- When economists
describe “a market,” they mean:
A) a place
where stocks and bonds are traded.
B) information
networks 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 mechanism
which coordinates actions of consumers and producers to establish equilibrium
prices and quantities. - The institution
which coordinates actions of consumers and producers to establish prices for
goods and services is known as:
A) a market.
B) a
monopoly.
C) an economic
system.
D) consumer
sovereignty. - A market demand
schedule for a product indicates that:
A) as the
product’s price falls, consumers buy less of the good.
B) as a
product’s price rises, consumers buy less of other goods.
C) there is a
direct relationship between price and quantity demanded.
D) there is an
inverse relationship between price and quantity demanded. - The law of demand
is illustrated by a demand curve that is:
A) vertical.
B)
horizontal.
C) upward
sloping.
D) downward
sloping. - When one speaks
of “demand” in a particular market, this refers to:
A) the whole
demand curve.
B) only one
point on the entire demand curve.
C) only one
price-quantity combination on the demand schedule.
D) the quantity
demanded at a given price. - Other things
being equal, the law of demand implies that as:
A) the demand
for CDs increases, the price will decrease.
B) income
increases, the quantity of CDs demanded will increase.
C) the price
of CDs increases, the quantity of CDs demanded will decrease.
D) the price
of CDs increases, the quantity of CDs demanded will increase. - In a competitive
market for corn, the law of demand indicates that, other things equal, as:
A) the demand
for corn decreases, the price will increase.
B) income
decreases, the quantity of corn demanded will increase.
C) the price
of corn decreases, the quantity of corn demanded will increase.
D) the price
of corn decreases, the quantity of corn demanded will decrease. - A lower price
increases the quantity demanded because:
A) the
purchasing power of individuals decreases.
B) the
financial assets of individuals decrease.
C) individuals
buy more of the product and less of a substitute.
D) individuals
buy less of the product and more of a substitute. - Which is most
consistent with the law of demand?
A) A decrease
in the price of pizza causes a decrease in the quantity of pizza demanded.
B) A decrease
in the price of automobiles causes no change in the quantity of tires demanded.
C) An increase
in the price of heating oil causes a decrease in the quantity of heating oil
demanded.
D) An increase
in the price of gasoline causes a decrease in the quantity of sport utility
vehicles demanded. - Which is consistent
with the law of demand?
A) An increase
in the price of ice cream causes an increase in the quantity of ice cream
demanded.
B) A decrease
in the price of bagels causes an increase in the quantity of bagels demanded.
C) A decrease
in the price of muffins causes a decrease in the quantity of muffins demanded.
D) An increase
in the price of candy bars causes no change in the quantity of candy bars demanded. - Which is consistent
with the law of demand?
A) A decrease
in the price of tacos causes no change in the quantity of tacos demanded.
B) An increase
in the price of pizza causes an increase in the quantity of pizza demanded.
C) An increase
in the price of hamburgers causes a decrease in the quantity of hamburgers
demanded.
D) A decrease
in the price of turkey sandwiches causes a decrease in the quantity of turkey
sandwiches demanded. - The demand curve is
a representation of the relationship between the quantity of a product demanded
and:
A) supply.
B) wealth.
C) price.
D) income. - When a specific
demand schedule is graphed, the result is a:
A) set of
market equilibrium prices.
B) demand
curve.
C) shortage.
D) surplus. - As a result of a
decrease in the price of hamburger, consumers buy more hamburger and more
steak. This is an illustration of:
A) irrational consumer behavior.
B) changing tastes and preferences.
C) the substitution effect.
D) the income effect. - A result of a fall
in the price of gasoline, consumers buy more gasoline and take more driving
vacations. This situation is an
illustration of:
A) the income effect.
B) the substitution effect.
C) diminishing marginal utility.
D) the rationing function of prices.
The correct answer and explanation is:
Here are the correct answers along with brief explanations for each question:
1. D) A mechanism which coordinates actions of consumers and producers to establish equilibrium prices and quantities.
A market is a system where buyers and sellers interact, resulting in the determination of prices and quantities for goods and services. Economists view it as a coordination tool for resource allocation.
2. A) A market.
A market is the institution that balances supply and demand to determine prices. Unlike monopolies or systems, it relies on interactions of many buyers and sellers.
3. D) There is an inverse relationship between price and quantity demanded.
The demand schedule reflects the law of demand: when prices drop, quantity demanded rises, and vice versa.
4. D) Downward sloping.
Demand curves slope downward due to the law of demand, indicating an inverse relationship between price and quantity demanded.
5. A) The whole demand curve.
The term “demand” encompasses the entire demand curve, which shows the relationship between price and quantity demanded at all price levels.
6. C) The price of CDs increases, the quantity of CDs demanded will decrease.
The law of demand states that higher prices lead to lower quantity demanded, all else being equal.
7. C) The price of corn decreases, the quantity of corn demanded will increase.
In a competitive market, lower prices make goods more attractive, increasing their demand.
8. C) Individuals buy more of the product and less of a substitute.
This is the substitution effect, where consumers switch to cheaper goods when prices drop.
9. C) An increase in the price of heating oil causes a decrease in the quantity of heating oil demanded.
This aligns with the law of demand: higher prices reduce quantity demanded.
10. B) A decrease in the price of bagels causes an increase in the quantity of bagels demanded.
Lower prices lead to higher demand, as illustrated by the law of demand.
11. C) An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded.
Higher prices result in lower demand, demonstrating the law of demand.
12. C) Price.
The demand curve depicts the relationship between the price of a product and the quantity demanded.
13. B) Demand curve.
When a demand schedule is graphed, it produces a demand curve, showing price-quantity relationships.
14. D) The income effect.
Lower prices increase consumers’ purchasing power, enabling them to buy more of all goods, including complementary goods.
15. A) The income effect.
A decrease in price increases purchasing power, allowing consumers to buy more of the good and enjoy additional benefits like vacations.
Explanation :
The law of demand is a cornerstone of economics. It states that, all else being equal, an inverse relationship exists between price and quantity demanded. This relationship is graphically represented by a downward-sloping demand curve. As prices decrease, consumers are incentivized to purchase more due to two primary effects: the substitution effect and the income effect. The substitution effect occurs when consumers replace a more expensive good with a cheaper alternative. For instance, a drop in the price of hamburgers might lead consumers to buy fewer sandwiches and more hamburgers. The income effect highlights how a price decrease increases purchasing power, enabling consumers to afford more of the good and possibly other items.
Markets function as mechanisms that balance the actions of buyers and sellers. They determine equilibrium prices and quantities, ensuring resources are allocated efficiently. When demand increases (e.g., due to lower prices), producers may adjust supply to maintain equilibrium. Concepts like the demand schedule, elasticity, and effects of price changes are integral to understanding consumer behavior and market dynamics.