TEST BANK FOR INTRODUCTORY ECONOMICS AND INTRODUCTORY MACROECONOMICS JOHN G. MARCIS & MICHAEL VESETH

TEST BANK for
INTRODUCTORY
ECONOMICS
and
INTRODUCTORY MACROECONOMICS
and
INTRODUCTORY MICROECONOMICS
by Michael Veseth
JOHN G· MARCIS
Kansas State University
ACADEMIC PRESS, INC.
A Subsidiary of Harcourt Brace Jovanovich, Publishers
New York / London / Toronto / Sydney / San Francisco
and
MICHAEL VESETH
University of Puget Sound
by
Chapter Conversion Table
The following table keys the chapter numbers for Introductory Economics to those in each of the companion
paperbacks.
Corresponding Chapter in
Introductory Introductory
Macro- Micro-
Introductory Economics Chapter economics economics
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Chapter 16
Chapter 17
Chapter 18
Chapter 19
Chapter 20
Chapter 21
Chapter 22
Chapter 23
Chapter 24
Chapter 25
Chapter 26
Chapter 27
Chapter 28
Chapter 29
Chapter 30
Chapter 31
Chapter 32
Macroeconomic Problems
Supply and Demand
The Problem of Unemployment
Understanding Inflation
Measuring Economic Activity
Aggregate Demand
Aggregate Supply and the Economy
Fiscal Policy
Money and Banking
Money, Credit, and the Economy
Monetary versus Fiscal Policy
The Monetarists
International Trade
The Foreign Exchange Market
International Economics
Problems, Goals, and Trade-Offs
Scarcity arid Choice
Specialization
Demand and Supply: The Micro Side
Markets at Work
Consumer Choice
Production and Cost
Producer Choice: Monopoly
Producers in Competitive Markets
Imperfect Competition
Labor Markets
Capital and Natural Resource Markets
Energy Markets
Free Market Choice
Market Failures: Externalities
Market Failures: Monopolies
Scarcity and Choice: The Poverty Problem
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2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
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2
3
4
5
6
7
8
9
10
11
12
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14
15
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vii
MACROECONOMIC PROBLEMS 1
Roman set numbers in parentheses refer to pages where the material is discussed in both
Introductory Economics, andlntroductory Macroeconomics.
1. According to Veseth, which of the following
situations is the most likely topic of discussion in
a class on "macroeconomics"? (6)
a. An increase in the price of hamburgers.
B. An increase in the unemployment rate.
c. An increase in the production of a particular
company.
d. An increase in the number of producers of
a product.
e. An increase in the wage rate paid construction
workers.
2. According to Veseth, which of the following
situations is the most likely topic of discussion in
a class on "microeconomics"? (6)
a. An increase in governmental taxes.
b. An increase in governmental spending.
c. An increase in the unemployment rate.
D. An increase in the price of a resource used
to produce a particular product.
e. An increase in the rate of inflation.
3. According to Veseth, in which of the following
decades has unemployment been considered the
most serious problem? (8, 9)
a. The 1950s.
B. The 1930s.
c. The 1960s.
d. The 1940s.
e. The 1970s.
4. According to Veseth, during which of the following
decades has inflation been considered the
most serious economic problem? (14-15)
a. The 1930s.
b. The 1940s.
c. The 1950s.
d. The 1960s.
E. The 1970s.
5. If real gross national product is used as a
measure of economic growth, during which of
the following decades was economic growth in
the United States the greatest? (12-13)
a. The 1930s.
b. The 1940s.
c. The 1950s.
D. The 1960s.
e. The 1970s.
6. During the decade of the 1960s, economists
observed the "Phillips curve phenomenon" in
the United States. Which of the following statements,
if any, best describes the Phillips curve
relationship? (13-14)
a. Unemployment can only be reduced by
reducing inflation.
b. Employment increases as unemployment
falls.
c. Any policy that increases inflation also
increases unemployment.
d. As unemployment increases, there is no
change in the rate of inflation.
E. None of the other responses is correct.
7. One explanation of the Phillips curve which has
been proposed is that of the "wage-lag" theory.
This theory maintains that inflation can temporarily
reduce unemployment because inflation
tends to: (13, 14)
a. increase the supply of labor.
B. increase business profits.
c. cause productivity to lag behind wages.
d. increase the purchasing power of the dollar
in foreign markets.
e. increase the purchase of agricultural products
where more workers are needed.
