Chapter 4
The Market Forces of Supply and Demand
Multiple Choice
1. The forces that make market economies work are a. work and leisure. b. demand and supply. c. regulation and restraint.
d. taxes and government spending. ANS: B PTS: 1 DIF: 1 REF: 4-0 TOP: Market economy MSC: Interpretive
2. Which of the following are the words most commonly used by economists?
a. surplus and shortage b. resources and allocation c. supply and demand d. theory and practice ANS: C PTS: 1 DIF: 1 REF: 4-0 TOP: Economists MSC: Interpretive
3. In a market economy,
a. supply determines demand and, in turn, demand determines prices. b. demand determines supply and, in turn, supply determines prices.
c. the allocation of scarce resources determines prices and, in turn, prices determine supply and demand. d. supply and demand determine prices and, in turn, prices allocate scarce resources. ANS: D PTS: 1 DIF: 2 REF: 4-0 TOP: Market economy MSC: Interpretive
4. In a market economy, supply and demand are important because they
a. play a critical role in the allocation of the economy’s scarce resources. b. determine how much of each good gets produced.
c. can be used to predict the impact on the economy of various events and policies. d. All of the above are correct. ANS: D PTS: 1 DIF: 1 REF: 4-0 TOP: Market economy MSC: Interpretive
5. A market is a
a. group of buyers and sellers of a particular good or service. b. group of people with common economic characteristics.
c. place where buyers and sellers come together to engage in trade. d. place where an auctioneer helps set prices and arrange sales. ANS: A PTS: 1 DIF: 1 REF: 4-1 TOP: Markets MSC: Definitional
6. For a market for a good or service to exist, a. there must be a group of buyers and sellers.
b. there must be a specific time and place at which the good or service is traded. c. the price of the good must be determined by the sellers. d. All of the above are correct. ANS: A PTS: 1 DIF: 1 REF: 4-1 TOP: Market(s MSC: Definitional
7. The term market always refers to
a. an arrangement in which buyers and sellers meet at a specific time and place.
b. an arrangement in which an auctioneer plays at least a limited role in setting prices. c. a group of buyers and sellers of a particular good or service. d. All of the above are correct. ANS: C PTS: 1 DIF: 1 REF: 4-1 TOP: Markets MSC: Definitional
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8. A group of buyers and sellers of a particular good or service is called a
a. coalition. b. partnership. c. market. d. union. ANS: C PTS: 1 DIF: 1 REF: 4-1 TOP: Markets MSC: Definitional
9. A market is always characterized by a. a high degree of organization.
b. an individual or small group of individuals who set the price of the product for all buyers and sellers. c. the presence of buyers and sellers. d. All of the above are correct. ANS: C PTS: 1 DIF: 2 REF: 4-1 TOP: Markets MSC: Interpretive
10. Which of the following statements is correct?
a. Buyers determine supply and sellers determine demand. b. Buyers determine demand and sellers determine supply.
c. Buyers and sellers as one group determine supply, but only buyers determine demand. d. Buyers and sellers as one group determine demand, but only sellers determine supply. ANS: B PTS: 1 DIF: 2 REF: 4-1 TOP: Demand | Supply MSC: Interpretive
11. For each good produced in a market economy, the interaction of demand and supply determines
a. the price of the good, but not the quantity. b. the quantity of the good, but not the price.
c. both the price of the good and the quantity of the good.
d. neither price nor quantity, because prices and quantities are determined by the sellers of the goods alone. ANS: C PTS: 1 DIF: 2 REF: 4-1 TOP: Market economy MSC: Interpretive 12. A competitive market is a market in which
a. an auctioneer helps set prices and arrange sales. b. there are only a few sellers.
c. the forces of supply and demand do not apply.
d. no individual buyer or seller has any significant impact on the market price. ANS: D PTS: 1 DIF: 1 REF: 4-1 TOP: Competitive markets MSC: Definitional 13. The demand for a good or service is determined by
a. those who buy the good or service. b. the government.
c. the producers who create the good or service.
