falls, quantity demanded will rise, ceteris paribus.

28. According to the law of demand, a change in _______ causes a movement along the demand curve.

1. buyers’ expectations

2. the number of buyers

3. the price of the good

4. the price of other related goods

If price of a good decreases, quantity demanded will rise, causing movement along the demand curve.

29. Ceteris paribus, the quantity demanded of a good will decrease in response to

1. higher income.

2. a higher price for the good.

3. a rightward shift of the supply curve.

4. a lower price for the good.

Because of the inverse relationship of demand, quantity demanded of a good will decrease in response to higher prices.

30. Ceteris paribus, according to the law of demand, if the price of a computer game increases from $25 to $30, the

1. quantity demanded will not be affected.

2. demand curve for computer games will shift to the left.

3. quantity demanded of computer games will increase.

4. quantity demanded of computer games will decrease.

An increase in price will cause a decrease in quantity demanded.

31. Which of the following will NOT cause a shift in the demand curve for a good?

1. income

2. taste

3. the price of the good itself

4. the prices of other related goods

A change in the price of good itself leads to a movement along the original demand curve.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-04 Illustrate how and why demand and supply curves sometimes shift.
Topic: Demand

32. Which of the following is not a determinant of demand?

1. income

2. available technology

3. the price of other goods

4. expectations of income

The determinants of demand are: tastes, income, other goods, expectations, and number of buyers. Technology is a determinant of supply.

33. Which of the following will NOT shift the demand curve for natural gas?

1. a change in consumer income

2. a change in consumer expectations

3. a change in the weather and heating requirements

4. a change in the technology used to produce natural gas

Change in technology is not a determinate of demand; therefore, technological changes will not shift demand. Technological change in production would result in a shift of the supply curve.

34. Ceteris paribus, which of the following will cause the demand for peanut butter to decrease?

1. The factories that produce peanut butter close down for safety reasons.

2. The workers who pick peanuts, the main ingredient in peanut butter, demand a higher wage.

3. Many people learn that they are allergic to peanut butter.

4. It is reported that peanut butter prevents heart attacks.

If people learn that they are allergic to peanut butter, they will stop buying it. This is considered a change in “taste” which is a determinant of demand.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-04 Illustrate how and why demand and supply curves sometimes shift.
Topic: Demand

35. Ceteris paribus, which of the following will cause the demand curve for basketballs to shift to the left?

1. The cost of producing basketballs increases.

2. Consumer incomes increase.

3. Parents decide soccer is a better sport for their children than basketball.

4. People become more interested in basketball as more football players are arrested for drugs.

The shift in tastes from basketball to soccer creates a decrease in demand for basketballs.

36. Ceteris paribus, the demand curve for a good will shift to the right in response to

1. a decrease in income

2. an increase in the costs of production

3. an increase in tastes or preferences for the good

4. a higher price for the good

Tastes and/or preference of a good is a determinant of demand. If the change in taste is favorable, it will cause the demand curve to shift to the right.

37. Ceteris paribus, which of the following will cause the demand for pizza to increase in a college town?

1. a new pizza restaurant opens near campus

2. a decrease in the costs associated with pizza production

3. a decrease in the price of tacos

4. an increase in the number of students who eat pizza

Number of buyers is a determinant of demand. An increase in the number of buyers leads to an increase in demand.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Demand

38. Ceteris paribus means

1. holding everything else constant.

2. allowing the free market to decide, not government.

3. changing prices to see how demand (or supply) shifts.

4. allowing the government to decide, not the market.

Ceteris paribus is the assumption of nothing else changing in order to isolate the effects one variable has on another.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Demand

39. Economists make a distinction between changes in quantity demanded and changes in demand

1. because the supply curve shifts whenever there is a change in demand.

2. because the demand curve shifts whenever there is a change in quantity demanded.

3. to distinguish a movement along a demand curve from a shift of the demand curve.

4. to distinguish a surplus from a shortage.

Quantity demanded changes are reflected by a movement along the demand curve. A shift of demand occurs when there is a change in a determinant of demand outside of the price to own the good or service.

40. A change in demand means there has been a shift in the demand curve, and a change in the quantity demanded

1. corresponds to a movement along the demand curve.

2. means a shortage or surplus will result from holding prices constant.

3. results from a change in the price of other related goods.

4. also means demand has shifted.

A change in quantity demanded is demonstrated by movement along the original demand curve caused by a change in price.

41. The market demand for a particular good indicates

1. that consumers will purchase more of the good at higher prices, ceteris paribus.

2. that sellers will offer more of the good only at higher prices, ceteris paribus.