1
2 CHAPTER 1
8. According to Veseth, a major contributor to the
stagnation era of 1974-1975 was: (15-16)
a. the large increases in the exportation of
wheat to the Soviet Union.
b. the leftward movement of the Phillips
curve.
c. the manner in which the government "redefined"
who was employed and who was
unemployed.
D. the embargo on oil shipments imposed by
the Organization of Petroleum Exporting
Countries (OPEC).
e. the manner in which the government "redefined"
how the rate of inflation was
calculated.
9. There have been a number of theoretical attempts
to explain the disappearance of the
Phillips curve during the 1970s. Which of the
following statements, if any, would not explain
the disappearance of the Phillips curve? (16-17)
A. Inflation is now more of a "demand-pull"
phenomenon than a "cost-push"phenomenon.
b. Expectations concerning the occurrence of
inflation have changed.
c. Inflation today is heavily influenced by
rising oil prices.
d. Consumers have become more sophisticated
in the manner in which they anticipate
inflation.
e. The increases in demand which led to
higher prices would, through the wage-lag
mechanism, cause employment to rise also.
10. Suppose that the Phillips curve works in the
manner which is described in the text. If this
relationship holds, an increase in the rate of
inflation will result in: (13-14)
a. an increase in the unemployment rate
b. an increase in the economic discomfort
index.
c. a decrease in the economic discomfort
index.
d. a decrease in the employment rate.
E. none of the other responses is correct.
11. Economics is the social science which examines
how society attempts to: (5)
a. fight inflation and unemployment while
achieving economic growth.
b. organize business and earn profits for
firms subject to governmental control.
C. produce and distribute goods and services
in a world of scarce resources.
d. allocate resources among the government,
industrial and international sectors of the
economy.
e. balance the budget and fight inflation
without sacrificing any governmental
services.
12. In a market economy, the decision-making unit
which organizes the resources to produce goods
and services is the: (5)
a. household
b. individual.
c. government.
D. firm.
e. congressional committee.
13. In a market economy, the majority of decisions
about the allocation of resources are made: (5)
a. by the military.
B. by households and firms operating in a
market supervised by the price system.
c. on the basis of tradition.
d. by congressional committees.
e. by central planners because of the lack of
governmental intervention.
14. In a command economy, the mix of goods and
services produced is decided by: (5)
a. a market mechanism.
B. a central planning agency.
c. tradition.
d. the economic resources provided.
e. congressional committees.
15. The principal difference between a "market"
economy and a "command" economy is: (5)
a. scarcity is greater in a command economy,
making economic policies more difficult to
carry out.
b. command economies are more concerned
with macroeconomics, while market
economies are more concerned with
microeconomics.
c. market economies suffer more from inflation
than do command economies.
d. command economies are more efficient in
producing goods and services than are
market economies.
E. different groups are responsible for the
production and distribution decisions in
the two types of economies.
MACROECONOMIC PROBLEMS 3
16. Ina market economy, the allocation of resources
is made by: (5)
a. central planners because of the absence of
governmental intervention.
B. individual consumers and producers operating
in an environment supervised by
the price system.
c. governmental intervention because of the
absence of central planners.
d. governmental intervention because of the
absence of an effective price system.
e. central planners because of their control
over both markets and prices.
17. A good economic model: (6)
a. involves such a great deal of distortion of
reality as to be worthless.
b. will include all factors affecting changes in
the economy.
c. is useful only if it involves no simplification
of reality.
d. is impossible because of the inability of
economists to construct a "controlled"
experiment.
E. will involve some simplification of reality.
18. "Microeconomics" is concerned with: (6)
a. establishing an overall view of the operation
of the economic system.
b. concealing detailed information about
specific segments of the economy.
C. a detailed examination of specific economic
units which make up the economic
system.
d. the total levels of income, employment and
inflation in the economy.
e. the economic goals expressed in The Employment
Act of 1946.
19. The study of "microeconomics" focuses upon:
(6)
a. the most i m p o r t a n t questions of
economics.
B. the individual household and business
units which make up the economy.
c. the broad issues of the national economy,
such as inflation and unemployment.
d. the economic goals expressed in The
Employment Act of 1946.
e. the establishment of a model of the operation
of the economic system.
