Macro Unit III Test Make-Up-- Due MONDAY, Oct.
21
Student:
___________________________________________________________________________
1. In order to understand how the price of a good is determined in the free market, one must
account for the desires of:
A. purchasers exclusively.
B. sellers exclusively.
C. governmental agencies exclusively
D. lobbyists exclusively.
E. purchasers and sellers.
2. Which of the following is NOT true of a demand curve?
A. It has negative slope.
B. It shows the amount consumers are willing and able to purchase at various prices, holding
other factors constant.
C. It relates the price of an item to the quantity demanded of that item.
D. It shows how an increase in price leads to an increase in quantity demanded of a good.
E. It shows that consumers tend to purchase less of a good as its price rises.
3. As coffee becomes more expensive, Joe starts drinking tea, therefore quantity demanded for
coffee decreases. This is called
A. the income effect.
B. the change in equilibrium.
C. the substitution effect.
D. a shift in the supply curve.
E. a shift in the demand curve.
4. You can spend $5 for lunch and you would like to have two Double Cheeseburgers. When you
get to the restaurant you, find out the price for Double Cheeseburger has increased from $2.50 to
$2.99. You decide to have two single Cheeseburgers for lunch. This is best described as a(n)
A. substitution effect.
B. income effect.
C. buyer's reservation price.
D. seller's reservation price.
E. none of the above.
5. The buyer's reservation price of a particular good or service is the
A. minimum amount one would be willing to pay for it.
B. same as the market price.
C. maximum amount one would be willing to pay for it.
D. price at which one develops reservations about its quality.
E. price one must pay to ensure one gets it.
6. Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they
were $39.99. Therefore,
A. Gertie should buy the jeans because the price is almost the same as her reservation price.
B. Gertie should not buy the jeans because the price is more than her reservation price.
C. Gertie should not buy the jeans because the price is not equal to her reservation price.
D. Gertie should buy the jeans because the price is less than her opportunity cost.
E. Gertie will earn economic surplus of $4.99 if she buys the jeans.
7. Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 can also
be called her
A. marginal revenue.
B. producers surplus.
C. equilibrium price.
D. total cost of lemonade production.
E. reservation price.
8. The supply curve illustrates that firms
A. increase the supply of a good when its price rises.
B. increase the quantity supplied of a good when its price rises.
C. decrease the quantity supplied of a good when input prices fall.
D. increase the quantity supplied of a good when input prices rise.
E. decrease the quantity supplied to earn higher profits.
When tuition at State College was $8,000 per semester, many classes filled to capacity before
everyone could register, and some students were unable to enroll in the classes that they needed
to graduate. When tuition increased to $11,000 per semester, the number of students who wanted
to enroll in each class equaled the number of seats available.
9. When tuition was $8,000,
A. there was excess supply.
B. there was excess demand.
C. tuition was exactly at the equilibrium price.
D. tuition was greater than the equilibrium price.
E. State College could not cover its operating costs.
10. By increasing tuition to $11,000, State College
A. eliminated the excess supply that existed when tuition was $8,000.
B. became a centrally planned economy.
C. was responding to the forces that tend to adjust prices toward the equilibrium.
D. violated the rule that, in equilibrium, there is no tendency to change.
E. regulated the quantity of education above the market equilibrium.
11. When tuition increased to $11,000 some students dropped out of college and found jobs. This
is evidence that
A. the equilibrium price is inefficient.
B. some students' reservation prices were at least $8,000 but less than $11,000.
C. State College made a mistake in raising tuition, and should lower it back to $8,000.
D. centrally planned economies lead to undesirable results.
E. market economics cannot be used to analyze the price of education.
12. At a price of $10, quantity demanded will be
A. 0.
B. 2.
C. 4.
D. 6.
E. 8.
13. At a price of $3, quantity supplied is
A. 0.
B. 2.
C. 4.
D. 6.
E. 7.
14. The equilibrium price and quantity for this market is
A. $10, 0.
B. $8, 6.
C. $6, 4.
D. $4, 6.
E. $2, 8.
15. At a price of $9, the market will experience ______________ in the amount of __________
units.
A. excess demand, 1 unit
B. excess supply, 6 units
C. equilibrium, 4 units
D. excess demand, 5 units
E. excess supply, 5 units
16. In a free market, if the price of a good is above the equilibrium price, then
A. government needs to set a higher price.
B. suppliers, dissatisfied with growing inventories, will raise the price.
C. demanders, wanting to ensure they acquire the good, will bid the price lower.
D. government needs to set a lower price.
E. suppliers, dissatisfied with growing inventories, will lower the price.
17. Suppose you bought a concert ticket from Ticketmaster for $50, but when you got to the
concert scalpers were selling tickets in the same seating area as yours for $25. What is probably
true?
A. There is excess demand for this concert at the Ticketmaster price.
B. The ticket you bought was under-priced for the market.
C. There is an excess supply of tickets for this concert at the Ticketmaster price.
D. The Ticketmaster price is an equilibrium price.
E. The concert completely sold out at the Ticketmaster price.
18. Assume that D1 and S1 are the initial demand and supply curves. The equilibrium occurs at a
price of _______ and ________ units exchanged.
A. $90; 50
B. $60; 20
C. $60; 40
D. $30; 30
E. $30; 70
19. Assume supply and demand both shift to the right so that D2 and S2 are the relevant demand
and supply curves. The new equilibrium occurs at a price of _______ and ______ units
exchanged.
A. $90; 50
B. $60; 20
C. $60; 40
D. $30; 30
E. $30; 70
20. Suppose all the sellers in this market started out charging a price of $45 per unit. What is the
most likely result?
A. They would all make a large profit because $45 is more than the equilibrium price.
B. They would all just break even because $45 is their reservation price.
C. They would be forced to lower their prices because at $45 there would be excess supply.
D. They would be forced to raise their prices because at $45 there would be excess demand.
E. They would be forced to lower their prices because at $45 there would be excess demand.
21. Now suppose that the government imposes a price ceiling of $40. What is the most likely
result?
A. Many sellers would go out of business because $40 is above the equilibrium.
B. There would be no change in the price.
C. The market would reach a new equilibrium at a price of $40.
D. An underground, or black, market would emerge where this product would be sold at a price
above $40.
E. There would be excess supply in the market.
22. According to the equilibrium principle,
A. unregulated markets tend to reach equilibrium prices and quantities without government
regulation.
B. once a market has reached equilibrium, price will not change.
C. collective action cannot improve on individual action.
D. market equilibrium exploits all opportunities for individual gain, but may not exploit gains
possible through collective action.
E. market equilibrium exploits all collective gains, but may not exploit all potential gains to
individuals.
23. An outcome is socially optimal if it
A. follows from a market equilibrium.
B. follows from collective action.
C. leaves no money on the table.
D. maximizes total economic surplus.
E. minimizes the difference between the buyer's surplus and the seller's surplus.
24. Suppose that the production of oranges reduces global warming by .1%. The equilibrium
price of oranges is _______ because not all of the _________ are accounted for in the
marketplace.
A. too high; benefits
B. too low; benefits
C. too high; costs
D. too low; costs
E. optimal; costs
25. Everyone in the neighborhood has been complaining about the deteriorating condition of the
park, but nobody has cleaned it up. Why not?
A. There is an excess demand for parks in the neighborhood.
B. There is an excess supply of parks in the neighborhood.
C. If you totaled everyone's reservation prices to clean the park, it would not be enough to pay
the cost of cleaning it.
D. No single person's reservation price to clean the park makes it worth cleaning it.
E. Park maintenance is not an economic problem.