3. the total quantities buyers are willing and able to purchase at alternative prices, ceteris paribus.

4. how much of the good is actually purchased in a given period of time.

Market demand is determined by the number of potential buyers and their respective tastes, incomes, other goods, and expectations.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Demand

42. The market supply of a particular good

1. is the sum of the quantities of the good that all producers are willing and able to sell at a particular price.

2. indicates that sellers will produce more of the good at lower prices, ceteris paribus.

3. indicates that consumers will purchase more of the good at higher prices, ceteris paribus.

4. measures the quantity of goods that producers actually sell.

The market supply of a good reflects the collective behavior of all firms that are willing and able to sell that good at various prices.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

43. Which of the following would not cause the market supply of cell phones to change?

1. Telecommunications are deregulated, and anyone can produce and sell cell phones.

2. A cheaper technology for producing cell phones is developed.

3. A reduction in the desire for cell phones causes the price to fall.

4. Taxes levied on cell phone production are reduced.

Demand for a product is not a determinant of supply.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Evaluate
Difficulty: 3 Hard
Learning Objective: 03-04 Illustrate how and why demand and supply curves sometimes shift.
Topic: Supply

44. Which of the following is a determinant of supply?

1. consumer tastes or preferences

2. consumer income

3. prices of the factors of production

4. number of buyers

The determinants of market supply include: technology, factor costs, other goods, taxes and subsidies, expectations, and number of sellers.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04 Illustrate how and why demand and supply curves sometimes shift.
Topic: Supply

45. The quantity of a good that suppliers are willing and able to supply at a given price in a given time period depends on

1. income.

2. consumers’ expectation of future prices and costs.

3. the costs of producing the good.

4. the consumer demand for the good.

Factor costs are a determinant of supply.

46. Which of the following provides the best example of the law of supply?

1. Falling labor costs cause an increase in supply.

2. Improved technology shifts the supply curve to the right.

3. Some producers leave the industry, and the supply curve shifts to the left.

4. An increase in price entices suppliers to produce more.

According to the law of supply, producers will sell more at higher prices, ceteris paribus.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

47. Ceteris paribus, according to the law of supply, if the price of product Z increases from $6 to $8, then the

1. quantity supplied will not be affected.

2. supply curve for Z will shift to the right.

3. quantity supplied of Z will increase.

4. quantity supplied of Z will decrease.

Producers are willing to supply more at higher prices. This is not a shift due to the fact that the price to own is changing and so this represents a movement along the supply curve as the quantity supplied of Z increases along with price.

48. Ceteris paribus, according to the law of supply, if the price of lawn mowing services decreases from $50 per lawn to $45 per lawn, then the

1. quantity supplied of lawn mowing will decrease.

2. supply curve for lawn mowing will shift to the right.

3. quantity supplied of lawn mowing will increase.

4. quantity supplied of lawn mowing will stay the same.

Suppliers are not as willing to supply products at lower prices. This is not a shift due to the fact that price to own is changing and so this represents a movement along the supply curve as the quantity supplied of Z decreases along with price.

49. A movement along the supply curve is the same as a

1. shift in the supply curve.

2. change in the quantity supplied.

3. change in supply.

4. change in the number of producers.

Change in quantity supplied is reflected in movement along a given supply curve.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

50. Ceteris paribus, which of the following will cause a rightward shift of the supply curve for plasma TVs?

1. an increase in the cost of materials associated with the production of plasma TV’s

2. a decrease in the quantity of labor available to produce plasma TV’s

3. a subsidy paid to the producers of plasma TV’s

4. a decrease in the price of plasma TV’s

If suppliers are given a subsidy, they will be willing and able to produce more plasma TV’s at any price for plasma TV’s.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

51. An increase in the supply of frozen yogurt will take place when

1. the price of frozen yogurt decreases.

2. the cost of producing frozen yogurt decreases.

3. the taxes on frozen yogurt increase.

4. consumer incomes increase.