20. The study of "macroeconomics" focuses upon:
(6)
a. the individual household and business
units which make up the economy.
b. individual markets and the pattern of
competition which characterizes the firms
in the industry.
c. the manner in which a business determines
the best level of output to produce.
D. the broad issues of the national economy,
such as inflation, and unemployment.
e. a detailed examination of specific economic
units which make up the economic
system.
21. According to Veseth, the principal difference
between microeconomics and macroeconomics
is that: (6)
A. they view the same economic activities
from different perspectives; that is, "micro"
looks at individual decisions and "macro"
looks at these decisions taken together.
b. they represent different theories of the
economy; that is, "micro" maintains that
individual prices and quantities are more
important and "macro" says that inflation
and unemployment are the more important
things.
c. they give us different prescriptions for
economic policy; that is, "micro" says to let
markets work while "macro" holds that
wage and price controls are more effective.
d. there is no difference between microeconomics
and macroeconomics.
e. they represent different theories of the
economy; that is, "micro" deals with the
economic goals expressed in The Employment
Act of 1946 while "macro" deals with
the manner in which firms determine their
best level of output.
22. The economic goals outlined in The Employment
Act of 1946 are observed to be: (7)
a. price stability, economic growth and the
equalization of incomes.
b. the equalization of incomes, full employment
and price stability.
C. economic growth, price stability and full
employment.
d. full employment, the equalization of incomes
and economic growth.
e. a balanced budget, price stability and
economic growth.
23. The Employment Act of 1946 established three
macroeconomic goals for the economy. Which
of the following goals are contained in that Act?
(7)
(#) full employment
($) price stability
CHAPTER 1
(%) equitable distribution of income
(Ö) economic growth
(*) fair taxation
(+) balanced budget
a. Only goals (#), ($) and (%) are contained in
the Act.
B. Only goals (#), ($) and (+) are contained in
the Act.
c. Only goals ($), (%) and (+) are contained
in the Act.
d. Only goals (%), (Ö) and (*) are contained in
the Act.
e. Only goals (%), (*) and (+) are contained
in the Act.
The Employment Act of 1946 established three
macroeconomic goals for the economy. Which
of the following are not contained in that Act?
(7)
(#) full employment
($) fair taxation
(%) balanced budget
(Ö) price stability
(*) economic growth
(+) equitable distribution of income
a. Only (#), ($) and (%) are not contained in
the Act.
b. Only (#), (%) and (+) are not contained in
the Act.
c. Only ($), (*) and (+) are not contained in
the Act.
D. Only ($), (%) and (+) are not contained in
the Act.
d. Only ($), (%) and (Ö) are not contained in
the Act.
According to Veseth, a good measure of the
economic growth of the economy is the:
A. real gross national product.
b. economic discomfort index.
c. Phillips curve.
d. unemployment rate.
e. business cycle.
According to Veseth, the stock market crash of
1929 was important because it: (8-10)
a. directly caused unemployment rates to
rise.
b. brought about higher rates of inflation
which put people out of work.
c. signalled the start of the Great Depression.
D. destroyed peoples' savings and resulted in
their spending less.
e. resulted in the passage of The Employment
Act by Congress.
27. According to Veseth, which of the following
statements best describes the economic conditions
in the 1930s in the United States? (8-10)
a. Falling prices and falling unemployment.
b. Rising prices and falling unemployment.
C. Falling prices and falling employment.
d. Cyclical fluctuations but no general trend
for prices and employment.
e. Stable prices and rising employment.
28. According to Veseth, which of the following
statements best describes the economic conditions
in the 1940s in the United States? (10)
a. Falling prices and falling unemployment.
B. Rising prices and falling unemployment.
c. Falling prices and falling employment.
d. Cyclical fluctuations but no general trend
for prices and employment.
e. Stable prices and rising employment.
29. According to Veseth, governmental spending
increased dramatically during the decade of the
1940s. This policy: (10)
a. was an attempt to lower unemployment
rates which were still high from the period
of the Great Depression.
B. resulted in inflation and the need for wage
and price controls.
c. reduced inflationary pressures because
most of the spending was for war materials
which left the country.
d. had no significant effect upon the
economy.
e. resulted in the decade of the 1940s having
the longest period of economic growth in
our history.
