Download Macro Chapter 3 Study Guide Questions

Macro Chapter 3 Study Guide Questions
Multiple Choice
Identify the choice that best completes the statement or answers the question.
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1. If the price of tickets to the World Series were set below the equilibrium price,
a. the quantity demanded would be smaller than the quantity supplied.
b. the demand for World Series tickets would be highly responsive to the price.
c. there would be no transactions between buyers and sellers of the tickets.
d. the number of persons seeking to obtain tickets to World Series games would be greater
than the number of tickets available.
2. Which of the following would cause the price of automobiles to rise?
a. a decrease in the wages of autoworkers
b. a reduction in the price of bus travel
c. an increase in the price of gasoline
d. an increase in consumer income
3. (I) The height of the demand curve for a commodity indicates the maximum amount the consumer would be
willing to pay for each unit of the good.
(II) The height of the supply curve for a commodity indicates the minimum price the seller would accept for
each unit of the good.
a. I is true; II is false.
b. I is false; II is true.
c. Both I and II are false.
d. Both I and II are true.
4. If the market price is above the equilibrium price, there will be a tendency for price to decrease, causing
a. the quantity demanded to decrease and the quantity supplied to increase until they are
equal.
b. the quantity demanded to increase and the quantity supplied to decrease until they are
equal.
c. both quantity demanded and quantity supplied to decrease until they are equal.
d. both quantity demanded and quantity supplied to increase until they are equal.
5. According to the law of supply, as the price of a good decreases
a. buyers will buy more of the good.
b. sellers will produce more of the good.
c. buyers will buy less of the good.
d. sellers will produce less of the good.
6. If the demand for donuts increased, what would be the effect on the equilibrium price and quantity of donuts?
a. price increases, quantity decreases
b. price decreases, quantity decreases
c. price increases, quantity increases
d. price decreases, quantity increases
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7. "Falling consumer income from the recent recession has hurt automakers in more ways than one. Not only
have sales of new cars fallen, but car prices have fallen as well. As a result, the major automakers have
announced cutbacks in production and layoffs of workers." Which of the following places these statements in
the proper economic terminology within the context of the supply and demand model? [Note: It may help to
graph this first.]
a. a decrease in demand and a decrease in supply
b. a decrease in demand and a decrease in quantity supplied
c. a decrease in quantity demanded and a decrease in quantity supplied
d. a decrease in quantity demanded and a decrease in supply
8. Over the past 20 years both the quantity of health care provided and health care prices have been rising
rapidly. Economic theory would suggest that the observed data could best be explained as
a. an increase in supply, while demand remained relatively constant.
b. a decrease in both supply and demand.
c. an increase in demand, while supply remained relatively constant.
d. a sharp increase in both supply and demand.
9. A decrease in the supply of a good will
a. decrease the demand for the good.
b. cause the price of the good to fall.
c. lead to an increase in the price of the good.
d. increase the quantity of the good bought and sold.
10. Which of the following would most likely decrease the price of beef?
a. lower prices of grains used to produce cattle feed
b. higher prices for chicken, a substitute for beef
c. a cow disease that destroys millions of cattle (and makes their meat unfit for consumption)
before they are ready for market
d. an increase in consumer income
11. A decrease in the price of flour will shift the supply curve for donuts
a. leftward, causing the equilibrium price to increase and quantity to decrease.
b. leftward, causing the equilibrium price and quantity to decrease.
c. rightward, causing the equilibrium price to decrease and equilibrium quantity to increase.
d. rightward, causing the equilibrium price and quantity to increase.
12. When Adam Smith said economic activity was directed by an "invisible hand," he was referring to the fact
that
a. competitive markets motivate altruistic individuals to pursue productive activities that
only serve their private interests.
b. when economic activity is directed by competitive markets, the actions of self-interested
individuals will generally serve the public interest.
c. invisible forces will lead to economic chaos unless wise central planning directs economic
activity.
d. scarcity is largely the result of invisible forces that would be eliminated if individuals were
free to pursue their own self-interests.
13. A hurricane damaged much of the housing in Miami. Shortly thereafter, the price of plywood rose
significantly. The events suggest that
a. a decrease in the supply of plywood caused the price of plywood to rise.
b. an increase in the supply of plywood caused the price of plywood to rise.
c. a decrease in the demand for plywood caused the price of plywood to rise.
d. an increase in the demand for plywood caused the price of plywood to rise.
____ 14. If the demand for a good increases, which of the following will generally occur in a market setting?
a. The price of the good will decrease.
b. The supply of the good will increase.
c. The quantity supplied will increase.
d. Producer profits will fall.
____ 15. A freeze in Florida devastates the orange crop at the same time a new study is released showing the health
benefits of vitamin C (leading consumers to want to buy more orange juice). How will the equilibrium price
and quantity of orange juice change in response to the combination of these two events?
a. Equilibrium quantity will decrease, equilibrium price will increase.
b. Equilibrium price will decrease, the effect on quantity is ambiguous.
c. Equilibrium price will increase, the effect on quantity is ambiguous.
d. Equilibrium quantity will increase, the effect on price is ambiguous.
Critical Thinking and Application 16. Economists maintain that the price of a product has no effect on demand. How can this be true?
17. Susan says, "If the price of wool coats goes up, suppliers will offer more of the coats for sale." Brad replies,
"It takes three months to harvest wool and employ all the steps necessary to produce a wool coat. Quantity
supplied cannot possibly increase for three months." Is Brad correct? Why or why not?
18. Sam lives in a town with a population of 3,000. He says, "This town really needs a pizza restaurant. People
want pizza and would be willing to pay a lot for it, but no one will open a pizza place because they couldn't
make any money." Evaluate Sam's statement.
19. A recent editorial in a local newspaper argues, "Consumers need to know more about products than just their
price. They need to know how these prices are determined, who owns the businesses, and the wages of the
workers." Is the editorial writer correct? Why or why not?
20. An agricultural economist reports that corn prices are very high this year and that corn growers are earning
substantial profits. He concludes that government action is needed to direct more farmers to grow corn. Is
such action necessary? Why or why not?
21. Around Easter time, the price of eggs rises. Some consumers complain about this and claim stores are 'price
gouging.' Are there any positive functions played by the higher price of eggs around Easter? What would
happen if the price of eggs were not permitted to rise by law?
Macro Chapter 3 Study Guide Questions
Answer Section
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