SEXTON PEPPERDINE ECON 200 FINAL - PART ONE
Why does the quantity of a good demanded decrease when its price level increases?
The equilibrium price of bread is $2/loaf. If the government sets a price ceiling of $1.50/loaf:
A safety report is released that contends that sport utility vehicles ar...
1). Why does the quantity of a good demanded decrease when its price level increases?
Ans: Substitutes become relatively cheaper when the price of a good increases
2). The equilibrium price of bread is $2/loaf. if the government sets a price ceiling of $1.50/
loaf:
Ans: There will be a shortage of bread
3). A safety report is released that contends that sport utility vehicles are more prone to roll
over during crashes than was previously thought. at the same time, the price of steel (used
to produce motor vehicles) increases. the net effect of these two incidents on the market
supply for sport utility vehicles is a(n):
Ans: Indeterminate change in price and a decrease in equilibrium quantity
4). The current price of wheat is $10/bushel, but the equilibrium price of wheat is $5/bushel. as
a result:
Ans: -There is a surplus of wheat at the $10 price
-The equilibrium quantity of wheat exceeds the quantity demanded of wheat at $10/
bushel
-The quantity supplied of wheat exceeds the quantity demanded of wheat at $10/bushel
5). The law of demand refers to the:
Ans: Inverse relationship between the price of a good and the willingness of producers
to sell it
6). For a normal good: demand for a good increases when income falls. this is _______ a valid
relationship.
Ans: Not
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, 7). Are these all true:
-voluntary trades give both parties more in value than what they give up.
-people can gain by specializing in the production of the good in which they have a
comparative advantage.
-without the ability to trade, people would not tend to specialize as much in those areas
where they has a comparative advantage.
Ans: Yes
8). (t/f) when demand decreases and supply increases, there will be a decrease in the
equilibrium price
Ans: True
9). (t/f) a public good is nonrivalrous and excludable
Ans: False
10). (t/f) an increase in price will cause a firm's total revenue to increase if demand is price
elastic
12). If positive externalities are present in the production of a good, then society will:
Ans: Produce too little of a good since the marginal profit benefit to consumers is less
than the marginal social benefit
13). (t/f) an increase in supply will cause a shortage at the original market price
Ans: False
14). (t/f) either a price floor or a price ceiling above the equilibrium price would cause a surplus
Ans: False
15). When a shortage exists in a market, sellers:
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