30. According to Veseth, which of the following
statements best describes the economic conditions
in the 1950s in the United States? (10-11)
a. Falling prices and falling unemployment.
b. Rising prices and falling unemployment.
c. Falling prices and falling employment.
D. Cyclical fluctuations but no general trend
for price and employment.
e. Stable prices and rising employment.
31. According to Veseth, the "economic discomfort
index" is calculated by adding the: (11)
a. interest rate and the rate of inflation.
b. interest rate and the change in the real
gross national product (RGNP).
C. rate of inflation and the unemployment
rate.
d. unemployment rate and the interest rate.
4
24.
25.
26.
MACROECONOMIC PROBLEMS 5
e. rate of inflation and the change in the real
gross national product (RGNP).
32. According to Veseth, which of the following
statements best describes the economic conditions
in the 1960s in the United States? (12-13)
a. Falling prices and falling unemployment.
B. Rising prices and falling unemployment.
c. Falling prices and falling employment.
d. Cyclical fluctuations but no general trend
for prices and employment.
e. Stable prices and rising employment.
33. The decade of the 1960s saw a "trade-off
between inflation and unemployment. This
trade-off is often called the: (13)
a. economic discomfort index.
B. Phillips curve.
c. Kennedy-Johnson curve.
d. index of leading economic indicators.
e. business cycle.
34. The statement that "the cost of reducing the rate
of inflation is that people must lose their jobs"
depicts a relationship that is known as: (13)
a. real gross national product (RGNP).
b. the economic discomfort index.
c. the stagflation index.
d. the Employment Act of 1946.
E. the Phillips curve.
35. The Phillips curve discussed in the text suggests
a "trade-off between the economic goals of: ( 13)
a. low levels of unemployment and economic
growth.
b. economic growth and price level stability.
c. price level stability and income equality.
D. low levels of unemployment and price level
stability.
e. fair taxation and a balanced budget.
36. The Phillips curve discussed in the text relates
the: (13)
a. rate of inflation and the rate of growth in
real gross national product (RGNP).
b. rate of interest and the rate of inflation.
C. rate of inflation and the percentage of the
labor force unemployed.
d. rate of growth in real gross national product
(RGNP) and the rate of unemployment.
e. rate of inflation and the employment rate.
37. One explanation for the phenomenon known as
the Phillips curve is the "wage-lag" theory. This
theory holds that inflation can cause the unemployment
rate to decline because inflation: (13)
A. temporarily increases business profits.
b. temporarily increases worker productivity.
c. increases the number of workers.
d. forces workers' wages to lag behind
salaried workers.
e. temporarily decreases the economic discomfort
index.
38. According to Veseth, in using a Phillips curve to
portray the United States economy in the 1960s,
an economist would depict the rate of inflation
and the level of unemployment as being: (12-14)
A. inversely related.
b. unrelated until full employment is reached
and then directly related.
c. unrelated until full employment is reached
and then inversely related.
d. directly related.
e. not reflecting any relationship during this
period.
39. According to Veseth, the basic problem which is
portrayed in the Phillips curve is that of: (13-14)
a. price level stability and economic growth.
b. income equality and price level stability.
c. low levels of unemployment and economic
growth.
D. price level stability and low levels of
unemployment.
e. a balanced budget and low levels of
unemployment.
40. According to Veseth, the Phillips curve in the
decade of the 1970s: (14-15)
a. allowed the economic policymakers to
formulate better policies.
b. described most of the period accurately.
C. was no longer accurately described by the
data.
d. appeared to move towards the origin.
e. showed high i n f l a t i o n and low
unemployment.
41. According to the Phillips curve, actions taken by
the government to reduce inflation will result in:
(13)
a. rising interest rates.
B. rising unemployment.
c. falling prices.
d. rising employment.
e. a more equitable distribution of income.
42. According to Veseth, which of the following
6 CHAPTER 1
statements best describes the economic conditions
in the 1970s in the United States? (14-15)
a. Rising prices and falling unemployment.
b. Stable prices and rising employment.
C. Rising prices and rising unemployment.
d. Cyclical fluctuations but no general trend
for prices and employment.
e. Falling prices and falling unemployment.
43. The phenomenon known as "stagflation" is the
combination of high inflation and: (15)
a. high employment.
b. high taxes.
c. high interest rates.
D. high unemployment.
e. high business profits.
