3-1. The goal of the business firms in a market economy
is to maximize:
→ Profits.
Sales.
Consumer utility.
Welfare.
3-2. A factor market is any place where:
Finished goods are bought and sold.
→ Land, labor, or capital is bought and sold.
Finished services are bought and sold.
Factories are bought and sold.
3-3. Business firms supply goods and services to ____ and
purchase factors of production in ____.
Factor markets; product markets
National markets; factor markets
→ Product markets; factor markets
Factor markets; national markets
3-4. The term opportunity cost refers to the:
Value of all the alternatives given up when a good or
service is produced.
Financial costs of all the factors of production used
to produce a good or service.
Amount of resources used to produce a good or
service.
→ Value of the best alternative given up when a good
or service is produced.
3-5. According to the law of demand, during a given
period of time, the quantity of a good demanded:
Increases as its price rises, ceteris paribus.
→ Increases as its price falls, ceteris paribus.
Decreases as its price falls, ceteris paribus.
Does not change when price changes.
3-6. Which of the following is not held constant along a
given demand curve for a good?
→ Price
Consumer's income
The price of substitutes
Consumer tastes
3-7. Ceteris paribus, which of the following would
generally cause an increase in the demand for
automobiles?
A decrease in the price of automobiles
→ An increase in consumers' income
The new models are perceived as ugly compared
with old models
Consumer expectations that the price of
automobiles will be lower next year
3-8. Ceteris paribus, if buyers expect the price of airline
tickets to fall in the future, then right now there should
be:
An increase in the demand for airline tickets.
A decrease in the supply of airline tickets.
→ A decrease in the demand for airline tickets.
No change in the supply of or demand for airline
tickets because the price is not changing right now.
3-9. Assume that pencils and pens are substitutes. If the
price of pencils rises, then we will see:
→ An increase in the demand for pens.
A decrease in the demand for pens.
An increase in the supply of pens.
A decrease in the supply of pens.
3-10. Assume a series of forest fires reduces the supply
of lumber which is an input in the production of wooden
bats. Baseballs and wooden bats are complements. If the
price of wooden bats increases, we can expect the:
→ Demand for baseballs to decrease.
Supply of baseballs to decrease.
Demand for baseballs to increase.
Supply of baseballs to increase.
3-2. A factor market is where the factors of production
(land, labor, capital) are bought and sold.
3-1. Business firms are motivated by profit.
3-4. Opportunity cost refers to the most desired goods
or services forgone, not all the goods forgone, because
not all choices would have been given up, just the best
alternative.
3-3. A factor market is where the factors of production
(land, labor, capital) are bought and sold. A product
market is where finished goods and services are bought
and sold. A pair of shoes is a finished good.
3-6. The demand curve reflects the quantity demanded
at different price levels, therefore could not be held
constant.
3-5. Quantity demanded and price are inversely related.
3-8. Expectations that price will fall will cause
consumers to buy less now and wait to purchase airline
tickets later, when the price actually falls.
3-10. Bats and baseballs are complements. When the
price of bats increases, the demand for baseballs will
decrease.
3-7. A decrease in the price of automobiles would cause
a movement along the demand curve. Perceived ugliness
and expectations of lower prices would decrease the
demand. An increase in consumer's income would
increase the demand for normal goods.
3-9. Consumers will substitute the relatively cheaper
pens when the price of pencils rises, causing the demand
for pens to increase.
3-11. A change in demand means there has been a shift
in the demand curve, and a change in quantity
demanded:
Results from a change in price of other goods.
Means a shortage or surplus will result from holding
prices constant.
Also means demand has shifted.
→ Means that price has changed and there is
movement along the demand curve.
3-13. Which of the following is not held constant along a
given supply curve for a good?
The cost of factors of production
→ Price
Technology
Taxes
3-12. Which of the following is a determinant of supply?
Consumer tastes or preferences
→ The prices of the factors of production
Income
Number of buyers
3-14. Ceteris paribus, which of the following is most
likely to cause a decrease in the supply of skateboards?
