Chapter 4
The Market Forces of Supply and Demand
TRUE/FALSE
1. Prices allocate a market economy’s scarce resources.ANS: T DIF: 1 REF: 4-0 NAT: Analytic LOC: Markets, market failure, and externalities TOP: Market economies MSC: Definitional
2.
In a market economy, supply and demand determine both the quantity of each good produced and the price at
which it is sold.ANS: T DIF: 1 REF: 4-0 NAT: Analytic LOC: Markets, market failure, and externalities TOP: Market economies MSC: Definitional
3. A market is a group of buyers and sellers of a particular good or service.ANS: T DIF: 1 REF: 4-1 NAT: Analytic LOC: Markets, market failure, and externalities TOP: Markets MSC: Definitional
4.
Sellers as a group determine the demand for a product, and buyers as a group determine the supply of a
product.ANS: F DIF: 1 REF: 4-1 NAT: Analytic LOC: Supply and demand TOP: Demand | Supply MSC: Definitional
5. A yard sale is an example of a market.ANS: T DIF: 2 REF: 4-1 NAT: Analytic LOC: Markets, market failure, and externalities TOP: Markets MSC: Applicative
6. A newspaper’s classified ads are an example of a market.ANS: T DIF: 2 REF: 4-1 NAT: Analytic LOC: Markets, market failure, and externalities TOP: Markets MSC: Applicative
7. Most markets in the economy are highly competitive.ANS: T DIF: 1 REF: 4-1 NAT: Analytic LOC: Markets, market failure, and externalities TOP: Markets MSC: Definitional
8.
In a competitive market, the quantity of each good produced and the price at which it is sold are not
determined by any single buyer or seller.ANS: T DIF: 1 REF: 4-1 NAT: Analytic LOC: Markets, market failure, and externalities TOP: Competitive markets MSC: Definitional
9.
In a competitive market, there are so few buyers and so few sellers that each has a significant impact on the
market price.ANS: F DIF: 1 REF: 4-1 NAT: Analytic LOC: Markets, market failure, and externalities TOP: Competitive markets MSC: Definitional
10. In a perfectly competitive market, the goods offered for sale are all exactly the same.ANS: T DIF: 1 REF: 4-1 NAT: Analytic LOC: Perfect competition TOP: Perfect competition MSC: Definitional
202
Chapter 4 /The Market Forces of Supply and Demand ? 203
11. In a perfectly competitive market, buyers and sellers are price setters.
ANS: F DIF: 1 REF: 4-1 NAT: Analytic LOC: Perfect competition TOP: Perfect competition MSC: Definitional
12. All goods and services are sold in perfectly competitive markets.ANS: F DIF: 1 REF: 4-1 NAT: Analytic LOC: Perfect competition MSC: Definitional
TOP: Perfect competition
13. If a good or service has only one seller, then the seller is called a monopoly.ANS: T DIF: 1 REF: 4-1 NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Definitional
14. Monopolists are price takers.ANS: F DIF: 2 NAT: Analytic LOC: Monopoly
REF: 4-1
TOP: Monopoly
MSC: Interpretive
15. Local cable TV companies frequently are monopolists.ANS: T DIF: 1 REF: 4-1 NAT: Analytic LOC: Monopoly TOP: Monopoly
MSC: Definitional
16. The quantity demanded of a product is the amount that buyers are willing and able to purchase at a particular
price.ANS: T DIF: 1 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Quantity demanded MSC: Definitional
17. The law of demand is true for most goods in the economy.ANS: T DIF: 1 REF: 4-2 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Law of demand
18. The law of demand states that, other things equal, when the price of a good rises, the quantity demanded of the
good rises, and when the price falls, the quantity demanded falls.ANS: F DIF: 1 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Law of demand MSC: Definitional
19. The demand curve is the upward-sloping line relating price and quantity demanded.ANS: F DIF: 1 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Demand curve MSC: Definitional
20. Individual demand curves are summed horizontally to obtain the market demand curve.ANS: T DIF: 1 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Market demand curve MSC: Definitional
21. The market demand curve shows how the total quantity demanded of a good varies as the income of buyers
varies, while all the other factors that affect how much consumers want to buy are held constant.ANS: F DIF: 1 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Market demand curve MSC: Definitional
22. If something happens to alter the quantity demanded at any given price, then the demand curve shifts.ANS: T DIF: 1 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Demand curve MSC: Definitional
204 ? Chapter 4 /The Market Forces of Supply and Demand
23. A movement upward and to the left along a given demand curve is called a decrease in demand..ANS: F DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Demand curve MSC: Interpretive
24. An increase in demand shifts the demand curve to the left.ANS: F DIF: 1 REF: 4-2 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Demand curve
25. If the demand for a good falls when income falls, then the good is called an inferior good.ANS: F DIF: 1 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Normal goods MSC: Definitional
26. When Mario's income decreases, he buys more pasta. For Mario, pasta is a normal good.ANS: F DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Inferior goods MSC: Applicative
27. A decrease in income will shift the demand curve for an inferior good to the right.ANS: T DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Inferior goods MSC: Interpretive
28. An increase in the price of a substitute good will shift the demand curve for a good to the right.ANS: T DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Substitutes MSC: Interpretive
29. Baseballs and baseball bats are substitute goods.ANS: F DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand MSC: Applicative
