ECON 231
Chapter 3 Study Quiz


1.
A recent study found that an increase in the Federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that:
A.
beer and marijuana are substitute goods.
B.
beer and marijuana are complementary goods.
C.
beer is an inferior good.
D.
marijuana is an inferior good.


2.
The law of supply:
A.
reflects the amounts that producers will want to offer at each price in a series of prices.
B.
is reflected in a downsloping supply curve.
C.
shows that the relationship between producer revenue and quantity supplied is negative.
D.
reflects the income and substitution effects of a price change.


3.
Graphically, the market demand curve is:
A.
steeper than any individual demand curve that is part of it.
B.
greater than the sum of the individual demand curves.
C.
the horizontal sum of individual demand curves.
D.
the vertical sum of individual demand curves.


4.
A rightward shift in the demand curve for product C might be caused by:
A.
an increase in income if C is an inferior good.
B.
a decrease in income if C is a normal good.
C.
a decrease in the price of a product that is a close substitute for C.
D.
a decrease in the price of a product that is complementary to C.



Reference: F20156

5.
Refer to the above diagram. Rent controls are best illustrated by:
A.
price A.
B.
quantity E.
C.
price C.
D.
price B.


Reference: F03122

6.
Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in demand may have been caused by:
A.
a decline in the number of buyers in the market.
B.
a decline in the price of a substitute good.
C.
an increase in incomes if the product is a normal good.
D.
an increase in incomes if the product is an inferior good.


Reference: F03114

7.
Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. A shift in the demand curve from D0 to D1 might be caused by a(n):
A.
decrease in income if X is an inferior good.
B.
increase in the price of complementary good Y.
C.
increase in money incomes if X is a normal good.
D.
increase in the price of substitute product Y.


8.
The demand for most products varies directly with changes in consumer incomes. Such products are known as:
A.
complementary goods.
B.
competitive goods.
C.
inferior goods.
D.
normal goods.


9.
If products A and B are complements and the price of B decreases the:
A.
demand curves for both A and B will shift to the left.
B.
amount of B purchased will increase, but the demand curve for A will not shift.
C.
demand for A will increase and the amount of B demanded will increase.
D.
demand for A will decline and the demand for B will increase.


Reference: F03090

10.
Refer to the above diagram. A price of $20 in this market will result in:
A.
a shortage of 50 units.
B.
a surplus of 50 units.
C.
a surplus of 100 units.
D.
a shortage of 100 units.


11.
If two goods are complements:
A.
they are consumed independently.
B.
an increase in the price of one will increase the demand for the other.
C.
a decrease in the price of one will increase the demand for the other.
D.
they are necessarily inferior goods.


(Advanced analysis) Answer the next question(s) on the basis of the following information. The demand for commodity X is represented by the equation P = 10 - 0.2Q and supply by the equation P = 2 + 0.2Q.
Reference: REF03150

12.
Refer to the above information. After the change in demand, the new equilibrium price is:
A.
$2.
B.
$4.
C.
$6.
D.
$7.


13.
One reason that the quantity of a good demanded increases when its price falls is that the:
A.
price decline shifts the supply curve to the left.
B.
lower price shifts the demand curve to the left.
C.
lower price shifts the demand curve to the right.
D.
lower price increases the real incomes of buyers, enabling them to buy more.


14.
Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and that potatoes are a consumer substitute for bread, we would expect the price of wheat to:
A.
rise, the supply of bread to increase, and the demand for potatoes to increase.
B.
rise, the supply of bread to decrease, and the demand for potatoes to increase.
C.
rise, the supply of bread to decrease, and the demand for potatoes to decrease.
D.
fall, the supply of bread to increase, and the demand for potatoes to increase.


15.
A competitive market will:
A.
achieve an equilibrium price.
B.
produce shortages.
C.
produce surpluses.
D.
create disorder.


16.
Black markets are associated with:
A.
price floors and the resulting product surpluses.
B.
price floors and the resulting product shortages.
C.
ceiling prices and the resulting product shortages.
D.
ceiling prices and the resulting product surpluses.


17.
A demand curve:
A.
shows the relationship between price and quantity supplied.
B.
indicates the quantity demanded at each price in a series of prices.
C.
graphs as an upsloping line.
D.
shows the relationship between income and spending.


18.
A decrease in the price of cameras will:
A.
cause the demand curve for film to become vertical.
B.
shift the demand curve for film to the right.
C.
shift the demand curve for film to the left.
D.
not affect the demand for film.


