Question 1

Suppose the price of peanut butter decreases significantly, while the price of grape jelly remains unchanged. According to the determinants of demand, what is most likely to happen to the demand for grape jelly?

Accepted Answer

The demand for grape jelly will increase because peanut butter and jelly are complements.

Question 2

A new technology allows car manufacturers to produce vehicles using 20% less steel per car. What is the most likely effect on the supply curve for cars, and why?

Accepted Answer

The supply curve for cars will shift right because technology has increased productivity.

Question 3

Which of the following best describes a negative externality, and what is the typical government response to correct it?

Accepted Answer

A cost imposed on a third party; the government imposes a tax or regulation.

Question 4

If the government sets a price ceiling on apartment rents below the equilibrium price, what is the most likely outcome in the rental market?

Accepted Answer

A shortage of apartments, as more are demanded than supplied.

Question 5

Which of the following scenarios represents a change in quantity demanded rather than a change in demand?

Accepted Answer

The price of coffee falls, and as a result, more coffee is purchased.

Question 6

Suppose the government introduces a subsidy for flu shots due to their positive externalities. What is the expected effect on the market for flu shots?

Accepted Answer

The quantity of flu shots consumed will increase, moving the market closer to the socially optimal level.

Question 7

A new report predicts that the price of gasoline will rise sharply next week. What is the most likely immediate effect on the current demand for gasoline?

Accepted Answer

Current demand for gasoline will increase as consumers try to buy before the price rises.

Question 8

Which of the following is an example of the free rider problem associated with public goods?

Accepted Answer

A person who benefits from national defense without paying taxes.

Question 9

If the market price of a good is set above the equilibrium price, what will occur, and why?

Accepted Answer

A surplus, because quantity supplied exceeds quantity demanded.

Question 10

Which of the following best illustrates the law of increasing additional cost as shown by the production possibilities curve (PPC)?

Accepted Answer

As more of one good is produced, the opportunity cost of producing additional units increases.

Question 11

A city government imposes a tax on each unit of electricity produced by a local data center, which uses large amounts of water and electricity. What is the intended economic effect of this policy?

Accepted Answer

To internalize the negative externalities by raising the data center's costs, reducing output.

Question 12

Which of the following is NOT a determinant of supply?

Accepted Answer

Consumer income.

Question 13

Suppose a new health trend causes a sudden increase in the popularity of kale. What happens to the demand curve for kale, and what is the likely effect on equilibrium price and quantity?

Accepted Answer

The demand curve shifts right; equilibrium price and quantity increase.

Question 14

Which of the following equations correctly represents the condition for market equilibrium?

Accepted Answer

$$Q_d = Q_s$$

Question 15

A government sets a minimum wage above the equilibrium wage for entry-level jobs. According to supply and demand analysis, what is the most likely result?

Accepted Answer

A surplus of labor, as more people want jobs than employers are willing to hire.

Question 16

Which of the following best describes the difference between a change in supply and a change in quantity supplied?

Accepted Answer

A change in supply is a shift of the entire supply curve due to a determinant; a change in quantity supplied is a movement along the curve due to a price change.

Question 17

If a point lies inside the production possibilities curve (PPC), what does this indicate about resource use in the economy?

Accepted Answer

Resources are underutilized or there is inefficiency.

Question 18

Which of the following is an example of a public good, and why does the market tend to underprovide it?

Accepted Answer

National defense; because it is non-rival and non-excludable, leading to the free rider problem.

Question 19

A new competitor opens a Thai restaurant in a neighborhood already served by one Thai restaurant. What is the most likely effect on the supply curve for Thai food in the area?

Accepted Answer

The supply curve shifts right, increasing supply.

Question 20

Which of the following best describes Adam Smith's principle of self-interest in market transactions?

Accepted Answer

People act in their own self-interest, which can lead to mutually beneficial exchanges.

Supply, Demand, and Market Failures: Foundations of Macroeconomics

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