Econ HW; Ch.

4 & 3 Name Due:

Multiple Choice

1. The various quantities that consumers are willing and able 6. Changes in which of the following will not affect the
to purchase at each possible price is the supply of economics books?
a) demand a) the cost of producing economics books
b) quantity demanded b) the demand for economics books
c) supply c) expectations of future profitability in the book
d) quantity supplied market
e) equilibrium d) a corporate tax on economics books
e) the price of paper
2. Which of the following helps to establish the slope of the
demand curve? 7. A schedule/curve showing the amounts of a product that
a) the substitution effect producers are willing & able to make available for sale at
b) the income effect each of a series of possible prices during a specific period of
c) diminishing marginal utility time is: a) demand
d) all of the above b) quantity demanded
e) none of the above c) supply
d) quantity supplied
3. A rise in the price of corn, a substitute good for potatoes, e) market equilibrium
will
a) increase the demand for potatoes 8. The law of supply states that
b) increase the demand for corn a) as the price rises, supply increases
c) decrease the demand for potatoes b) as the price falls, supply decreases
d) decrease the demand for corn c) as the price rises, quantity supplied decreases
e) decrease the price of potatoes d) as the price falls, quantity supplied decreases
e) as the price rises, quant. demanded decreases
4. A good is classified as an inferior good if the demand for it
increases when 9. If a new technology makes all production more efficient,
a) its price increases then:
b) its price decreases a) demand increases
c consumers’ incomes increase b) supply increases
d consumers’ incomes decrease c) quantity supplied increases
e) the price of a substitute increases d) supply decreases
e) quantity supplied decreases
5. Which of the following will not change the demand for
Willy’s economics textbook? 10. If a company makes soccer and basketballs and the price
a a rise in the price of Willy’s economics textbook of basketballs increases, the firm may:
b) a rise in the price of the McConnell-Brue a) decrease production of soccer balls and decrease
economics textbook production of basketballs
c) a rise in the incomes of the economics textbook b) increase production of soccer balls and decrease
consumers assuming that economics textbooks are production of basketballs
normal goods c) decrease production of soccer balls and increase
d) The introduction of a new economics textbook by production of basketballs
the famed economist Ellis Dee d) increase production of soccer balls and increase
e News that Willy’s text now has free software to production of basketballs
accompany it e) only make basketballs and produce no soccer balls

SHORT ANSWER

1. True, False, or Uncertain. Explain in one sentence.

a. The market system not only accepts self-interest as a fact of human existence; it relies on self-interest to achieve society’s
material goals.
b. Entrepreneurs and companies are at the helm of the economy, but their commanders are consumers.
c. The market system is a profit-and-loss economy.
d. Competition is the indispensable disciplinarian of the market economy.
e. If government would simply get out of the way, markets would deliver prosperity around the globe.
2. In a 1-2 sentences, describe the meaning of the term invisible hand.

3. What are the roles of government in a market economy? Answer in one full paragraph.

4. a. Explain the law of demand.

b. What formal reasons do economists give for the downward slope of a demand curve?
c. What are the determinants of demand?
d. Distinguish between a change in demand and a change in the quantity demanded, noting the cause(s) of each.

5. a. Explain the law of supply.

b. What formal reasons do economists give for the upward slope of a supply curve?
c. What are the determinants of supply?
d. Distinguish between a change in supply and a change in the quantity supplied, noting the cause(s) of each.

6. How will each of the following changes affect equilibrium price and equilibrium quantity in a competitive market? (That is
does price rise, fall, remain unchanged, or is the answer indeterminate? Does quantity rise, fall, remain unchanged, or is the
answer indeterminate?) Draw a separate supply and demand diagram to support each answer.
a. Supply decreases and demand remains constant.
b. Demand decreases and supply remains constant.
c. Supply increases and demand is constant.
d. Demand increases and supply is constant.

e. Demand increases and supply increases.

f. Supply increases and demand decreases.
g. Demand increases and supply decreases.
h. Demand decreases and supply decreases.

7. Would the following scenarios change the demand for or the supply of the given product(s)? Would the change be an
increase or a decrease? Explain by listing the relevant determinant of demand or supply.
a. A technological advance in the methods of producing T shirts.
b. A decline in the number of firms in the paper industry.
c. An increase in the price of resources (i.e. ingredients) required to produce bread.
d. An increase in the price of hot dogs (effect on the market for hot dog rolls?)
e. An increase in consumer incomes on the market for new books
f. A decline in the price of soccerballs, a good whose production requires substantially the same techniques as does
the production of basketballs. (What happens to the supply of soccerballs? Basketballs ?)
g. A decrease in the popularity of Under Armor apparel
h. The levying of a specific tax upon the sale of alcoholic beverages.
i. An increase in consumer incomes on the market for used toys (an inferior good)
j. The granting of a per unit subsidy for each solar panel produced.

8. As the major league baseball trading deadline approached, a Boston Globe article quoted a National League team executive as
saying:

So many teams are in it that the buyers greatly outnumber the sellers and for that reason the sellers are asking for crazy-high
prices, so nothing is happening. Although the teams that think they have a chance at the spot know that it is beneficial to
trade earlier than later, they still wait last minute because sellers are waiting for a great deal to come along that usually
doesn’t. The supply and demand is out of whack causing the trades to go in different directions than one might think.

Using the vocabulary of economics, how would you explain the quotation to a person that doesn’t know much about
economics or professional baseball? What do you think the team executive is trying to say?
1) A. True - the market accepts that it depends on peoples self-interest for a product to achieve there goals.

B. True - entrepreneurs and companies are the ones controlling products and things but the power resides in the
consumer on if they’ll buy the product or not.

C. False - the market system is not just about gains and loss and it has to do with how well the conumser likes the
product and sales a lot goes into it

D. True - competition is a controlling factor for the market economy cause competors can drop prices and do all these
other things to get more sales for their market which slowes down your market.

E. False - markets are able to sustain them selves well but government help sometimes is needed to boost up the
economy or help it on its feet a little so i can stay afloat.