Question 1

In a free market equilibrium, the gains from trade are always greater for consumers than for producers.

Accepted Answer

A) True 
 B)False

Question 2

A demand curve shows the relationship between:

Accepted Answer

A)   quantity demanded and quantity supplied, which are positively related.
B)   quantity demanded and quantity supplied, which are negatively relateB.
C)   price and quantity demanded, which are positively relateC.
D)   price and quantity demanded, which are negatively related.

Question 3

(Figure: Supply Shift)  In the figure, the supply curve shifted from S0 to S1. To describe this movement, we would say that: Figure: Supply Shift

Accepted Answer

A)   demand decreased, which caused a decrease in supply.
B)   supply decreased, which caused a decrease in quantity demanded.
C)   supply decreased, which caused a decrease in demand.
D)   supply increased, which caused a decrease in quantity demanded.

Question 4

Which of the following statements is TRUE about equilibrium in markets? I. Demand always equals supply at equilibrium. II. Quantity demanded always equals quantity supplied at equilibrium. III. In a market diagram, demand and supply cross each other at the equilibrium point.

Accepted Answer

A)   I only
B)   I, II, and III
C)   II and III only
D)   I and III only

Question 5

Reference: Ref 4-8 (Figure: Demand, Supply Shifts)  In the figure, the initial demand curve is D1 and the initial supply curve is S1. Suppose this depicts the market for corn. How does the market change when flooding in Iowa destroys a significant amount of the corn crop.

Accepted Answer

A)   S1 will shift to S2.
B)   D1 will shift to D2.
C)   S1 will shift to S3.
D)   There will be no change in supply or demand in the market for corn.

Question 6

Which of the following would increase the demand for beef?

Accepted Answer

A)   lower pork prices
B)   higher consumer income
C)   higher prices of feed grains used to feed beef cattle
D)   an increase in the price of beef

Question 7

Reference: Ref 4-6 (Figure: Gains from Trade)  Refer to the figure. What are the total gains from trade at the free market equilibrium?

Accepted Answer

A)   $1,000
B)   $500
C)   $0
D)   $1,500

Question 8

A market can be described by the equations Qd = 100 - P and Qs = P. What are the equilibrium price and quantity in this market?

Accepted Answer

A)   The equilibrium price is $50 and the equilibrium quantity is 50 units.
B)   The equilibrium price is $100 and the equilibrium quantity is 100 units.
C)   The equilibrium price is $0 and the equilibrium quantity is 0 units.
D)   The equilibrium price is $0 and the equilibrium quantity is 100 units.

Question 9

Five new sellers enter a market (that previously had seven)  and begin producing a good. Which of the following choices explains what happens to the equilibrium Q and P?

Accepted Answer

A)   The demand curve will shift to the right, and the equilibrium P and Q will both rise.
B)   The supply curve will shift to the right, the equilibrium P will fall, and the equilibrium Q will rise.
C)   The supply curve will shift to the left, the equilibrium P will fall, and the equilibrium Q will rise.
D)   The supply curve will shift to the right, the equilibrium P will rise, and the equilibrium Q will fall.

Question 10

Suppose that a market is characterized as follows: consumers are willing and able to purchase 100 units and sellers are willing and able to sell 70 units. Which of the following statements are true?

Accepted Answer

A)   There is a shortage of 30 units.
B)   The market is not in equilibrium.
C)   The price in the market will increase.
D)   All of the answers are correct.

Question 11

An increase in demand and a decrease in supply occur in a market. What happens to the equilibrium price and quantity?

Accepted Answer

A)   The equilibrium price decreases; the change in the equilibrium quantity is ambiguous.
B)   The equilibrium price decreases; the equilibrium quantity increases.
C)   The equilibrium price increases; the change in the equilibrium quantity is ambiguous.
D)   The equilibrium price increases; the equilibrium quantity decreases.

Question 12

Reference: Ref 4-3 (Table: Equilibrium Price, Quantity)  Refer to the table. If the supply curve for the product shifted to the right such that 20 more units of the good are supplied at every price, what is the new equilibrium price?

Accepted Answer

A)   $10
B)   $12
C)   $14
D)   $16

Question 13

The U.S. government limits the importation of Chinese-made bras. What effect does this trade restriction have on the market for bras?

Accepted Answer

A)   The equilibrium price will increase and the equilibrium quantity will decrease.
B)   The demand for bras will increase, leading to a lower equilibrium price.
C)   The equilibrium price will increase and the equilibrium quantity will increase.
D)   The equilibrium price will decrease, leading to a higher equilibrium quantity.

Question 14

The Arab Oil Embargo of 1973, the Iranian Revolution of 1979, and the Gulf War of 1991 all affected oil prices by:

Accepted Answer

A)   increasing the demand for oil.
B)   reducing the supply of oil.
C)   reducing the demand for oil.
D)   increasing the supply of oil.

