Additional Exercises
3rd edition
Chapter 5:
1) When economists describe "a market," they mean:
a) A place where stocks and bonds are traded
b) A communication network that allow individuals to keep in touch with each other
c) A hypothetical place where the production of goods and services takes place
d) A system that allows buyers and sellers to interact with one another
2) Which of the following is consistent with the law of demand?
a) A decrease in the price of tacos causes sellers to want to sell less
b) An increase in the people's craving for pizza causes buyers to buy more pizza
c) An increase in the price of hamburgers causes buyers to buy fewer hamburgers
d) A decrease in the price of egg rolls causes a decrease in the quantity of egg rolls
demanded
3) There is a shortage in a market for a product when:
a) The current price is higher than the equilibrium price
b) Supply is more than demand
c) Quantity demanded is less than quantity supplied
d) Quantity demanded is greater than quantity supplied
4) Last year the price of corn was R3 a bushel and the quantity of corn demanded was 10
million bushels. This year the price of corn was R4.00 a bushel and the quantity demanded
was 11 million bushels. Is this evidence that law of demand does not apply to corn?
a) Yes, because there is a direct relationship between the price of corn and the quantity
supplied
b) Yes, because there is an inverse relationship between the price of corn and the quantity
demanded
c) No, because the other-things-equal assumption was violated over the two year period
d) No, because the evidence indicates that there is a shortage of corn
5) If a price ceiling is set below the equilibrium price in a market:
a) Rationing will be unnecessary
b) Surpluses of the commodity will develop
c) The quantity demanded will exceed the quantity supplied
d) The quantity supplied will exceed the quantity demanded
6) In a competitive market illustrated by the diagram above, for a price floor to be effective
and alter the market situation, it must be set:
a) At $15
b) Below $15
c) Above $15
d) At $10
7) Answer the question based on the following supply and demand schedules in units per
week for a product.
Refer to the above table. If demand increased by 100 units at each price level, and the
government set a price ceiling of $40, then there will be:
a) A shortage
b) A surplus
c) No shortage or surplus
d) Decrease in supply
8) A black market could arise as a result of:
a) The imposition of a legal price floor below the equilibrium price
b) The imposition of a legal price ceiling above the equilibrium price
c) The imposition of a legal price floor at the equilibrium price
d) The imposition of a legal price ceiling below the equilibrium price
9) A headline reads "Perfect Weather Brings Record-High Coffee Harvest." This situation
would lead to a(n):
a) Increase in the price and in the quantity purchased of coffee
b) Decrease in the price and in the quantity purchased of coffee
c) Increase in the price and a decrease in the quantity purchased of coffee
d) Decrease in the price and an increase in quantity purchased of coffee
10) Use the following to answer the questions:
1 2 3 4 5
Q Q P Q Q
d d r s s
i
c
e
(
R
)
5 4 1 7 8
0
6 5 9 6 7
8 6 8 5 6
9 7 7 4 5
1 8 6 3 4
0
10.1If demand is represented by columns (3) and (2) and supply is
represented by columns (3) and (5), equilibrium price and quantity will be:
10.2 If demand is represented by columns (3) and (1) and supply is
represented by columns (3) and (4), equilibrium price and quantity will be:
10.3 In relation to column (3), a change from column (2) to column (1) would
indicate a(n):
10.4 In relation to column (3), a change from column (5) to column (4) would
indicate a(n):
10.5 Suppose that demand is represented by columns (3) and (2) and supply
is represented by columns (3) and (5). If the price were artificially set at
R9, a:
10.6 Suppose that demand is represented by columns (3) and (2) and supply
is represented by columns (3) and (5). If the price were artificially set at
R6, a:
11) Use the following graphs to answer questions:
11.1 Which of the above diagrams illustrate(s) the effect of an increase in
motor car worker wages on the market for motor cars?
11.2 Which of the above diagrams illustrate(s) the effect of a decline in the
price of personal computers on the market for software?
11.3 Which of the above diagrams illustrate(s) the effect of an increase in the
price of Castle for Windhoek beer?
11.4 Which of the above diagrams illustrate(s) the effect of a decrease in
incomes on the market for second-hand clothing?
11.5 Which of the above diagrams illustrate(s) the effect of a governmental
subsidy on the market for AIDS research?
11.6 Which of the above diagrams illustrate(s) the effect of a decline in the
price of irrigation equipment on the market for corn?
12) Use the following to answer the questions:
12.1 In the market for bicycles. S1 and D1 are the original supply and demand
curves. D2 and D3 and S2 and S3 are possible new demand and supply
curves. Starting from the initial equilibrium point (#1), what point on the graph
is most likely to result from the introduction of technological improvements in
bicycle assembly, and publicity campaigns by the government on the virtues of
bicycling to work?
12.2 In the market for bicycles. S1 and D1 are the original supply and demand
curves. D2 and D3 and S2 and S3 are possible new demand and supply
curves. Starting from the initial equilibrium point (#1), what point on the graph
is most likely to result from an increase in wages of bicycle workers, and a
significant increase in the price of gasoline?
12.3 In the market for bicycles. S1 and D1 are the original supply and demand
curves. D2 and D3 and S2 and S3 are possible new demand and supply
curves. Starting from the initial equilibrium point (#1), what point on the graph
is most likely to result from reports of increased accidents on roads involving
cyclists, and the payment of subsidies to bicycle producers?
13) Use the following to answer the questions:
13.1 A government-set price floor is best illustrated by:
13.2 A government-set price ceiling is best illustrated by:
13.3 Rent controls are best illustrated by:
13.4 A government price support program to aid farmers is best illustrated by:
13.5 A government-set maximum permissible interest rate is best illustrated
by: