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Assignment 3
1. Which of the following statements is true of any market?
a)
b)
c)
d)
e)
There must be a supply of the item but not necessarily a demand for the item.
Demand and supply are always equal for an item.
The interaction of demand and supply determines the price and quantity in that market.
There must be a demand for the item but not necessarily a supply of the item.
The market will always be in equilibrium.
2. If a decrease in the demand for product X causes the demand curve for product Y to shift to
the right, then X and Y are most likely to be which of the following?
a)
b)
c)
d)
e)
Cars and gasoline
Knives and forks
Butter and margarine
Tennis balls and tennis rackets
Shoes and laces
3. In the figure above, if price were fixed at P1, which of the following is false?
a)
b)
c)
d)
e)
Prices would tend to rise.
There would be a shortage.
There would be an excess quantity supplied of Q5 – Q1.
There would be an excess quantity demanded of Q5 – Q1.
There would be a disequilibrium.
4. The law of supply
a)
b)
c)
d)
e)
asserts that as the price of a good or service rises, the demand curve shifts inward.
while valid, is almost always ignored in a market-based economy.
asserts that as the price of a good or service rises, the quantity supplied rises.
has very little to do with how prices in a market-based economy are determined.
asserts that as the price of a good or service rises, the quantity supplied declines.
5. If price is below equilibrium,
a)
b)
c)
d)
e)
demand will increase.
demand is too low for equilibrium.
quantity demanded exceeds quantity supplied, and a shortage exists.
quantity supplied exceeds quantity demanded, and a shortage exists.
the income and substitution effects will cause the price to rise.
6. If both supply and demand for a good increase, which of the following will definitely happen?
a)
b)
c)
d)
e)
Quantity will increase.
Price will remain the same.
Price will increase.
Quantity will decrease.
Price will decrease.
7. Relative price refers to
a)
b)
c)
d)
e)
the money price of a good.
the price of one good expressed in terms of the prices of all other goods.
the price of a basket of goods stated in 1992 dollars.
a price that is set on the black market.
the price of one good expressed in terms of the price of another good.
8. If the price of tennis rackets increases and causes the demand for tennis balls to shift to the
left, then
a)
b)
c)
d)
e)
tennis rackets and tennis balls are bads.
only tennis balls are bads.
tennis rackets and tennis balls are substitutes.
tennis rackets and tennis balls are complements.
tennis rackets and tennis balls are too expensive.
9. In the figure above, quantity demanded exceeds quantity supplied at
a)
b)
c)
d)
e)
$10.
$5.
$7.
$15.
$12.
10. According to the text, there are many reasons other than price ceilings and price floors why
we observe excess supplies or demands in the real world. Which of the following is such a
reason?
a)
b)
c)
d)
e)
Equilibrium only occurs in the rarest of circumstances.
It is difficult for producers to supply more.
It is difficult or costly for consumers to change the quantities they purchase.
It is difficult or costly to change prices rapidly.
It is difficult for producers to supply less.
11. Assume the supply curve of sirloin steak is upward sloping. If the price increases from $4.25
to $8.60 per pound,
a)
b)
c)
d)
e)
the supply of sirloin steak will rise.
the demand for sirloin steak will decrease.
a small quantity of sirloin steak will be supplied.
a greater quantity of sirloin steak will be supplied.
the supply of sirloin steak will decrease.
12. Which of the following would <i>not</i> affect the supply of automobiles?
a)
b)
c)
d)
e)
An improvement in the technology of automobile manufacturing
An increase in the price of steel
A decrease in the number of automobile producers
An increase in the price of automobiles
An increase in the productivity of workers
13. Suppose all blue-collar workers have received a substantial pay increase. What would
happen in those markets in which the workers are employed?
a)
b)
c)
d)
e)
Supply would decrease.
Demand would decrease.
Supply would increase.
Output would rise.
Price would fall.
14. According to the law of supply,
a) it would be too difficult to predict what suppliers of personal computers might do in
response to an increase in the price of the good they sell.
b) as the price of personal computers rises, producers of personal computers are willing and
able to offer for sale a lesser quantity of personal computers during a period of time.
c) as the price of personal computers declines, producers of personal computers are willing
and able to offer for sale a greater quantity supply of personal computers during a period
of time.
d) as the price of personal computers rises, producers of personal computers will naturally
hoard their supply of personal computers until prices stabilize.
e) as the price of personal computers rises, producers of personal computers are willing and
able to offer for sale a greater quantity of personal computers during a period of time.
15. Consider the market described by the schedule in the table above. Which of the following is
true?
a)
b)
c)
d)
e)
At $2 per unit, people will purchase 900 units.
The law of supply is violated.
At $5 per unit, people will purchase 400 units.
The law of demand is violated.
There is no equilibrium.
16. According to the text, when the price is not allowed to change
a)
b)
c)
d)
e)
surpluses and shortages will put pressure on the price to move to its equilibrium.
all buyers will get what they want.
disequilibrium can not occur.
surpluses and shortages will not exist.
all producers will be able to sell everything they make.
17. Assume there is an inverse relationship between the price and quantity demanded of
personal computers. If the price of computers increases,
a)
b)
c)
d)
e)
the quantity demanded decreases.
the quantity supplied decreases.
the demand curve shifts to the left.
the demand curve shifts to the right.
the quantity demanded increases.
18. A price floor
a)
b)
c)
d)
e)
is sometimes necessary to help with the natural functioning of the market mechanism.
is not allowed.
creates a shortage of a good.
is a situation where the price is not allowed to decrease below a certain level.
is a situation where the price is not allowed to increase above a certain level.
19. If a technological improvement took place in the computer industry, we would expect the
equilibrium price of computers to
a)
b)
c)
d)
e)
decrease and the quantity of computers sold to decrease.
increase and the quantity of computers sold to decrease.
increase and the quantity of computers sold to stay the same.
decrease and the quantity of computers sold to increase.
increase and the quantity of computers sold to increase.
20. Which of the following goods are bought and sold in a market?
a)
b)
c)
d)
e)
Food
Foreign goods
Stocks
Drugs
All of these
Essay Questions
1. Explain the success of the market towns were there was a break-in-transport. Why was
transportation such an important part of the establishment of the markets?
2. How has transportation changed from the early colonial time to today? What are the different
sources of transportation and what effect has the changes had on the economy and on the costs
of goods and services?