44. The principal difference between the economic
conditions in the 1960s and the 1970s was:
(16-17)
a. higher inflation but lower unemployment
in the 1960s than in the 1970s.
b. lower inflation but higher unemployment
in the 1960s than in the 1970s.
c. stable prices in both decades but higher
unemployment in the 1970s.
d. higher inflation and higher unemployment
in the 1960s than in the 1970s.
E. lower inflation and lower unemployment
in the 1960s than in the 1970s.
45. According to Veseth, which of the following
statements accurately describes why the Phillips
curve is inapplicable to the decade of the 1970s?
(16-17)
(#) The inflation of the 1960s was of a
"demand-pull" type while the inflation of
the 1970s was a "cost-push" type.
($) Workers became more sophisticated about
inflation and adjusted their expectations of
future price increases.
(%) Inflation began to reduce business profits
through the "wage-lag" process.
A. Only statements (#) and ($) are accurate.
b. Only statements ($) and (%) are accurate.
c. Only statements (#) and (%) are accurate.
d. All of the statements are correct.
e. Only statement (%) is accurate.
46. Which of the following statements accurately
portrays the discussion of the Phillips curve in
the text by Veseth? (13-17)
(#) The Phillips curve has been extremely
unstable in portraying the United States
economy for the 1970s.
($) The Phillips curve illustrates the direct
relationship between the rate of inflation
and the level of unemployment.
(%) The Phillips curve has been extremely
stable in portraying the United States
economy during the 1960s.
a. Only statements (#) and ($) are accurate.
b. Only statements ($) and (%) are accurate.
c. All of the statements are accurate.
D. Only statements (#) and (%) are accurate.
e. Only statement (#) is accurate.
47. According to Veseth, the stagflation of the 1974-
1975 period was the result of which of the
following events? (15)
a. The OPEC oil embargo.
b. The devaluation of the dollar.
c. Agricultural problems.
D. All of the responses are correct.
e. Declining consumer purchasing power.
48. According to Veseth, which of the following
events was a major contributing factor in the
1974-1975 period of stagflation? (15)
(#) the OPEC oil embargo
($) the devaluation of the dollar
(%) problems in the agricultural sector of the
economy
a. Only events (#) and ($) were major factors
affecting stagflation.
B. All of the events were major factors affecting
stagflation.
c. Only events (#) and (%) were major factors
affecting stagflation.
d. Only events ($) and (%) were major factors
affecting stagflation.
e. Only event (#) was a major factor affecting
stagflation.
49. According to Veseth, "stagflation" is the occurrence
of a (high/low) rate of inflation accompanied
with a (high/low) rate of unemployment.
(15)
A. High; high.
b. High; low.
c. Low; high.
d. Low; low.
e. None of the responses is correct.
50. When economists are concerned with "stagflation,"
they are responding to: (15)
a. low levels of unemployment and low rates
of inflation.
b. high levels of unemployment and low rates
of inflation.
c. none of the responses is correct.
D. high levels of unemployment and high
rates of inflation.
e. low levels of unemployment and high rates
of inflation.
SUPPLY AND DEMAND 2
Roman set numbers in parentheses refer to pages where the material is discussed in both
introductory Economics and in introductory Macroeconomics.
1. Assume that beef, chicken and pork are substitutes
for one another. If you noticed that the
price of beef went up at the grocery store, which
of the following statements would you not
advance as an explanation of the increase in the
price of beef? (25-32)
a. Consumers' incomes have risen and people will
buy more beef at every level of price.
b. Because of a bad crop year, the costs of grains
used in beef cattle increase.
c. The supply of pork has shifted to the left.
D. The supply of beef has been increased due to the
importation of beef from Argentina.
e. A recent newspaper report indicates that eating
chicken may result in cancer.
2. Which of the following statements would not
cause a change in the demand for yogurt? (25-29,
31-32)
a. A decrease in the price of the fruit that is
consumed with yogurt.
B. An increase in the price of yogurt.
c. An increase in the population that consumes
yogurt.
d. An increase in the price of the fruit that is
consumed with yogurt.
e. An increase in the incomes of yogurteaters.
3. All of the following events would account for a
change from one distinct demand curve to
another demand curve (that is, "a change in
demand") except for a change in the: (25-29,
31-32)
A. price of the product.
b. income of the consumer.
c. price of a complement.
d. preferences (tastes) of the consumer.
e. price of a substitute.