A change in a factor cost, in this case, will cause an increase in supply.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

52. Which of the following events would cause a rightward shift in the supply curve for automobiles?

1. an improvement in the technology used to produce automobiles

2. an increase in the cost of labor for automobile producers

3. an increase in taxes for automobile producers

4. a decrease in the number of sellers

An improvement is technology is a determinant of supply which would cause a rightward shift of the supply curve.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

53. Ceteris paribus, which of the following will cause the supply of milk shakes to increase?

1. Consumer incomes increase.

2. A new diet craze suggests that people can consume milk shakes and lose weight.

3. The cost of milk, a key ingredient, decreases.

4. The wages paid to those who work on dairy farms increases.

The cost of milk is a factor cost in milkshakes. A change in a determinate will cause a shift in the supply curve.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

54. Ceteris paribus, which of the following will cause the supply of paper to decrease?

1. The price of lumber, an ingredient in paper production, increases.

2. The federal government decides to subsidize the production of paper.

3. People rely more on electronic books and less on printed materials.

4. The technology used to produce paper improves.

If a determinant of supply changes, in this case the cost of lumber, the supply curve will shift.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

55. Which of the following will cause a leftward shift of the supply curve for houses?

1. a decrease in consumer incomes

2. an improvement in the technology used to build houses

3. consumer expectations that the price of houses will increase next year

4. an increase in the cost of construction materials

A shift to the left of a supply curve means supply has decreased. This would be caused by a decrease in home construction (quantity supplied) due to an increase in the cost of materials. Factor costs are a determinant of supply.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

56. Which of the following will cause a leftward shift of the supply curve for electricity?

1. a decrease in the costs associated with the production of electricity

2. a decrease in consumer incomes

3. an increase in the taxes on electricity production

4. an increase in the price of electricity

In this case, it will cost a supplier more to produce a given amount at any price the firm could charge in the market as a result of the new taxes on supply. Taxes are a determinant of supply.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

57. A market is said to be in equilibrium when

1. demand is fully satisfied at all alternative prices.

2. the buying intentions of all consumers are realized.

3. the supply intentions of all sellers are realized.

4. the quantity demanded equals the quantity supplied.

The equilibrium is the intersection of supply and demand curves. At this point, price is at the unique level wherein consumers’ willingness and ability to buy goods and services exactly matches the willingness and ability of suppliers to produce.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03 Depict how and why a market equilibrium is found.
Topic: Equilibrium

58. In a market, the equilibrium price is determined by

1. only what buyers are willing and able to purchase.

2. only what sellers are willing and able to offer for sale.

3. the interaction of both demand and supply.

4. the government.

Only one price and quantity are compatible with the existing intentions of both buyers and sellers.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03 Depict how and why a market equilibrium is found.
Topic: Equilibrium

59. The equilibrium price and quantity are determined by the

1. market mechanism.

2. magical hand.

3. invisible mind.

4. government.

The equilibrium price is not set by any one individual but is determined by the collective behavior of many buyers and sellers. This is the market mechanism.

60. A market shortage occurs when

1. the quantity demanded is less than the quantity supplied at a given price.

2. the market price is below equilibrium.

3. sellers produce a lot of the product and consumers like it a lot.

4. a new product is introduced at the equilibrium price.

A market shortage is an excess of quantity demanded over quantity supplied.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05 Explain how market shortages and surpluses occur.
Topic: Equilibrium

61. When there is a shortage in a market, prices are likely to

1. fall because buyers do not wish to buy as much as sellers want to sell.

2. rise because some buyers will offer to pay a higher price.

3. fall because sellers are likely to reduce their production if prices rise.

4. rise because the government will put a price ceiling in place.

Since not all consumers will be able to be satisfied, some consumers will offer higher prices in order to gain access to the product.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-05 Explain how market shortages and surpluses occur.
Topic: Equilibrium

62. If a market shortage exists

1. the invisible hand will work to reduce the price.

2. the only solution is for the government to raise the price.

3. producers will compete for customers by reducing prices.

4. consumers will compete for the product by offering to pay more.

Since not all consumers will be able to be satisfied, some consumers will offer higher prices in order to gain access to the product.

63. A market surplus occurs when

1. people cannot buy the amount of goods and services that they are willing and able to buy.

2. the price is less than the equilibrium price.

3. the quantity supplied exceeds the quantity demanded at a given price.

4. there is a price ceiling.

Market surplus is the amount by which the quantity supplied exceeds the quantity demanded at a given price.

64. When there is a surplus in a market, prices are likely to fall because

1. sellers would rather lower their prices to sell some of their goods or services than keep prices higher and be stuck with unsold products.

2. some buyers will offer to pay a higher price, initiating a move up the supply curve.

3. sellers are likely to increase their production.

4. buyers will wait for the government to establish a price floor.

Whenever the market price is set above or below the equilibrium price, either a market surplus or a market shortage will emerge. Here, firms would rather get something for their already produced output than nothing whatsoever.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-05 Explain how market shortages and surpluses occur.
Topic: Equilibrium

65. If a market surplus exists

1. the only resolution is for the government to set the price.

2. consumers will compete for the product by offering to pay more.

