3 Chapter Sample Multiple-Choice Questions
1. All of the following are determinants of demand except: a) tastes and preferences c) income. b) quantity supplied. d) price of related goods. 2. Which of the following statements is false? a) If resources are allocated efficiently, they are allocated to their highest-valued uses. b) The primary function of an economic system is to ration scarce resources, goods, and services. c) If resources are allocated efficiently all wants are satisfied. d) All economic systems must determine methods for reconciling the competing claims to scarce resources. 3. Markets develop to: a) Avoid the use of a rationing device. b) Economize transactions cost.
c) Make sure individuals pay and receive a "fair" price. d) Prevent marginal benefit from declining.
4. Which of the following is not considered a determinant of supply? a) technology. c) number of buyers. b) taxes and subsidies. d) resource prices. 5. A movement along the demand curve for soft drinks is best described as: a) An increase in demand. c) A change in quantity demanded. b) A decrease in demand. d) A change in demand. 6. Suppose income increases. What occurs at the initial equilibrium price for a normal good that signals market participants that the equilibrium price must change? a) Excess demand. c) A surplus. b) Excess supply. d) The supply curve shifts to the right. 7. What is the reaction of suppliers to an increase in the incomes of consumers? a) Suppliers do not react, since income shifts the demand curve, not the supply curve. b) The supply curve shifts to the right. c) The supply curve shifts to the left. d) Quantity supplied increases. 8. If video tape movies for home rental and movies seen at a theater are substitutes, and the price of movies seen at a theater increases, what will happen to the equilibrium price (rental fee) and equilibrium quantity for movies on video tape? a) price increases; quantity decreases. c) price decreases; quantity increases. b) price decreases; quantity decreases. d) price increases; quantity increases. 9. If the price of Pepsi decreases relative to the price of Coke and 7-Up, the demand for: a) coke will decrease. c) coke and 7-Up will increase. b) 7-Up will decrease. d) coke and 7-Up will decrease.
10. Assume that consumers' incomes and the number of sellers in the market for good A both decrease. Based upon this information we can conclude, with certainty, that equilibrium: a) price will increase. c) quantity will increase. b) price will decrease. d) quantity will decrease. 11. Suppose that the supply of cameras increases due to an increase in foreign imports. Which of the following will most likely occur? a) the equilibrium price of cameras will increase. b) the equilibrium quantity of cameras exchanged will decrease. c) the equilibrium price of camera film will decrease. d) the equilibrium quantity of camera film exchanged will increase. 12. Assume that at the same time that a geological study results in the discovery of huge deposits of oil in the United States, there is a shift in consumer preferences toward mass transit, as opposed to personal cars. Based on this, we can conclude, with certainty, that in the market for gasoline, equilibrium: a) price will decrease. c) quantity will decrease. b) price will increase. d) quantity will increase. 13. Assume that in the market for good Z there is a simultaneous increase in demand and the quantity supplied. The result will be: a) an increase in equilibrium price and quantity. b) a decrease in equilibrium price and quantity. c) an increase in equilibrium quantity and uncertain effect on equilibrium price. d) a decrease in equilibrium price and increase in equilibrium quantity. 14. Which of the following statements is correct? a) A change in demand or supply can only be caused by a change in price. b) A simultaneous decrease in demand and increase in supply will result in an increase in equilibrium price and uncertain effect on quantity. c) If price is currently above equilibrium, market adjustments will result in a decrease in price and quantity supplied. d) An increase in supply invariably leads to a shortage in the affected market. 15. Suppose consumers expect a recession to begin in the next few months. They might react by trying to save more in case they are laid-off or have to work reduced hours. Under these circumstances, what would happen to the equilibrium prices and quantities of the goods the consumer usually buy? a) price increases; quantity decreases. c) price decreases; quantity increases. b) price decreases; quantity decreases. d) price increases; quantity increases. 16. As the price of milk increases, what would reasonably be expected to happen to the equilibrium price and equilibrium quantity for cereal? (Milk and cereal are complements.) a) price increases; quantity decreases. c) price decreases; quantity increases. b) price decreases; quantity decreases. d) price increases; quantity increases. 17. Referring to the previous question, what happens at the original equilibrium that signals market participants that the original equilibrium must change? a) Excess demand. c) A shortage. b) A surplus. d) The supply curve shifts to the left.
