ch04 - Chapter 4 Competitive Markets and Agriculture...

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Chapter 4 Competitive Markets and Agriculture True/False Questions 1. The law of supply states that producers will supply less of a product at a lower price. ANSWER: T 2. An equilibrium exists when there is no reason for a situation to change. ANSWER: T 3. An increase in the price of milk will cause an increase in the amount of milk demand. ANSWER: F 4. Cars and tires are examples of substitute goods. ANSWER: F 5. An increase in the price of Big Macs will cause the demand for Whoppers, a substitute, to fall. ANSWER: F 6. An increase in demand is represented as a rightward shift in the demand curve. ANSWER: T 7. If an increase in income causes the demand for steak to fall, then steak is an inferior good. ANSWER: T 8. A change in income will cause a change in the supply of cattle. ANSWER: F 9. A decrease in supply is represented as a rightward shift of the supply curve. ANSWER: F 10. An advance in technology in the production of cheese will cause an increase in the supply of cheese. ANSWER: T 11. If the market is in equilibrium, then quantity demanded and quantity supplied will be equal. ANSWER: T 12. Suppose the equilibrium price of oranges is $1.25 per pound. If the current price is $1.50, an excess demand will exist. ANSWER: F 13. Bananas are a normal good. An increase in income will cause the equilibrium price and quantity of bananas to fall. ANSWER: F 1
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2 Chapter 4/Competitive Markets and Agriculture 14. If demand for a product decreases, there will be excess supply at the original equilibrium price. ANSWER: T 15. Suppose the price of wheat used in producing bread decreases. The equilibrium price of bread will decrease and the equilibrium quantity of bread will increase. ANSWER: T 16. Suppose demand and supply both increase. We do not know how equilibrium quantity will respond. ANSWER: F 17. Increases in the supply of agriculture products have led to a downward trend in the prices of agriculture products. ANSWER: T 18. The quantity of farm products demanded is very responsive to price changes. ANSWER: F 19. As the price of farm products has fallen, the demand for farm labor has increased. ANSWER: F 20. A program of marketing orders tends to raise price in the primary market and lower price in the secondary market. ANSWER: T 21. A price support sets a maximum price that can be charged for a product. ANSWER: F 22. Price supports result in excess supply. ANSWER: T 23. The existence of economic profits has been one reason for government regulation of agriculture. ANSWER: F 24. Output constraints have been very successful in reducing the supply of farm products. ANSWER: F 25. The decline of the family farm has been the result of technical and economic forces that would be difficult to reverse. ANSWER: T 26. Members of Congress trading votes to pass legislation of interest to each other is called “Logrolling.” ANSWER: T 27. A competitive market is one where there are no barriers to entry, and there are many buyers and many sellers.
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