3. producers will compete for customers by reducing prices.

4. the equilibrium price is equal to the price ceiling.

Suppliers are willing to sell their goods or services at a lower price to meet the demand of consumers and prevent an unexpected increase to their inventories.

66. If demand is constant, a decrease in the supply of gasoline will cause the equilibrium price

1. to rise and equilibrium quantity to fall.

2. and equilibrium quantity both to rise.

3. to fall and equilibrium quantity to rise.

4. and equilibrium quantity both to fall.

Since demand is constant, a decrease in the supply of gasoline will cause the price to rise because consumers will not be able to get all the gasoline they desire and firms will require higher prices to compensate them for the determinant of supply that has caused this particular shift.

67. If demand is constant, a leftward shift in the supply curve will result in

1. a decrease in equilibrium quantity and a lower equilibrium price.

2. an increase in equilibrium quantity and a lower equilibrium price.

3. a decrease in equilibrium quantity and a higher equilibrium price.

4. an increase in equilibrium quantity and a higher equilibrium price.

A decrease in supply will cause the supply curve to shift left. Equilibrium quantity will be lower and suppliers will raise the price.

68. The price of chocolate candy bars rises. This could be due to

1. a decrease in the wage rate paid to workers in the candy bar factories.

2. a decrease in the cost of chocolate, which is used to produce candy bars.

3. a subsidy by the federal government for the producers of chocolate candy bars.

4. a decrease in the number of chocolate candy bar producers.

Number of sellers is a determinant of supply, a decrease in producers would cause supply to shift leftward and candy bar equilibrium price to rise.

69. If demand is unchanged, a rightward shift in the supply curve for plasma TVs will cause

1. a decrease in equilibrium quantity and a higher equilibrium price.

2. a increase in equilibrium quantity and a higher equilibrium price.

3. a increase in equilibrium quantity and a lower equilibrium price.

4. a decrease in equilibrium quantity and a lower equilibrium price.

If demand is unchanged, a right shift of supply would indicate that there are more TV’s available at the initial price. In order to sell the TV’s, suppliers will need to lower price and prevent an unexpected increase in inventories.

70. Which of the following would cause a decrease in the price of automobiles?

1. a technological advancement in automobile manufacturing

2. an increase in the wages paid to automobile assembly line workers

3. a decrease in the cost of gasoline

4. an increase in the number of buyers

Technological advancement allows for easier production of automobiles at all prices, which will shift the supply curve to the right.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-03 Depict how and why a market equilibrium is found.
Topic: Equilibrium

71. If supply is unchanged, a decrease in the demand for soft drinks will cause equilibrium price to

1. rise and equilibrium quantity to fall.

2. fall and equilibrium quantity to fall.

3. fall and equilibrium quantity to rise.

4. rise and equilibrium quantity to rise.

If demand falls, there would be a surplus available at the current price, suppliers would have an incentive to reduce their prices rather than have an unexpected increase in inventories. Suppliers will also not be willing and able to supply the current amount at the lower equilibrium price and so equilibrium quantity will fall.

72. If supply is constant, a decrease in the demand for potato chips will cause

1. a decrease in equilibrium price and a decrease in equilibrium quantity.

2. an increase in equilibrium price and an increase in equilibrium quantity.

3. a decrease in equilibrium price and an increase in equilibrium quantity.

4. an increase in equilibrium price and a decrease in equilibrium quantity.

If suppliers continue to supply the same amount of chips, but demand decreases, suppliers would have an incentive to reduce their prices rather than have an unexpected increase in inventories. Suppliers will also not be willing and able to supply the current amount at the lower equilibrium price and so equilibrium quantity will fall.

73. If supply is unchanged, a decrease in the demand for tacos will cause the equilibrium price to

1. rise and equilibrium quantity to fall.

2. rise and equilibrium quantity to rise.

3. fall and equilibrium quantity to rise.

4. fall and equilibrium quantity to fall.

If suppliers continue to supply the same amount of chips and demand decreases, suppliers would have an incentive to reduce their price rather than have an unexpected increase in inventories. Suppliers will also not be willing and able to supply the current amount at the lower equilibrium price and so equilibrium quantity will fall.

74. If supply is unchanged, a rightward shift in the demand curve for gourmet ice cream will result in

1. a decrease in equilibrium quantity and a higher equilibrium price.

2. an increase in equilibrium quantity and a higher equilibrium price.

3. a decrease in equilibrium quantity and a lower equilibrium price.

4. an increase in equilibrium quantity and a lower equilibrium price.

