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75. Good X and good Y are substitutes. If the price of good Y increases, then the
a. demand for good X will decrease. b. market price of good X will decrease. c. demand for good X will increase.
d. quantity demanded of good X will increase. ANS: C PTS: 1 DIF: 2 REF: 4-4 TOP: Substitutes MSC: Interpretive
76. Suppose that a decrease in the price of good X results in fewer units of good Y being sold. This implies that X and Y
are
a. complementary goods. b. normal goods. c. inferior goods. d. substitute goods. ANS: D PTS: 1 DIF: 3 REF: 4-4 TOP: Substitutes MSC: Applicative
77. When supply and demand both increase, equilibrium
a. price will increase. b. price will decrease.
c. quantity may increase, decrease, or remain unchanged. d. price may increase, decrease, or remain unchanged. ANS: D PTS: 1 DIF: 2 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Applicative 78. If there is a shortage of farm laborers, we would expect
a. the wages of farm laborers to increase. b. the wages of farm laborers to decrease. c. the prices of farm commodities to decrease.
d. a decrease in the demand for substitutes for farm labor. ANS: A PTS: 1 DIF: 2 REF: 4-4 TOP: Shortages MSC: Applicative
79. Which of the following events would cause both the equilibrium price and equilibrium quantity of number two grade
potatoes (an inferior good) to increase? a. an increase in consumer income b. a decrease in consumer income
c. greater government restrictions on agricultural chemicals d. fewer government restrictions on agricultural chemicals ANS: B PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium price | Equilibrium quantity | Inferior goods MSC: Applicative 80. Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts?
a. an increase in the price of wool shirts and a decrease in the price of raw cotton b. a decrease in the price of wool shirts and a decrease in the price of raw cotton c. an increase in the price of wool shirts and an increase in the price of raw cotton d. a decrease in the price of wool shirts and an increase in the price of raw cotton ANS: B PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand | Price MSC: Applicative
Table 4-4 An Increase in Demand A Decrease in Demand An Increase in Supply A C A Decrease in Supply B D 158 ? Chapter 4/The Market Forces of Supply and Demand
81. Refer to Table 4-4. Which space represents an increase in equilibrium quantity and an indeterminate change in
equilibrium price? a. A. b. B. c. C. d. D. ANS: A PTS: 1 DIF: 2 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Applicative 82. Refer to Table 4-4. Which space represents an increase in equilibrium price and an indeterminate change in
equilibrium quantity? a. A. b. B. c. C. d. D. ANS: B PTS: 1 DIF: 2 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Applicative 83. Refer to Table 4-4. Which space represents a decrease in equilibrium price and an indeterminate change in
equilibrium quantity? a. A. b. B. c. C. d. D. ANS: C PTS: 1 DIF: 2 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Applicative 84. Refer to Table 4-4. Which space represents a decrease in equilibrium quantity and an indeterminate change in
equilibrium price? a. A. b. B. c. C. d. D. ANS: D PTS: 1 DIF: 2 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Applicative 85. What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the
price of tea fell?
a. Price will fall and the effect on quantity is ambiguous. b. Price will rise and the effect on quantity is ambiguous. c. Quantity will fall and the effect on price is ambiguous. d. Quantity will rise and the effect on price is ambiguous. ANS: A PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Applicative 86. New oak tables are normal goods. What would happen to the equilibrium price and quantity in the market for oak
tables if the price of maple tables rises, the price of oak wood rises, more buyers enter the market for oak tables and the price of wood saws increased?
a. Price will fall and the effect on quantity is ambiguous. b. Price will rise and the effect on quantity is ambiguous. c. Quantity will fall and the effect on price is ambiguous. d. Quantity will rise and the effect on price is ambiguous. ANS: B PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Analytical
Chapter 4/The Market Forces of Supply and Demand ? 159
87. What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel
rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages? a. Price will fall and the effect on quantity is ambiguous. b. Price will rise and the effect on quantity is ambiguous. c. Quantity will fall and the effect on price is ambiguous. d. Quantity will rise and the effect on price is ambiguous. ANS: C PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Analytical 88. Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact
discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music compact discs and music lovers experience an increase in income? a. Price will fall and the effect on quantity is ambiguous. b. Price will rise and the effect on quantity is ambiguous. c. Quantity will fall and the effect on price is ambiguous. d. Quantity will rise and the effect on price is ambiguous. ANS: D PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Analytical 89. New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the
price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages and automobile insurance becomes more expensive? a. Price will rise. b. Price will fall.
c. Price will stay exactly the same. d. The price change will be ambiguous. ANS: B PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Analytical 90. What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper,
textbook authors accept lower royalties and fewer used textbooks are sold? a. Price will rise. b. Price will fall.
c. Price will stay exactly the same. d. The price change will be ambiguous. ANS: D PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Analytical 91. Consider the market for new DVDs. If DVD players became cheaper, buyers expected DVD prices to fall next year,
used DVDs became more expensive, and DVD production technology improved, then we could safely conclude that the equilibrium price of a new DVD would a. rise. b. fall.
c. stay the same.