TOP: Complements
30. A decrease in the price of a complement will shift the demand curve for a good to the left.ANS: F DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Complements MSC: Interpretive
31. When an increase in the price of one good lowers the demand for another good, the two goods are called
complements.ANS: T DIF: 1 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Complements MSC: Definitional
32. Cocoa and marshmallows are complements, so a decrease in the price of cocoa will cause an increase in the
demand for marshmallows.ANS: T DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Complements MSC: Applicative
33. If a person expects the price of socks to increase next month, then that person’s current demand for socks will
increase.ANS: T DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Expectations MSC: Applicative
Chapter 4 /The Market Forces of Supply and Demand ? 205
34. A decrease in the price of a product and an increase in the number of buyers in the market affect the demand
curve in the same general way.ANS: F DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Demand curve MSC: Interpretive
35. Whenever a determinant of demand other than price changes, the demand curve shifts.ANS: T DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Demand curve MSC: Interpretive
36. An increase in the price of pizza will shift the demand curve for pizza to the left.ANS: F DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Demand curve MSC: Applicative
37. Public service announcements, mandatory health warnings on cigarette packages, and the prohibition of
cigarette advertising on television are all policies aimed at shifting the demand curve for cigarettes to the right.ANS: F DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Demand curve MSC: Applicative
38. Most studies have found that tobacco and marijuana are complements rather than substitutes.ANS: T DIF: 2 REF: 4-2 NAT: Analytic LOC: Supply and demand TOP: Complements MSC: Applicative
39. The quantity supplied of a good or service is the amount that sellers are willing and able to sell at a particular
price.ANS: T DIF: 1 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Quantity supplied MSC: Definitional
40. When the price of a good is high, selling the good is profitable, and so the quantity supplied is large.ANS: T DIF: 1 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Law of supply MSC: Definitional
41. When the price of a good is low, selling the good is profitable, and so the quantity supplied is large.ANS: F DIF: 1 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Law of supply MSC: Definitional
42. Price cannot fall so low that some sellers choose to supply a quantity of zero.ANS: F DIF: 2 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Quantity supplied MSC: Interpretive
43. The law of supply states that, other things equal, when the price of a good rises, the quantity supplied of the
good falls.ANS: F DIF: 1 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Law of supply MSC: Definitional
44. The law of supply states that, other things equal, when the price of a good falls, the quantity supplied falls as
well.ANS: T DIF: 1 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Law of supply MSC: Definitional
206 ? Chapter 4 /The Market Forces of Supply and Demand
45. If a higher price means a greater quantity supplied, then the supply curve slopes upward.ANS: T DIF: 1 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Supply curve MSC: Definitional
46. Individual supply curves are summed vertically to obtain the market supply curve.ANS: F DIF: 1 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Market supply curve MSC: Definitional
47. The market supply curve shows how the total quantity supplied of a good varies as input prices vary, holding
constant all the other factors that influence producers’ decisions about how much to sell.ANS: F DIF: 1 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Market supply curve MSC: Definitional
48. If something happens to alter the quantity supplied at any given price, then we move along the fixed supply
curve to a new quantity supplied.ANS: F DIF: 2 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Supply curve MSC: Interpretive
49. A movement along a supply curve is called a change in supply while a shift of the supply curve is called a
change in quantity supplied.ANS: F DIF: 2 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Supply | Quantity supplied MSC: Interpretive
50. A decrease in supply shifts the supply curve to the left.ANS: T DIF: 1 REF: 4-3 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Supply curve
51. A reduction in an input price will cause a change in quantity supplied, but not a change in supply.ANS: F DIF: 2 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Input prices MSC: Interpretive
52. An increase in the price of ink will shift the supply curve for pens to the left.ANS: T DIF: 2 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Input prices MSC: Applicative
53. If there is an improvement in the technology used to produce a good, then the supply curve for that good will
shift to the left.ANS: F DIF: 2 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Technology MSC: Interpretive
54. Advances in production technology typically reduce firms’ costs.ANS: T DIF: 2 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Technology MSC: Interpretive
55. If a company making frozen orange juice expects the price of its product to be higher next month, it will
supply more to the market this month.ANS: F DIF: 2 REF: 4-3 NAT: Analytic LOC: Supply and demand TOP: Expectations MSC: Applicative