Question 15

When a surplus exists in a market, we know that the actual price is:

Accepted Answer

A)   above equilibrium price and quantity supplied is greater than quantity demanded.
B)   above equilibrium price and quantity demanded is greater than quantity supplieB.
C)   below equilibrium price and quantity demanded is greater than quantity supplieC.
D)   below equilibrium price and quantity supplied is greater than quantity demanded.

Question 16

A free market can be described by the equations Qd = 180 - 3P and Qs = -50 + 2P. What are the equilibrium conditions in this market (that is, find equilibrium P and Q) and what are the maximum gains from trade in this market?

Accepted Answer

Equilibrium price is...

Question 17

In 1980 when Iraq attacked Iran, the price of oil _______ because of a(n)  ______.

Accepted Answer

A)   increased; disruption in the supply of oil
B)   increased; decrease in the demand for oil
C)   fell; increased demand for oil
D)   fell; increased quantity of oil supplied

Question 18

When Asian countries went into a recession in 1997, the demand for oil _______ and the price of oil ________.

Accepted Answer

A)   increased; increased
B)   decreased; increased
C)   decreased; decreased
D)   increased; decreased

Question 19

Surpluses drive price up while shortages drive price down.

Accepted Answer

A) True 
 B)False

Question 20

The September 11 terrorist attacks turned many people away from flying. The demand and supply model would predict which of the following events in the airline travel market?

Accepted Answer

A)   The supply of airline travel would decrease, resulting in a higher equilibrium price and lower equilibrium quantity.
B)   The supply of airline travel would increase, resulting in a lower equilibrium price and higher equilibrium quantity.
C)   The demand for airline travel would decrease, resulting in a lower equilibrium price and lower equilibrium quantity.
D)   The supply and demand for airline travel would decrease, resulting in a higher equilibrium price and higher equilibrium quantity.

Exam 4: Equilibrium: How Supply and Demand Determine Prices

In a free market equilibrium, the gains from trade are always greater for consumers than for producers.

Correct AnswerverifiedShow Answer

A market can be described by the equations Qd = 100 - P and Qs = P. What are the equilibrium price and quantity in this market?

Correct AnswerverifiedShow Answer

Five new sellers enter a market (that previously had seven) and begin producing a good. Which of the following choices explains what happens to the equilibrium Q and P?

Correct AnswerverifiedShow Answer

In 1980 when Iraq attacked Iran, the price of oil _______ because of a(n) ______.

Correct AnswerverifiedShow Answer

Suppose that a market is characterized as follows: consumers are willing and able to purchase 100 units and sellers are willing and able to sell 70 units. Which of the following statements are true?

Correct AnswerverifiedShow Answer

Surpluses drive price up while shortages drive price down.

Correct AnswerverifiedShow Answer

Which of the following statements is TRUE about equilibrium in markets? I. Demand always equals supply at equilibrium. II. Quantity demanded always equals quantity supplied at equilibrium. III. In a market diagram, demand and supply cross each other at the equilibrium point.

Correct AnswerverifiedShow Answer

A demand curve shows the relationship between:

Correct AnswerverifiedShow Answer

The U.S. government limits the importation of Chinese-made bras. What effect does this trade restriction have on the market for bras?

Correct AnswerverifiedShow Answer

When a surplus exists in a market, we know that the actual price is:

Correct AnswerverifiedShow Answer

(Figure: Supply Shift) In the figure, the supply curve shifted from S0 to S1. To describe this movement, we would say that: Figure: Supply Shift

Correct AnswerverifiedShow Answer

The September 11 terrorist attacks turned many people away from flying. The demand and supply model would predict which of the following events in the airline travel market?

Correct AnswerverifiedShow Answer

Which of the following would increase the demand for beef?

Correct AnswerverifiedShow Answer

When Asian countries went into a recession in 1997, the demand for oil _______ and the price of oil ________.

Correct AnswerverifiedShow Answer

Reference: Ref 4-6 (Figure: Gains from Trade) Refer to the figure. What are the total gains from trade at the free market equilibrium?

Correct AnswerverifiedShow Answer

Reference: Ref 4-8 (Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. Suppose this depicts the market for corn. How does the market change when flooding in Iowa destroys a significant amount of the corn crop.

Correct AnswerverifiedShow Answer

Reference: Ref 4-3 (Table: Equilibrium Price, Quantity) Refer to the table. If the supply curve for the product shifted to the right such that 20 more units of the good are supplied at every price, what is the new equilibrium price?

Correct AnswerverifiedShow Answer

An increase in demand and a decrease in supply occur in a market. What happens to the equilibrium price and quantity?

Correct AnswerverifiedShow Answer

The Arab Oil Embargo of 1973, the Iranian Revolution of 1979, and the Gulf War of 1991 all affected oil prices by:

Correct AnswerverifiedShow Answer

A free market can be described by the equations Qd = 180 - 3P and Qs = -50 + 2P. What are the equilibrium conditions in this market (that is, find equilibrium P and Q) and what are the maximum gains from trade in this market?

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In 1980 when Iraq attacked Iran, the price of oil _ because of a(n) .

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When Asian countries went into a recession in 1997, the demand for oil _ and the price of oil __.

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