An increase in the price of skateboards
→ An increase in the cost of materials used to produce
skateboards
An improvement in skateboard-making technology
All of the choices
3-15. Which of the following events would cause a
rightward shift in the market supply curve for
automobiles?
→ A technological improvement which reduces the
cost of production
An increase in the wages of autoworkers
A higher sales tax on automobiles
A decrease in the number of sellers
3-16. Which of the following would not cause the
market supply of cell phones to change?
Telecommunications are deregulated, and anyone
who wants to can produce and sell cell phones
A cheaper technology for producing plastics used in
producing cell phones is developed
→ A reduction in the demand for cell phones causes
the price to fall
Taxes levied on cell phone production are reduced
3-17. If there is a shortage at a given price, then:
That price is the equilibrium price.
That price is greater than the equilibrium price.
→ That price is less than the equilibrium price.
There is no equilibrium price in the market.
3-18. In most markets, the equilibrium price is achieved:
Through detailed databases.
Using an equilibrium price formula.
Through government mandate.
→ Through trial and error.
3-19. The term market mechanism refers to:
→ The use of market prices and sales to determine
resource allocation.
The establishment of a ceiling price in a market.
Supply and demand curves.
Government laws and regulations concerning how
the market should operate.
3-20. If the quantity demanded of a good is greater than
the quantity supplied of the good at the current price,
then:
→ Price will increase until it reaches the equilibrium
price.
The demand curve will shift to the left to create
equilibrium.
The supply curve will shift to the right to create
equilibrium.
There is a surplus of the good.
3-12. The determinants of supply include technology,
factor costs, taxes and subsidies, expectations, prices of
other goods, and number of sellers.
3-11. Movements along a demand curve are a response
to price changes for that good.
3-14. An increase in costs of production causes supply to
decrease. An increase in price causes a decrease in
the quantity supplied, while an improvement in
skateboard-making technology would increase in
supply.
3-13. If the price of a product is the only variable
changing, then we can track changes in quantity
supplied along the supply curve.
3-16. A change in the price of cell phones will cause a
movement along the supply curve or a change in
the quantity supplied.
3-15. Technological improvements that reduce the cost
of production will improve profit margins at every price
level which increases supply. An increase in wages and a
decrease in the number of sellers decrease supply and a
higher sales tax will decrease demand.
3-18. The equilibrium price is determined by the
collective behavior of many buyers and sellers. The
price is not determined by any single individual; rather
a simple process of trial and error until quantity
demanded and quantity supplied are equal.
3-17. At prices below equilibrium, quantity demanded
will be greater than quantity supplied, so a market
shortage will exist.
3-20. If a shortage exists, buyers will compete for goods
by offering to pay higher prices.
3-19. Market mechanism refers to the use of market
prices and sales to signal desired outputs or resource
allocations.
3-21. Designer clothes: Consumer confidence in the
economy improves.
A
B
C
→ D
3-22. Steel: The government introduces environmental
restrictions on the dumping of wastes from producing
steel.
→ A
B
C
D
3-23. If the actual market price were fixed at $15 per
unit in Figure 3.2:
→ There would be a surplus of 40 units.
There would be a surplus of 20 units.
There would be a shortage of 40 units.
There would be a shortage of 20 units.
3-22. Environmental restrictions on dumping wastes
will increase the cost of producing steel which will cause
the supply of steel to decrease.
3-23. At a price of $15 the quantity supplied is 50 while
the quantity demanded is 10.
3-21. An improvement in consumer confidence
increases demand for goods and services.
3-24. Which panel of Figure 3.3 represents the changes
in the market for beef when the price of corn (cattle
feed) rises and the people become more fearful of mad
cow disease?
A
B
C
→ D
3-25. Which panel of Figure 3.3 represents the changes
in the market for textbooks when the cost of paper
decreases and the government increases the number of
student loans it grants?
→ A
B
C
D
3-25. A decrease in the cost of production such as lower
paper prices will cause supply to increase and the
increase in students will cause the demand to increase.
3-24. An increase in costs causes supply to decrease and
the fear of disease will cause the demand to decrease.