4. Which of the following statements would lead to
an increase in demand for tennis balls? (25-29,
31-32)
a. A reduction in the price of tennis balls.
B. A reduction in the prices of tennis rackets
and tennis clothes.
c. A rainy summer.
d. A reduction in the number of hours that
tennis courts are available.
e. The introduction of a new golf course and
a new movie theater.
5. According to Veseth, which of the following is a
reason why the quantity demanded of a good
decreases with an increase in the price of the
good?(26)
a. People's tastes change along the demand
curve.
b. People expect the price of the product to
fall in the near future.
C. Substitute goods become relatively
cheaper.
d. The prices of substitute goods decreases.
e. People's incomes change along the demand
curve.
6. A demand curve illustrates the relationship
between the price and the quantity demanded of
a product, all other things remaining the same.
These "other things" include all of the following
except: (26)
A. the price of the product.
b. the price of substitutes.
c. the incomes of the consumers.
d. the preferences (tastes) of the consumers.
e. the price of complements.
7. If the demand for product "X" is downwardsloping,
this implies that an increase in the price
of "X" will result in: (26)
a. an increase in the demand for "X."
b. no change in the quantity demanded of
"X."
c. an increase in the quantity demanded of
"X."
D. a decrease in the quantity demanded of
"X."
e. a decrease in the demand for "X."
7
8 CHAPTER 2
8. One reason why the quantity demanded of a
good tends to decline as its price increases is: (26)
a. the increase in price shifts the demand
curve to the left.
b. the increase in price shifts the supply curve
to the right.
c. that, at higher prices, suppliers are willing
to supply more.
D. that people feel poorer and attempt to
reduce their use of the good.
e. the increase in price shifts the demand
curve to the right.
9. Which of the following statements helps to
explain why demand curves reflect an inverse
relationship between the price and the quantity
demanded of an item? (26)
a. A decrease in price shifts the demand curve
to the right.
B. A decrease in price makes consumers feel a
bit "better o f f and increases their use of
the good.
c. A decrease in price shifts the supply curve
to the right.
d. A decrease in price leads to an increase in
demand as the market attempts to establish
an equilibrium.
e. A decrease in price results in suppliers
providing more of the good.
10. Which of the following statements accurately
portrays why demand curves reflect an inverse
relationship between the price and the quantity
demanded of an item? (26)
(#) With given money incomes, consumers can
purchase more of the product at lower
prices.
($) As the price falls, consumers substitute this
(now relatively cheaper) product for others
in consumption.
(%) With increases in the level of income,
consumers will buy more of the product.
A. Only statements (#) and ($) apply to the
inverse relationship.
b. Only statements (#) and (%) apply to the
inverse relationship.
c. Only statements ($) and (%) apply to the
inverse relationship.
d. All of the statements apply to the inverse
relationship.
e. Only statement (#) applies to the inverse
relationship.
11. An increase in the price of peanut butter would
tend to produce: (26-27)
a. an increase in the price of a complement to
peanut butter, like jelly.
b. an increase in the demand for a complement
to peanut butter, like bread.
c. a decrease in the quantity supplied of
peanut butter.
D. an increase in the demand for a substitute
to peanut butter, like cheese.
e. an increase in the demand for peanut
butter.
12. Analysts for the world shrimp market reported
in The Wall Street Journal of March 1, 1979,
that "heavy buying from Japan developed as the
taste for shrimp in that country took a sharp
upturn." From the information presented above,
what is the economic effect of this event upon the
world demand for shrimp? (26-28, 51-52)
A. The demand curve has shifted to the left.
b. It is a movement down along the demand
curve.
c. It is not a change in demand, but rather an
increase in supply.
d. It is a movement up along the demand
curve.
e. The demand curve has shifted to the left.
13. The Kansas City Times of April 1, 1980, reported
that the Ashland Oil Company announced
that it had developed a process to refine
25 percent more gasoline from a barrel of crude
oil than is now possible. From the information
presented above, what is the economic effect of
this upon the supply curve in the market for
gasoline? (26-28, 32-35, 51-52)
a. It is a movement down along the supply
curve.
B. The supply curve has shifted to the right.
c. It is not a change in supply, but rather an
increase in demand.
d. The supply curve has shifted to the left.
e. It is a movement up along the supply curve.