d. We couldn't be sure what it might do. ANS: D PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Analytical 92. What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up, the price of
jelly (a complementary good) fell, fewer firms decided to produce peanut butter, and health officials announced that eating peanut butter was good for you?
a. Price will fall and the effect on quantity is ambiguous. b. Price will rise and the effect on quantity is ambiguous. c. Quantity will fall and the effect on price is ambiguous. d. The effect on both price and quantity is ambiguous. ANS: B PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Analytical
160 ? Chapter 4/The Market Forces of Supply and Demand
93. Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers
experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase? a. Price will rise. b. Price will fall.
c. Price will stay exactly the same. d. The price change will be ambiguous. ANS: A PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Analytical 94. Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers
experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to fall in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers decrease? a. Price will rise. b. Price will fall.
c. Price will stay exactly the same. d. The price change will be ambiguous. ANS: D PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Analytical 95. Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which
of the following explanations would be most consistent with this observation?
a. Consumers have experienced an increase in income and beef-production technology has improved. b. The price of chicken has risen and the price of steak sauce has fallen.
c. New medical evidence has been released that indicates a negative correlation between a person’s beef
consumption and his or her longevity.
d. The demand curve for beef must be positively sloped. ANS: C PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand MSC: Applicative 96. Which of the following sets of events would most likely cause an increase in the price of a new house?
a. higher wages for carpenters, higher wood prices, increases in consumer incomes, higher apartment rents,
increases in population and expectations of higher house prices in the future
b. lower wages for carpenters, lower wood prices, increases in consumer incomes, higher apartment rents, increases
in population and expectations of higher house prices in the future
c. lower wages for carpenters, higher wood prices, decreases in consumer incomes, higher apartment rents,
decreases in population and expectations of higher house prices in the future
d. higher wages for carpenters, lower wood prices, decreases in consumer incomes, lower apartment rents,
decreases in population and expectations of lower house prices in the future
ANS: A PTS: 1 DIF: 3 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Analytical 97. Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in
the market for the good?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. c. Both equilibrium price and quantity would increase. d. Both equilibrium price and quantity would decrease. ANS: B PTS: 1 DIF: 2 REF: 4-4 TOP: Equilibrium | Supply | Demand MSC: Applicative 98. Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input
prices. What would we expect to occur in this market?
a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous. b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous. c. Both equilibrium price and equilibrium quantity would increase.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. ANS: B PTS: 1 DIF: 2 REF: 4-4 TOP: Equilibrium | Demand | Supply MSC: Applicative
Chapter 4/The Market Forces of Supply and Demand ? 161
99. Which of the following events would definitely result in a higher price in the market for Snickers?
a. Demand for Snickers increases and supply of Snickers decreases. b. Demand for Snickers and supply of Snickers both decrease.
c. Demand for Snickers decreases and supply of Snickers increases. d. Demand for Snickers and supply of Snickers both increase ANS: A PTS: 1 DIF: 2 REF: 4-4 TOP: Equilibrium price | Demand | Supply MSC: Applicative 100. An early frost in the vineyards of Napa Valley would cause
a. an increase in the demand for wine, increasing price. b. an increase in the supply of wine, decreasing price. c. a decrease in the demand for wine, decreasing price. d. a decrease in the supply of wine, increasing price. ANS: D PTS: 1 DIF: 2 REF: 4-4 TOP: Equilibrium | Supply MSC: Applicative
101. The signals that guide the allocation of resources in a market economy are
a. surpluses and shortages. b. quantities.
c. property rights. d. prices. ANS: D PTS: 1 DIF: 1 REF: 4-5 TOP: Resource allocation | Prices MSC: Interpretive
102. In a free market system, what coordinates the actions of millions of people with their varying abilities and desires?
a. producers b. prices c. consumers d. the government ANS: B PTS: 1 DIF: 1 REF: 4-5 TOP: Resource allocation | Prices MSC: Interpretive
103. Which of these statements does not apply to market economies?
a. Prices guide economic decisions and thereby allocate scarce resources. b. Prices ensure that quantity supplied and quantity demanded are in balance. c. Prices ensure that anyone who wants a product can get it.
d. Prices influence how much of a good buyers choose to purchase and how much sellers choose to produce. ANS: C PTS: 1 DIF: 2 REF: 4-5 TOP: Resource allocation | Prices MSC: Interpretive
True/False
1. Prices, which are determined by all buyers and sellers as they interact in the marketplace, allocate the economy's scarce resources. ANS: T PTS: 1 DIF: 2 REF: 4-0 TOP: Prices | Resource allocation MSC: Interpretive
2. A market is a group of buyers and sellers of a particular product. ANS: T PTS: 1 DIF: 1 REF: 4-1 TOP: Markets MSC: Definitional
3. In a perfectly competitive market, buyers and sellers are price setters. ANS: F PTS: 1 DIF: 2 REF: 4-1 TOP: Perfect competition MSC: Interpretive 4. If a good or service has only one seller, it is called a monopoly. ANS: T PTS: 1 DIF: 1 REF: 4-1 TOP: Monopoly MSC: Definitional
5. Local cable TV companies frequently are monopolists. ANS: T PTS: 1 DIF: 1 REF: 4-1 TOP: Monopoly MSC: Interpretive