If supply is unchanged a rightward shift in demand indicates that more consumers want gourmet ice cream. There will temporarily be a shortage that causes some consumers to offer higher prices. These higher prices induce suppliers to supply more at these higher prices and so equilibrium quantity also rises.

75. In the market for web design services, when more companies desire web pages, the equilibrium

1. quantity of web design services decreases.

2. quantity of web design services remains unchanged.

3. quantity of web design services increases.

4. price of web design services will fall.

If more companies desire web services demand shifts to the right, increasing equilibrium output.

76. In the market for web design services, if businesses expect consumers to make more on-line purchases, then the equilibrium

1. price of web design services will decrease.

2. price of web design services will increase.

3. quantity of web design services will remain unchanged.

4. quantity of web design services will decrease.

If firms expect consumers will want more web services in the future, then they expect that demand will increase. This impacts their choices today because they know that if they are able to prepare for the future, they can take advantage of higher prices later. As a result, supply today is reduced as firms wait for higher prices to come. This leftward shift of supply causes equilibrium price today to rise.

77. If a state decides to reduce the cost of college tuition by providing more Pell grants to students then, ceteris paribus, the

1. quantity demanded of a college education in the state will decrease.

2. demand for a college education in the state will decrease.

3. quantity demanded of a college education in the state will increase.

4. quantity supplied of a college education in the state will increase.

If college tuition becomes more affordable to more people, this is the same as a decrease to the price of college. Since this is the price to own, the quantity demanded for a college education will increase as we move along a demand curve.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Equilibrium

78. If a state adopts a free college tuition program, ceteris paribus, economists expect there to be a

1. a surplus of college education opportunities in the state.

2. a shortage of college education opportunities in the state.

3. a decrease in equilibrium price for a college education in the state.

4. a decrease in equilibrium quantity for a college education in the state.

If everyone who wanted to have a college education could have one for free, there would be a shortage of resources to provide the education to everyone who wanted one. This would be driven by a sharp increase in quantity demanded with a simultaneous decrease in the quantity supplied as some education suppliers would no longer be willing and able to supply to the market.

79. A price ceiling is

1. a lower limit on the price of a good.

2. above the equilibrium price.

3. an upper limit on the price of a good.

4. a limit on the price of goods sold abroad.

A price ceiling is the upper limit imposed on the price of a good or service.

80. A price ceiling does all of the following except

1. increase the quantity demanded relative to the equilibrium level.

2. create excess supply.

3. create a market shortage.

4. decrease the quantity supplied relative to the equilibrium level.

A price ceiling decreases quantity supplied and so there would likely not be a shortage as a result.

81. Shortages are the same thing as excess

1. price.

2. quantity.

3. supply.

4. demand.

A shortage exists when the current price is too low relative to equilibrium, leading some suppliers to no longer produce in the market. As a result, the increase in the quantity demanded is no longer met.

82. A market shortage is

1. equal to the quantity supplied.

2. caused by a price ceiling.

3. caused by scarce resources.

4. caused by a price floor.

A market shortage occurs when, at a given price, quantity demanded exceeds quantity supplied.

83. When a price ceiling is set for a market, the quantity demanded will be

1. less than the equilibrium quantity and price will be less than the equilibrium price.

2. less than the equilibrium quantity, and price will be greater than the equilibrium price.

3. greater than the equilibrium quantity, and price will be less than the equilibrium price.

4. greater than the equilibrium quantity, and price will be greater than the equilibrium price.

Quantity demanded for a good with a price ceiling is greater than what suppliers are willing and able to supply. Quantity demanded is also greater than equilibrium quantity.

84. Rent controls are an example of

1. a price floor.

2. a price ceiling.

3. an externality.

4. barter.

Many large cities have imposed rent controls which is an upper limit imposed on the price of housing. This is a price ceiling.

85. A price floor is

1. a lower limit on the price of a good.

2. below the equilibrium price.

3. an upper limit on the price of a good.

4. a limit on the price of goods sold to foreigners.

A price floor is a minimum price imposed by the government for a good or service.

86. A price floor

1. decreases the quantity producers are willing and able to supply relative to the equilibrium level.

2. increases the quantity demanded relative to the equilibrium level.

3. causes excess demand.

4. creates a market surplus.

A price floor may guarantee a price that is above the market equilibrium. If this is the case, producers will be willing to supply more than consumers demand creating a surplus.

87. Government price guarantees for certain crops are an example of

1. a price floor.

2. a price ceiling.

3. a monopoly.

4. the market mechanism.

If the government sets a price for a product to guarantee a certain price for producers this is a price floor.

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