d. those who supply the raw materials used in the production of the good or service. ANS: A PTS: 1 DIF: 2 REF: 4-1 TOP: Demand MSC: Interpretive
14. A competitive market is one in which
a. there is only one seller, but there are many buyers.
b. there are many sellers and each seller has the ability to set the price of his product.
c. there are many sellers and they compete with one another in such a way that some sellers are always being forced
out of the market.
d. there are so many buyers and so many sellers that each has a negligible impact on the price of the product. ANS: D PTS: 1 DIF: 2 REF: 4-1 TOP: Competitive markets MSC: Definitional
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15. In a competitive market,
a. only a few sellers sell the same product.
b. each seller has a limited degree of control over the price of his product.
c. if one buyer chooses to purchase a large quantity of the product, the price will rise. d. if one seller withholds his product from the market, prices will rise. ANS: B PTS: 1 DIF: 2 REF: 4-1 TOP: Competitive markets MSC: Interpretive
16. In a competitive market, each seller has limited control over the price of his product because
a. other sellers are offering similar products.
b. buyers exert more control over the price than do sellers. c. these markets are highly regulated by government.
d. sellers usually agree to set a common price that will allow each seller to earn a comfortable profit. ANS: A PTS: 1 DIF: 2 REF: 4-1 TOP: Competitive markets MSC: Interpretive
17. Most markets in the economy are
a. markets in which sellers, rather than buyers, control the price of the product. b. markets in which buyers, rather than sellers, control the price of the product.
c. markets in which each seller of the product is aware that there are few, if any, similar products offered by other
sellers.
d. highly competitive. ANS: D PTS: 1 DIF: 2 REF: 4-1 TOP: Markets MSC: Interpretive
18. For a competitive market, which of the following statements is correct?
a. A seller can always increase her profit by raising the price of her product.
b. If a seller charges more than the going price, buyers will go elsewhere to make their purchases. c. A seller often charges less than the going price to increase sales and profit.
d. A single buyer can influence the price of the product, but only when purchasing from several sellers in a short
period of time.
ANS: B PTS: 1 DIF: 2 REF: 4-1 TOP: Competitive markets MSC: Interpretive 19. Assume Teresa buys computers in a competitive market. Then
a. Teresa has a limited number of sellers to turn to when she buys a computer. b. Teresa will find herself negotiating with sellers whenever she buys a computer.
c. if Teresa buys a large number of computers, the price of computers will rise noticeably. d. None of the above is correct. ANS: D PTS: 1 DIF: 2 REF: 4-1 TOP: Competitive markets MSC: Interpretive 20. The highest form of competition is called
a. absolute competition. b. cutthroat competition. c. perfect competition. d. market competition. ANS: C PTS: 1 DIF: 1 REF: 4-1 TOP: Perfect competition MSC: Definitional
21. Which of the following is not a characteristic of a perfectly competitive market?
a. Different sellers sell identical products. b. There are many sellers.
c. Sellers must accept the price the market determines.
d. All of the above are characteristics of a perfectly competitive market. ANS: D PTS: 1 DIF: 2 REF: 4-1 TOP: Perfect competition MSC: Interpretive
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22. Which of the following is not a characteristic of a perfectly competitive market?
a. Sellers possess market power. b. There are many sellers.
c. Buyers must accept the price the market determines.
d. All of the above are characteristics of a perfectly competitive market. ANS: A PTS: 1 DIF: 2 REF: 4-1 TOP: Perfect competition MSC: Interpretive
23. The term price takers refers to buyers and sellers in
a. perfectly competitive markets. b. monopolies.
c. markets that are regulated by government.