18. Suppose an auto firm's factories are capable of producing both large and small cars and are operating at full capacity. Suppose the price of large cars increases, due to an increase in demand. What would reasonably be expected to happen to the equilibrium price and equilibrium quantity for the firm's small cars? a) price increases; quantity decreases. b) price decreases; quantity decreases. c) price decreases; quantity increases. d) price increases; quantity increases. 19. Which of the following statements is false? a) The fundamental premise of economics, as applied to consumption decisions, says all goods are normal goods. b) The law of demand says that the quantity of a good demanded and its price are negatively related. c) One reason demand curves are downward-sloping is that as more of a good is consumed, consumers are willing to pay less for each additional unit. d) If individuals are to maximize their benefits from exchanging goods, they must know what their alternatives are. 20. Suppose wages paid by a firm increase. What would reasonably be expected to happen to the equilibrium price and equilibrium quantity for the firm's output? a) price increases; quantity decreases. b) price decreases; quantity decreases. c) price decreases; quantity increases. d) price increases; quantity increases. 21. Referring to the previous question, what the will reaction of consumers be? a) Quantity demanded will decrease. b) Quantity demanded will increase. c) The demand curve will shift to the left. d) There will be no reaction by consumers, since input prices determine supply, not demand. 22. Suppose the technology for producing personal computers improves and, at the same time, individuals discover new uses for personal computers so that there is greater utilization of personal computers. Which of the following will happen to equilibrium price and equilibrium quantity? a) Price will increase; quantity cannot be determined. b) Price will decrease; quantity cannot be determined. c) Quantity will increase; price cannot be determined. d) Quantity will decrease; price cannot be determined. 23. Suppose over a certain period of time the technology for producing compact disk players has improved, and over the same period of time the economy has moved into a recession, causing the incomes of consumers to decrease. Which of the following will happen to the equilibrium price and equilibrium quantity for CD players? (Assume CD players are normal goods.) a) Price will increase; quantity cannot be determined. b) Price will decrease; quantity cannot be determined. c) Quantity will increase; price cannot be determined. d) Quantity will decrease; price cannot be determined.
24. Suppose the costs of production in the U.S. auto industry are rising, and at the same time, the prices of Japanese-made autos are decreasing. What would reasonably be expected to happen to the equilibrium price and equilibrium quantity for U.S.-made autos? a) Price will increase; quantity cannot be determined. b) Price will decrease; quantity cannot be determined. c) Quantity will increase; price cannot be determined. d) Quantity will decrease; price cannot be determined. 25. Which of the following best describes the influence of advertising on the market for aspirin? a) The market demand shifts to the right, creating a shortage at the original equilibrium price for aspirin. b) Individual demand curves shift to the right, but the market demand curve remains at its original position. c) The market supply curve for aspirin shifts to the right, creating a surplus at the original equilibrium price. d) The market supply curve for aspirin shifts to the right, causing equilibrium price to decrease. 26. If a firm has a fixed amount of factory or office space, which of the following will happen as output expands? a) Marginal cost increases. b) The opportunity cost of an additional unit of output decreases. c) The firm will be willing to accept a lower price for an additional unit of output. d) Worker productivity usually increases as the firm hires more labor. 27. In the previous question, the firm must be operating: a) In the short-run, because plant size is fixed. b) In the short-run, because the firm can vary the amount of labor it uses. c) In the long-run, because the firm can vary some, but not all, inputs. d) In the long-run, because plant size is fixed. 28. If a firm experiences an increase in the cost of raw materials, which of the following will occur? a) The firm's marginal cost curve will shift upward. b) The firm's supply curve will shift to the right. c) The firm's supply curve will shift downward. d) The firm will try to increase its supply. 29. Suppose wages have been increasing over a period of time, but prices have remained the same. Which of the following allows this to be possible? a) Other input prices, besides wages, have been rising. b) Demand has been increasing at the same time supply has been decreasing. c) Demand has been stable while supply has been decreasing. d) Demand has been stable and technology has been improving. 30. Suppose there is a reduction in the shipments of petroleum products due to political tension in the Persian Gulf. Which of the following does not happen? a) Oil companies "ration" their supplies of gasoline by raising price. b) There is a shortage of the original equilibrium price. c) Quantity demanded will decrease. d) The demand curve will shift to the left.
31. Suppose the auto market is initially in equilibrium with imports from Japan taking up a significant share of the market. Suppose a quota on imports of Japanese cars is established. What happens at the initial equilibrium price to signal to market participants the change that has taken place? a) Excess supply. c) A shortage. b) A surplus. d) The demand curve shifts to the left. 32. Referring to the previous question, what will happen to the equilibrium price and quantity for cars? a) They will stay the same as domestic producers replace the cars once imported. b) The shortage will cause the equilibrium price to increase and equilibrium quantity will decrease. c) The surplus will cause equilibrium price to decrease and equilibrium quantity to increase. d) The shift in the demand curve will cause equilibrium price to increase and equilibrium quantity to increase. 33. Ceteris paribus, if the market for diet soft drinks is initially in equilibrium and a new brand of diet soft drink is then introduced into the market, this will cause: a) a decrease in equilibrium price and quantity. b) an increase in equilibrium price and quantity. c) a decrease in equilibrium price and increase in equilibrium quantity. d) an increase in equilibrium price and decrease in equilibrium quantity. 34. A change in the relative amounts of the factors of production would most likely result in: a) A change in product prices and a movement along the PPF. b) A change in product prices and no movement along the PPF. c) A movement along the PPF, but no change in product prices. d) No change in product prices and no movement along the PPF. 35. Which of the following is an example of the "What" question? a) "Should we produce ten-speed bicycles or all-terrain bicycles?" b) "Should we produce New Coke with NutraSweet or cane sugar?" c) "Is it better to use migrant workers or automated machines to harvest our crops?" d) "What are we going to do to ensure that we are producing personal computers at the lowest possible cost?" 36. Which of the following is an example of the "How" question? a) "Should we produce ten-speed bicycles or all-terrain bicycles?" b) "Is it better to use migrant workers or automated machines to harvest our crops?" c) "What are we going to do to ensure that the real income of the elderly is maintained?" d) "How do we determine whether the current distribution of income is fair?"