If there is a shortage of product X, we can predict that:

the price of the product will rise.

In a market economy, a high price is a signal for

producers to supply more and consumers to buy less.

The demand curve shifts from D1 to D2. How do the QS & QD change at the new equilibrium price?

Both quantity supplied and quantity demanded increase.

At the point where the demand and supply curves for a product intersect:

the Q demanded by consumers = to Q producers want to sell

If a product is in surplus supply, we can conclude that its price:

is above the equilibrium level.

There will be a surplus of a product when:

consumers want to buy less than producers offer for sale.

Assume that price is initially below the equilibrium level. We can predict that price will:

increase, Q demanded will decrease, & Q supplied increase.

In a market economy, a low price is a signal for

producers to produce less and buyers to buy more.

A product market is in equilibrium:

where the demand and supply curves intersect.

If price is initially above the equilibrium level, we can predict that price will:

decrease, quantity D will increase, & quantity S decrease.

At a given price, a surplus occurs when

the quantity supplied is greater than the quantity demanded.

Prices enable a market economy to adjust to unexpected events by

adjusting consumption and production.

If a competitive market is at equilibrium, & there is a sudden increase in D, then a temporary

shortage will occur and the price will increase.

Why might a government interfere in a market economy by setting prices?

to achieve the goals of equity and security

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CHAPTER 6: PRICES AND DECISION MAKING

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Questions 30

Answers

1
If there is a shortage of product X, we can predict that:
fewer resources will be allocated to the prod. of this good.
S curve will shift R; D curve L; eliminates the shortage.
the price of the product will rise.
the price of the product will decline.
2
In a market economy, a high price is a signal for
government to intervene to protect consumers.
producers to supply more and consumers to buy less.
producers to supply less and consumers to buy less.
producers to supply less and consumers to buy more.
3
In the table, market equilibrium will occur at what price?
$20
$16
$10
$14
4
The demand curve shifts from D1 to D2. How do the QS & QD change at the new equilibrium price?
Quantity supplied decreases and quantity demanded increases.
Quantity supplied increases and quantity demanded decreases.
Both quantity supplied and quantity demanded decrease.
Both quantity supplied and quantity demanded increase.
5
Price floors that are artificially high are likely to create
a surplus.
a price ceiling.
an equilibrium.
a shortage.
6
At the point where the demand and supply curves for a product intersect:
the Q demanded by consumers = to Q producers want to sell
either a shortage or a surplus of the product might exist.
the "selling price" & the "buying price" need not be equal.
the market may, or may not be in equilibrium.
7
If a product is in surplus supply, we can conclude that its price:
will rise in the near future.
is below the equilibrium level.
is above the equilibrium level.
is in equilibrium.
8
There will be a surplus of a product when:
the S curve slopes downand the D curve is upward sloping.
the demand and supply curves fail to intersect.
consumers want to buy less than producers offer for sale.
price is below the equilibrium level.
9
Condition that leaves suppliers wishing they had more product to sell
shortage
surplus
price ceiling
price floor
10
Price ceilings that are artificially low are likely to create
a surplus.
a price floor.
an equilibrium.
a shortage.
11
A ticket that entitles the holder to a certain amount of a product is called a
credit
nonrecourse loan
rebate
coupon
12
Assume that price is initially below the equilibrium level. We can predict that price will:
decrease, Q demanded will increase, & Q supplied decrease.
increase, Q demanded will decrease, & Q supplied increase.
decrease, Q demanded will decrease, & Q supplied increase.
decrease and Q demanded and Q supplied will both decrease.
13
If there is a surplus in a market, the price is likely to
remain the same.
decrease.
fluctuate.
increase.
14
In the graphs, which curve represents the “worst case” yield for soybean farmers?
S1S1
SS
DD
S2S2
15
All of the following are characteristics of allocation by rationing EXCEPT
lack of fairness.
diminished incentive for workers.
efficiency.
high administrative cost.
16
In a competitive market, the adjustment process moves toward market
model.
shortage.
surplus.
equilibrium.
17
system under which the government or another agency decides everyone's fair share of a product
rationing
price ceiling
price floor
rebate
18
In a market economy, a low price is a signal for
producers to produce more and buyers to buy less.
producers to produce less and buyers to buy less.
producers to produce more and buyers to buy more.
producers to produce less and buyers to buy more.
19
When economic or political conditions are unstable,
the price of gold decreases.
the supply of gold decreases.
the price of gold rises to $850 per ounce.
the demand for gold increases.
20
A product market is in equilibrium:
when there is no shortage of the product.
when consumers buy more than producers offer for sale.
when there is no surplus ofthe product.
where the demand and supply curves intersect.
21
The maximum legal price that can be charged for a product is called a
shortage
price ceiling
price floor
surplus
22
If price is initially above the equilibrium level, we can predict that price will:
increase, quantity D will decrease, & quantity S increase.
decrease, quantity D will decrease, and quantity S increase.
decrease, quantity D will increase, & quantity S decrease.
decrease and Q demanded & Q supplied will both decrease.
23
At a given price, a surplus occurs when
the quantity supplied is greater than the quantity demanded.
the quantity demanded is the same as the quantity supplied.
the quantity supplied is less than the quantity demanded.
the quantity demanded is more than the quantity supplied.
24
Price that “clears the market”
price
equilibrium price
market equilibrium
rebate
25
Prices enable a market economy to adjust to unexpected events by
adjusting consumption and production.
government rationing.
maintaining consumption and production at stable levels.
ensuring that producers always earn a profit.
26
If a competitive market is at equilibrium, & there is a sudden increase in D, then a temporary
shortage will occur and the price will fall.
surplus will occur and the price will fall.
surplus will occur and the price will increase.
shortage will occur and the price will increase.
27
Why might a government interfere in a market economy by setting prices?
to achieve the goals of equity and security
to distort market outcomes
to insure an entrepreneur's profit
to allow the price system to transmit accurate information
28
Serves as an allocation signal when established by supply and demand
market equilibrium
rebate
rationing
price
29
If there is a shortage in a market, the price is likely to
fluctuate.
decrease.
increase.
remain the same.
30
A competitive market will:
do all of the above.
eliminate surpluses.
eliminate shortages.
achieve an equilibrium price.

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