Problem Set I

The Market Forces of Supply and Demand

Multiple Choice – Section 00: Introduction

1. The two words most often used by economists are

a. prices and quantities.
b. resources and allocation.
c. supply and demand.
d. efficiency and equity.

2. The two words economists use most often are

a. inflation and trade.
b. supply and demand.
c. competition and prices.
d. markets and equilibrium.

3. The forces that make market economies work are

a. work and leisure.
b. politics and religion.
c. supply and demand.
d. taxes and government spending.

4. In a market economy, supply and demand determine

a. both the quantity of each good produced and the price at which it is sold.
b. the quantity of each good produced but not the price at which it is sold.
c. the price at which each good is sold but not the quantity of each good produced.
d. neither the quantity of each good produced nor the price at which it is sold.

5. In a market economy, supply and demand are important because they

6. play a critical role in the allocation of the economy’s scarce resources.
7. determine how much of each good gets produced.
8. can be used to predict the impact on the economy of various events and policies.
9. All of the above are correct.

6. In a market economy, supply and demand are important because they

a. are direct policy tools used by government agencies to regulate the economy.
b. illustrate when an market is in equilibrium, but they are not helpful when a market is out of
equilibrium.
c. can be used to predict the impact on the economy of various events and policies.
d. All of the above are correct.

7. In a market economy,
a. supply determines demand and demand, in turn, determines prices.
b. demand determines supply and supply, in turn, determines prices.
c. the allocation of scarce resources determines prices and prices, in turn, determine supply and
demand.
d. supply and demand determine prices and prices, in turn, allocate the economy’s scarce resources.
Multiple Choice – Section 01: Markets and Competition

8. Which of the following statements is correct?

a. Buyers determine supply, and sellers determine demand.
b. Buyers determine demand, and sellers determine supply.
c. Buyers determine both demand and supply.
d. Sellers determine both demand and supply.

9. The demand for a good or service is determined by

a. those who buy the good or service.
b. the government.
c. those who sell the good or service.
d. both those who buy and those who sell the good or service.

10. The supply of a good or service is determined by

a. those who buy the good or service.
b. the government.
c. those who sell the good or service.
d. both those who buy and those who sell the good or service.

11. A group of buyers and sellers of a particular good or service is called a(n)
a. coalition.
b. economy.
c. market.
d. competition.

12. For a market for a good or service to exist, there must be a

a. group of buyers and sellers.
b. specific time and place at which the good or service is traded.
c. high degree of organization present.
d. All of the above are correct.

13. Which of the following is an example of a highly organized market?

a. the market for textbooks
b. the market for spa services
c. the market for soybeans
d. the market for ice cream

14. Which of the following is an example of a less-than-highly-organized market?

a. the market for U.S. Treasury bonds
b. the market for corn
c. the market for soybeans
d. the market for ice cream

15. Which of the following is an example of a market?

a. a gas station
b. a garage sale
c. a barber shop
 d. All of the above are examples of markets.

16. The market for ice cream is a

a. monopolistic market.
b. highly competitive market.
c. highly organized market.
d. Both b and c are correct.

17. Most markets in the economy are

a. markets in which sellers, rather than buyers, control the price of the product.
b. markets in which buyers, rather than sellers, control the price of the product.
c. perfectly competitive.
d. highly competitive.

18. A market includes

a. buyers only.
b. sellers only.
c. both buyers and sellers.
d. the place where transactions occur but not the people involved.

19. Which of the following is not an example of a market?

a. A small town has only one seller of electricity.
b. In the United States, a sick person cannot legally purchase a kidney.
c. In Florida, there are many buyers and sellers of key lime pie.
d. The availability of Internet shopping has expanded the clothing choices for buyers who do not live
near large cities.

20. In a competitive market, the price of a product

a. is determined by buyers, and the quantity of the product produced is determined by sellers.
b. is determined by sellers, and the quantity of the product produced is determined by buyers.
c. and the quantity of the product produced are both determined by sellers.
d. None of the above is correct.