14. Urethane is a soft, spongy material which is
made in a chemical process. The New York
Times of May 29. 1980, reported that the United
States automobile industry is using urethane to
make bumpers as well as other car parts.
Furthermore, urethane is also gaining in popularity
as an "insulation material." Assuming that
the supply curve is upward-sloping, what is the
economic effect of these events upon the market
for urethane? (26-28, 32-35, 51-52)
A. The demand curve has shifted to the right,
thereby putting upward pressure on
equilibrium price.
SUPPLY AND DEMAND 9
b. The demand curve has shifted to the left,
thereby putting upward pressure on
equilibrium price.
c. The supply curve has shifted to the left,
thereby putting upward pressure on
equilibrium price.
d. The demand curve has shifted to the right,
thereby putting downward pressure on
equilibrium price.
e. The demand curve has shifted to the left,
thereby putting downward pressure on
equilibrium price.
15. The New York Times of May 15, 1980, reported
that since the Iranian Revolution, rural Iranians
have increased their production of opium poppies.
Opium poppies are used in making heroin.
The article indicated that the Iranian heroin is
"flowing in increasing abundance on the streets
of New York City." From the information presented
above, what is the economic effect of the
increased opium production in Iran upon the
market price of heroin in New York City? (26-28,
32-35,51-52)
a. The demand for heroin will increase with
the increased availability of it.
b. The supply of heroin has increased, causing
the price of heroin to increase.
c. The demand for heroin will decrease with
the increased availability of it.
D. The supply of heroin has increased,
causing the price of heroin to decrease.
e. There has been a movement down along
the supply curve of heroin.
16. The Wall Street Journal of March 1, 1979,
reported that the "demand for natural fertilizers,
especially cattle and horse manure, is up sharply
in many areas" from the previous year. Furthermore,
"transportation and processing costs" are
higher than in the previous year. The net effect of
these two occurrences upon the market for
natural fertilizer would be: (26-28, 32-35, 51-52)
a. an increase in both demand and supply and
an increase in the equilibrium price.
B. an increase in demand, a decrease in supply
and an increase in the equilibrium price.
c. a decrease in demand, an increase in supply
and an increase in the equilibrium price.
d. an increase in both demand and supply and
a decrease in the equilibrium price.
e. an increase in demand, a decrease in supply
and a decrease in the equilibrium price.
17. It takes approximately four gallons of oil to
operate the machines which refine the sap from
maple trees to produce one gallon of maple
syrup. The Wall Street Journal of April 28, 1980,
reported that producers' costs have increased
about 38 percent in the past three years. From
the information presented above, what is the
economic effect of this upon the market for
maple syrup? (26-28, 32-35, 51-52)
a. The increase in the costs of production will
shift the supply curve to the right, thereby
increasing the price of maple syrup.
B. The increase in the costs of production will
shift the supply curve to the left, thereby
increasing the price of maple syrup.
c. The increase in the costs of production will
move the demand curve to the right, thereby
increasing the price of maple syrup.
d. The increase in the costs of production will
move the demand curve to the left, thereby
increasing the price of maple syrup.
e. The decrease in the costs of production will
shift the supply curve to the left, thereby
increasing the price of maple syrup.
18. Which of the following statements would not
result in an increase in the demand for apples?
(26-29)
a. An increase in the incomes of apple eaters.
b. An increase in the price of the substitutes
for apples.
C. An increase in the price of apples.
d. A decrease in the price of the complements
of apples.
e. An advertising campaign which makes
apples more attractive to consumers.
Use the following demand diagram in responding to
the next six questions. Assume that the diagram refers
to the demand for "wheat bread."
10 CHAPTER 2
19. An "increase in demand" occurs when the consumer
moves from: (26-31)
a.
b.
c.
D.
e.
An"
point E to point F.
point F to point H.
point G to point F.
point G to point M.
point K to point E.
increase in the quantity demanded" occurs
when the consumer moves from:
A.
b.
c.
d.
e.
point E to point F.
point F to point H.
point G to point F.
point G to point M.
point K to point E.
(26-31)
21. A "decrease in the quantity demanded" occurs
when the consumer moves from: (26-31)
a. point E to point F.
b. point F to point H.
C. point G to point F.
d. point G to point M.
e. point K to point E.
22. A "decrease in the demand" occurs when the
consumer moves from: (26-31)
a. point E to point F.
