W42-Demand, Supply, and Market Equilibrium Flashcards
Q 1. If both the supply and the demand for a good increase, the market price will
a. Rise only in the case of an inelastic supply function
b. Fall only in the case of an inelastic supply function
c. Not be predictable with only these facts
d. Rise only in the case of an inelastic demand function
Q 1. (c) without additional information about the extent of the change, the effect on price is not determinable
Q 4. Which of the following could case the change shown in the graph?
a. A decrease in the price of the product
b. An increase in supply of the product
c. A change in consumer tastes
d. A decrease in the price of a substitute for the product
Q 4. (c) a shift in demand could result from a change in consumer tastes. Answer (a) is incorrect because this would result in movement along the existing demand curve.
Q 5. What will be the result on the equilibrium price for the product?
a. Increase
b. Decrease
c. Remain the same
d. Cannot be determined
Q 5. (a) the shift (increase) in demand will increase the price of the product
Q 6. Which one of the following has an inverse relationship with the demand for money?
a. Aggregate income
b. Price levels
c. Interest rates
d. Flow of funds
Q 6. (c) as interest rates increase the demand for money decreases
Q 8. Which of the following market features is likely to cause a surplus of a particular product?
a. A monopoly
b. A price floor
c. A price ceiling
d. A perfect market
Q 8. (b)a price floor, if it is above the equilibrium price, will cause excess production and a surplus
Q 12. The local video store’s business increased by 12% after the movie theater raised its prices from $6.50 to $7.00. Thus, relative to movie theater admissions, videos are
a. Substitute goods
b. Superior goods
c. Complementary goods
d. Public goods
Q 12. (a) substitute goods are selected by a consumer based on price. When the price of one goes up, demand for the other increases
Q 13. An individual receives an income of $3,000 per month, and spends $2,500. An increase in income of $500 per month occurs, and the individual spends $2,800. The individual’s marginal propensity to save is
a. 0.2
b. 0.4
c. 0.6
d. 0.8
Q 13. (b) the marginal propensity to save is the change in savings divided by the change in income [($700 - $500)/($3,500 - $3,000) = 0.4].
Q 14. In any competitive market, equal increase in both demand and supply can be expected to always
a. Increase both price and market-clearing quantity
b. Decrease both price and market-clearing quantity
c. Increase market-clearing quantity
d. Increase price
Q 14. (c) In a competitive market, the market will always clear at the equilibrium price. If there is an equal increase in both demand and supply, the equilibrium price may increase, decrease, or remain the same. However, there will be more units sold and, therefore, answer (c) is correct
Q 15. Given the following data, what is the marginal propensity to consume?
a. 1.33
b. 1.16
c. 0.95
d. 0.75
Q 15. (d) [($44,000 - $38,000)/($48,000 - $$40,000)]
Q 16. Which of the following will cause a shift in the supply curve of a product?
a. Changes in the price of the product
b. Changes in production taxes
c. Changes in consumer tastes
d. Changes in the number of buyers in the market
Q 16. (b) A shift in the supply curve may result from;
- changes in production technology
- changes or expected changes in resource prices
- changes in the prices of other goods
- changes in taxes or subsidies
- changes in the number of sellers in the market
- expectations about the future price of the product
Answer (b) is correct because it identifies changes in production taxes, which will alter the supply curve
Q 19. In a competitive market for labor in which demand is stable, if workers try to increase their wage
a. Employment must fall
b. Government must set a maximum wage below the equilibrium wage
c. Firms in the industry must become smaller
d. Product supply must decrease
Q 19. (a) like any other good or service, if price is increased for labor, the demand will fall and employment will fall
Q 20. A polluting manufacturing firm tends, from the societal viewpoint, to
a. Price its products too low
b. Produce too little output
c. Report too little profitability
d. Employ too little equity financing
Q 20. (a) a polluting firm calculates its profits without considering the costs of environmental damage and, as a result, prices its products too law
Q 26. Price ceilings
a. Are illustrated by government price support programs in agriculture
b. Create prices greater than equilibrium prices
c. Create prices below equilibrium prices
d. Result in persistent surpluses
Q 26. (c) price ceilings cause the price of a product to be artificially low resulting in decreased supply. the price is below the equilibrium price as indicated by answer (c)
Q 28. Wilson Corporation has a major competitor that produces a product that is a close substitute for
Wilson’s good. If the coefficient of cross-elasticity of demand for Wilson’s product with respect to the competitor’s product is 2.00 and the competitor decreases its price by 5%, what is the expected effect on demand for Wilson’s product?
a. A 5% increase in demand
b. A 5% decrease in demand
c. A 10% increase in demand
d. A 10% decrease in demand
Q 28. (d) if the coefficient of cross-elasticity is 2.00, a 5% decrease in price will result in a 10% (5% x 2.00) decrease in the demand for Wilson’s product.
Q 29. As the price for a particular product changes, the quantity of the product demanded changes according to the following schedule:
Using the arc method, the price elasticity of demand for this product when the price decreases from $50 to $45 is
a. 0.20
b. 10.00
c. 0.10
d. 3.80
Q 29. (d)
(150 - 100) ÷ [(150 + 100) ÷ 2] / ($50 - $45) ÷ [($50 + $45) ÷ 2] = 3.80