21. In a competitive market, the quantity of a product produced and the price of the product are
determined by
a. buyers.
b. sellers.
c. both buyers and sellers.
d. None of the above is correct.

22. In a competitive market, the quantity of a product produced and the price of the product are
determinedby
a. a single buyer.
b. a single seller.
c. one buyer and one seller working together.
d. all buyers and all sellers.

23. A competitive market is a market in which

a. an auctioneer helps set prices and arrange sales.
b. there are only a few sellers.
 c. the forces of supply and demand do not apply.
d. no individual buyer or seller has any significant impact on the market price.

24. A competitive market is one in which there

a. is only one seller, but there are many buyers.
b. are many sellers, and each seller has the ability to set the price of his product.
c. are many sellers, and they compete with one another in such a way that some sellers are always
being forced out of the market.
d. are so many buyers and so many sellers that each has a negligible impact on the price of the
product.

25. Assume Diana buys computers in a competitive market. It follows that

a. Diana has a limited number of sellers to turn to when she buys a computer.
b. Diana will find herself negotiating with sellers whenever she buys a computer.
c. if Diana buys a large number of computers, the price of computers will rise noticeably.
d. None of the above is correct.

26. Assume Leo buys coffee beans in a competitive market. It follows

that
a. Leo has a limited number of sellers from which to buy coffee beans.
b. Leo will negotiate with sellers whenever he buys coffee beans.
c. Leo can influence the price of coffee beans if he buys a large quantity of them.
d. None of the above is correct.

27. Assume Leo buys coffee beans in a competitive market. It follows that
a. Leo has a limited number of sellers from which to buy coffee beans.
b. Leo will negotiate with sellers whenever he buys coffee beans.
c. Leo cannot influence the price of coffee beans even if he buys a large quantity of them.
d. None of the above is correct.

28. In a competitive market, each seller has limited control over the price of his product because
a. other sellers are offering similar products.
b. buyers exert more control over the price than do sellers.
c. these markets are highly regulated by the government.
d. sellers usually agree to set a common price that will allow each seller to earn a comfortable profit.

29. For a competitive market,

a. a seller can always increase her profit by raising the price of her product.
b. if a seller charges more than the going price, buyers will go elsewhere to make their purchases.
c. a seller often charges less than the going price to increase sales and profit.
d. a single buyer can influence the price of the product but only when purchasing from several sellers
in a short period of time.

30. If a seller in a competitive market chooses to charge more than the going price, then
a. the sellers’ profits must increase.
b. the owners of the raw materials used in production would raise the prices for the raw materials.
c. other sellers would also raise their prices.
d. buyers will make purchases from other sellers.

31. In competitive markets, buyers

a. are price takers, but sellers are price setters.
 b. are price setters, but sellers are price takers.
c. and sellers are price takers.
d. and sellers are price setters.

32. The term price takers refers to buyers and sellers in

a. perfectly competitive markets.
b. monopolistic markets.
c. markets that are regulated by the government.
d. markets in which buyers cannot buy all they want and/or sellers cannot sell all they want.

33. In competitive markets,

a. firms produce identical products.
b. no individual buyer can influence the market price.
c. no individual seller can influence the market price.
d. All of the above are correct.

34. In competitive markets, which of the following is not correct?

a. Firms produce identical products.
b. No individual buyer can influence the market price.
c. Some sellers can set prices.
d. Buyers are price takers.

35. In competitive markets,

a. firms produce identical products.
b. buyers can influence the market price more easily than sellers.
c. markets are more likely to be in equilibrium.
d. sellers are price setters.

36. The highest form of competition is called

a. absolute competition.
b. cutthroat competition.
c. perfect competition.
d. market competition.

37. The highest form of competition is called

a. arbitrage.
b. monopolistic competition.
c. equilibrium.
d. perfect competition.