B. point F to point H.
c. point G to point F.
d. point G to point M.
e. point K to point M.
23. A movement from Dl to D2 could occur when
there is:(26-31)
a. a reduction in the price of wheat bread.
b. a decrease in the price of a substitute for
wheat bread, like rye bread.
c. an increase in the price of wheat bread.
D. an increase in the income of wheat-bread
eaters.
e. an increase in the price of a complement of
wheat bread, like butter.
24. A movement from Dl to D3 could occur when
there is: (26-31)
a. a reduction in the price of wheat bread.
B. a decrease in the price of a substitute for
wheat bread, like rye bread.
c. an increase in the price of wheat bread.
d. an increase in the income of wheat-bread
eaters.
e. a decrease in the price of a complement to
wheat bread, like butter.
25. The Sarah Soda Soft Drink Company of
Sarasota, Florida, is faced with a downwardsloping
demand curve for its soft drink. Two
months ago it sold 100,000 cases at $4 per case.
Last month, however, the company was able to
sell only 80,000 cases at the same price of $4 per
case. Evidently, the company has experienced:
(26-32)
a. an increase in supply.
b. an increase in the quantity supplied.
C. a decrease in demand.
d. an increase in the quantity supplied.
e. an increase in demand.
26. You have noticed that whenever the price of
glom increases, the demand for frip increases as
well. An economist would contend that glom
and frip are: (27)
A. substitute goods.
b. input goods.
c. inverse.
d. balanced-growth goods.
e. complementary goods.
27. Sugar and honey are viewed as substitutes for
each other in most cooking applications. If the
price of sugar rises, we would expect the: (27)
A. demand for honey to increase.
b. quantity demanded of honey to decrease.
c. supply of honey to decrease.
d. quantity demanded of honey to increase.
e. demand for honey to decrease.
28. Sugar and honey are viewed as substitutes in
most cooking applications. Assuming that the
supply curve is upward-sloping, what happens to
the equilibrium price and equilibrium quantity
of honey, if the price of sugar rises? (27)
a. Equilibrium price decreases; equilibrium
quantity remains unchanged.
b. Equilibrium price increases; equilibrium
quantity decreases.
C. Equilibrium price increases; equilibrium
quantity increases.
d. Equilibrium price increases; the quantity
cannot be found with the available information.
e. The change in the equilibrium price cannot
be found with the available information;
equilibrium quantity increases.
29. Lloyd considers his favorite brand of beer and
extra-strength pain reliever as complementary
goods. Recently, however, supply bottlenecks
have reduced the availability of the pain reliever
on the market. As a result, the price of beer will:
(27)
20.
SUPPLY AND DEMAND
a. increase and the demand for pain reliever
will decrease.
b. increase and the quantity demanded of
pain reliever will decrease.
c. decrease and the demand for pain reliever
will decrease.
d. increase and the quantity demanded for
pain reliever will increase.
E. decrease and the quantity demanded of
pain reliever will decrease.
30. Mark says that "firewood and economics textbooks
are substitute goods." If the price of
firewood increases, then the: (27)
a. demand for firewood will decrease and the
equilibrium price of economics textbooks
will increase.
b. quantity of firewood demanded will decrease
and the equilibrium price of economics
textbooks will decrease.
c. quantity of firewood demanded will increase
and the equilibrium price of economics
textbooks will increase.
D. quantity of firewood demanded will decrease
and the equilibrium price of economics
textbooks will increase.
e. demand for firewood will decrease and the
equilibrium price of economics textbooks
will decrease.
31. Assume that rye bread, white bread and whole
wheat are substitutes for one another. Which of
the following would cause the price of rye bread
to fall? (27, 31-32)
A. A reduction in the price of whole wheat
bread.
b. An increase in the price of tractors used on
rye farms.
c. An increase in the price of white bread.
d. An increase in the cost of transporting rye
flour to the market.
e. A reduction in the number of producers of
white bread.
32. Assume that most consumers consider coffee
and tea as good substitutes for one another.
Suppose that the price of coffee rises. Which of
the following statements accurately portrays
what the possible effects of such an action might
be?(27, 31)
(#) A movement down along the demand
curve for coffee.
($) A shift to the right of the demand curve for
tea.
11
(%) A movement up along the demand curve
for tea.
(c) A shift