d. markets in which buyers cannot buy all they want and/or sellers cannot sell all they want. ANS: A PTS: 1 DIF: 2 REF: 4-1 TOP: Perfect competition MSC: Interpretive 24. Buyers and sellers who have no influence on market price are referred to as
a. market pawns. b. marginalists. c. price takers. d. price makers. ANS: C PTS: 1 DIF: 1 REF: 4-1 TOP: Perfect competition MSC: Definitional 25. Price takers have no influence over prices in markets that feature
a. only a few buyers and a few sellers. b. numerous sellers but only a few buyers. c. numerous buyers but only a few sellers. d. numerous buyers and numerous sellers. ANS: D PTS: 1 DIF: 1 REF: 4-1 TOP: Perfect competition MSC: Interpretive 26. An example of a perfectly competitive market would be the
a. cable TV market. b. soybean market. c. new car market. d. blue jean market. ANS: B PTS: 1 DIF: 2 REF: 4-1 TOP: Perfect competition MSC: Interpretive
27. The market for ice cream is
a. a monopolistic market. b. a competitive market.
c. a highly organized market.
d. a market in which there is no connection whatsoever between buyers and sellers. ANS: B PTS: 1 DIF: 1 REF: 4-1 TOP: Markets MSC: Interpretive
28. If a seller in a competitive market chooses to charge more than the market price, then
a. the sellers’ profits definitely would increase.
b. the owners of the raw materials used in production would raise the prices for the raw materials. c. other sellers would also raise their prices.
d. buyers will tend to make purchases from other sellers. ANS: D PTS: 1 DIF: 2 REF: 4-1 TOP: Competitive markets MSC: Interpretive
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29. If buyers and sellers in a certain market are price takers, then individually
a. they have no influence on market price.
b. they have some influence on market price, but that influence is limited.
c. buyers will be able to find prices lower than those determined in the market. d. sellers will find it difficult to sell all they want to sell at the market price. ANS: A PTS: 1 DIF: 2 REF: 4-1 TOP: Perfect competition MSC: Interpretive 30. A monopoly is a market
a. with one seller, and that seller is a price taker. b. with one seller, and that seller sets the price. c. with one buyer.
d. in which competition has reached its highest form. ANS: B PTS: 1 DIF: 1 REF: 4-1 TOP: Monopoly MSC: Definitional
31. Which of the following would most likely serve as an example of a monopoly?
a. a bakery in a large city b. a bank in a large city
c. a local cable television company d. a small group of corn farmers ANS: C PTS: 1 DIF: 1 REF: 4-1 TOP: Monopoly MSC: Interpretive
32. Despite the fact that not all markets are perfectly competitive, the study of perfect competition is worthwhile, in part
because
a. buyers and sellers are price takers in all markets, not just in perfectly competitive markets.
b. buyers find it difficult to buy all they want to buy, and sellers find it difficult to sell all they want to sell, in all
markets, not just in perfectly competitive markets.
c. some degree of competition is present in most markets, not just in perfectly competitive markets.
d. perfectly competitive markets are the most difficult markets to analyze, and this makes the study of other types of
markets easy in comparison.
ANS: C PTS: 1 DIF: 2 REF: 4-1 TOP: Perfect competition MSC: Interpretive 33. To say that the quantity demanded of a good is negatively related to the price of the good is to say that
a. an increase in the quantity demanded of the good leads to a decrease in the price of the good. b. an increase in the price of the good leads to a decrease in the quantity demanded of the good. c. there is a weak relationship between the quantity demanded of a good and the price of the good. d. there is no relationship between the quantity demanded of a good and the price of the good. ANS: B PTS: 1 DIF: 2 REF: 4-2 TOP: Price | Quantity demanded MSC: Interpretive
34. Quantity demanded falls as the price rises and rises as the price falls, so we say that
a. quantity demanded is determined by quantity supplied. b. price is determined by quantity demanded. c. quantity demanded is a function of demand.
d. quantity demanded is negatively related to the price. ANS: D PTS: 1 DIF: 2 REF: 4-2 TOP: Price | Quantity demanded MSC: Interpretive
35. The negative relationship between price and quantity demanded
a. applies to most goods in the economy.
b. is represented by a downward-sloping demand curve. c. is referred to as the law of demand. d. All of the above are correct. ANS: D PTS: 1 DIF: 1 REF: 4-2 TOP: Negative relationships | Law of demand MSC: Interpretive