19.
Assume the demand curve for product X shifts to the right. This might be caused by:
A.
a decline in income if X is an inferior good.
B.
a decline in the price of Z if X and Z are substitute goods.
C.
a change in consumer tastes that is unfavorable to X.
D.
an increase in the price of Y if X and Y are complementary goods.


20.
If producers must obtain higher prices than previously to produce various levels of output, the following has occurred:
A.
a decrease in demand.
B.
an increase in demand.
C.
a decrease in supply.
D.
an increase in supply.


21.
(Last Word) Generic drugs:
A.
increase the price of drugs to consumers and increase consumer surplus.
B.
reduce the price of a drugs to consumers and reduce consumer surplus.
C.
increase the price of drugs to consumers and reduce consumer surplus.
D.
reduce the price of a drug to consumer and increase consumer surplus.


22.
An efficiency loss declines in size when a unit of output is produced for which:
A.
marginal cost exceeds marginal benefit.
B.
maximum willingness to pay exceeds minimum acceptable price.
C.
consumer surplus exceeds producer surplus.
D.
producer surplus exceeds consumer surplus.


23.
If a preset price is below the equilibrium price, a surplus of unsold goods will occur.
A. True
B. False


Reference: Table 3W-1

24.
Suppose that the market above is for tickets to a specific football game. If the preset ticket price is $20:
A.
a shortage of 20,000 tickets will occur.
B.
ticket scalping will occur.
C.
a surplus of 10,000 tickets will occur.
D.
20,000 seats will remain unfilled.


25.
(Consider This) In recent years, many rock stars have abandoned their previous practice of pricing concert tickets below their equilibrium levels. The main reason for the change in pricing strategy is that:
A.
illegal downloading of CDs has reduced the value of the free publicity associated with long ticket lines and scalping activity.
B.
computer software has made it easier to estimate equilibrium prices in advance.
C.
concert goers have considerably higher incomes than in the past.
D.
rock stars tend to be greedier than in the old days.


Reference: Figure 3W.1

26.
Refer to the above diagram. If demand changes from D1 to D2 at the same time supply changes from S2 to S1, equilibrium price will:
A.
rise and equilibrium quantity will fall.
B.
fall and equilibrium quantity will rise.
C.
rise, as will equilibrium quantity.
D.
fall, as will equilibrium quantity.


Reference: Figure 3W.4

27.
Refer to the above diagram. Assuming equilibrium price P1, consumer surplus is represented by areas:
A.
a + b.
B.
a + b + c + d.
C.
c + d.
D.
a + c.


28.
(Last Word) When a patent expires on a brand name drug, and generic drugs emerge to compete with it:
A.
consumer surplus increases.
B.
efficiency losses rise.
C.
allocative inefficiency worsens.
D.
consumer surplus declines.


29.
If the preset price of a product equals the equilibrium price:
A.
neither a surplus nor shortage will occur.
B.
a surplus will occur and a secondary market will emerge.
C.
the supply curve will shift to the left.
D.
a shortage will occur and a secondary market will emerge.


Reference: Figure 3W.4

30.
Refer to the above diagram. At Q1:
A.
efficiency is achieved.
B.
an efficiency loss of b + d occurs.
C.
consumer surplus is maximized.
D.
an efficiency loss of e + d occurs.


31.
An increase in demand is shown as a:
A.
movement from a higher point to a lower point on an existing demand curve.
B.
movement from a lower point to a higher point on an existing demand curve.
C.
rightward shift of a demand curve.
D.
leftward shift of a demand curve.


Reference: Figure 3W.4

32.
Refer to the above diagram. At Q1:
A.
maximum willingness to pay exceeds minimum acceptable price.
B.
the sum of consumer and producer surplus is maximized.
C.
minimum acceptable price exceeds maximum willingness to pay.
D.
an efficiency loss of a + b occurs.


33.
If a preset price is below the equilibrium price, a shortage and secondary market will occur.
A. True
B. False


34.
Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $39. Jennifer experiences:
A.
a consumer surplus of $75 and Nathan experiences a producer surplus of $3.
B.
a producer surplus of $9 and Nathan experiences a consumer surplus of $3.
C.
a consumer surplus of $9 and Nathan experiences a producer surplus of $3.
D.
a producer surplus of $75 and Nathan experiences a producer surplus of $81.


35.
Allocative efficiency occurs where (for the last unit) maximum willingness to pay exceeds minimum acceptable price by the greatest amount.
A. True
B. False


STOP This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.