Q&A Hero

Q: Suppose the equilibrium price of milk is $3 per gallon but the federal government sets the market price at $4 per gallon. The market mechanism will force the milk price back down to $3 per gallon unless the government: A) rations the excess demand for milk among consumers. B) buys the excess supply of milk and removes it from the market. C) Both A and B are plausible actions. D) The government cannot maintain the price above the equilibrium level.

Q: The demand for books is: Qd = 120 - P The supply of books is: Qs = 5P If P = $25, which of the following is true? A) Quantity supplied is greater than quantity demanded. B) Quantity supplied is less than quantity demanded. C) Quantity supplied equals quantity demanded. D) There is a shortage.

Q: The demand for books is: Qd = 120 - P The supply of books is: Qs = 5P If P = $25, which of the following is true? A) There is a surplus equal to 30. B) There is a shortage equal to 30. C) There is a shortage, but it is impossible to determine how large. D) There is a surplus, but it is impossible to determine how large.

Q: The demand for books is: Qd = 120 - P The supply of books is: Qs = 5P If P = $15, which of the following is true? A) Quantity supplied is greater than quantity demanded. B) Quantity supplied is less than quantity demanded. C) Quantity supplied equals quantity demanded. D) There is a surplus.

Q: The demand for books is: Qd = 120 - P The supply of books is: Qs = 5P If P = $15, which of the following is true? A) There is a surplus equal to 30. B) There is a shortage equal to 30. C) There is a surplus, but it is impossible to determine how large. D) There is a shortage, but it is impossible to determine how large.

Q: The demand for books is: Qd = 120 - P The supply of books is: Qs = 5P What is the equilibrium quantity of books sold? A) 25 B) 50 C) 75 D) 100 E) none of the above

Q: The demand for books is: Qd = 120 - P The supply of books is: Qs = 5P What is the equilibrium price of books? A) 5 B) 10 C) 15 D) 20 E) none of the above

Q: Suppose the quantity of nursing services demanded exceeds the quantity of nursing services supplied. The nursing wage rate will: A) decrease. B) increase. C) not change. D) none of the above

Q: If the actual price were below the equilibrium price in the market for bread, a: A) surplus would develop that cannot be eliminated over time. B) shortage would develop, which market forces would eliminate over time. C) surplus would develop, which market forces would eliminate over time. D) shortage would develop, which market forces would tend to exacerbate.

Q: As long as the actual market price exceeds the equilibrium market price, there will be: A) downward pressure on the market price. B) upward pressure on the market price. C) no purchases made. D) Both A and C are correct. E) Both B and C are correct.

Q: Assume that the current market price is below the market clearing level. We would expect: A) a surplus to accumulate. B) downward pressure on the current market price. C) upward pressure on the current market price. D) lower production during the next time period.

Q: When the current price is above the market-clearing level we would expect: A) quantity demanded to exceed quantity supplied. B) quantity supplied to exceed quantity demanded. C) a shortage. D) greater production to occur during the next period.

Q: Rare earth metals are used to manufacture some important electronic components in popular products like cell phones. These metals are not really rare, but they are expensive to extract from the ground. What happens to the market for the rare earth metals if these extraction costs increase? A) Demand curve shifts leftward B) Demand curve shifts rightward C) Supply curve shifts leftward D) Supply curve shifts rightward

Q: The battery packs used in electric and hybrid automobiles are one of the largest cost components for manufacturing these cars. As the price of these batteries decline, we expect that the: A) supply curve for electric and hybrid autos will shift rightward. B) supply curve for electric and hybrid autos will shift leftward. C) demand curve for electric and hybrid autos will shift rightward. D) demand curve for electric and hybrid autos will shift leftward.

Q: To protect the cod fishery off the northeast coast of the U.S., the federal government may limit the amount of fish that each boat can catch in the fishery. The result of this public policy is to: A) shift the cod demand curve to the left. B) shift the cod demand curve to the right. C) shift the cod supply curve to the right. D) shift the cod supply curve to the left.

Q: Due to the recent increase in the price of natural gas, the quantity of coal demanded by electric power generation plants has increased. Based on this information, coal and natural gas are: A) complements. B) substitutes. C) independent goods. D) none of the above

Q: The discussion of Figure 2.2 in the text indicates that quantity demanded for most goods tends to increase as income rises. However, the quantity of bananas demanded in the U.S. tends to decrease as income rises. Under this condition, we expect that an increase in consumer income shifts the demand curve for bananas: A) rightward B) no shift. C) leftward. D) upward.

Q: Suppose biochemists discover an enzyme that can double the amount of ethanol that may be derived from a given amount of biomass. Based on this technological development, we expect the: A) supply curve for ethanol to shift leftward. B) supply curve for ethanol to shift rightward. C) demand curve for ethanol to shift leftward. D) demand curve for ethanol to shift rightward.

Q: Which of the following would cause a rightward shift in the demand curve for gasoline? I. A large increase in the price of public transportation. II. A large decrease in the price of automobiles. III. A large reduction in the costs of producing gasoline. A) I only B) II only C) I and II only D) II and III only E) I, II, and III

Q: Which of the following will NOT cause a rightward shift in the demand curve for beer? A) A change in the price of beer B) A health study indicating positive health benefits of moderate beer consumption C) An increase in the price of French wine (a substitute) D) A decrease in the price of potato chips (a complement) E) none of the above

Q: Which of the following will cause the demand curve for Beatles' compact discs to shift to the right? A) An increase in the price of the discs B) A decrease in consumers' incomes C) An increase in the price of Phil Collins' latest compact disc (a substitute) D) all of the above E) none of the above

Q: The price of good A goes up. As a result, the demand for good B shifts to the left. From this we can infer that: A) good A is used to produce good B. B) good B is used to produce good A. C) goods A and B are substitutes. D) goods A and B are complements. E) none of the above

Q: You are analyzing the demand for good X. Which of the following will result in a shift to the right of the demand curve for X? A) A decrease in the price of X B) An increase in the price of a good that is a complement to good X C) An increase in the price of a good that is a substitute for X D) all of the above

Q: Which of the following would cause a shift to the right of the supply curve for gasoline? I. A large increase in the price of public transportation. II. A large decrease in the price of automobiles. III. A large reduction in the costs of producing gasoline. A) I only B) II only C) III only D) II and III only

Q: Which of the following will NOT cause a shift in the supply of gasoline? A) An increase in the wage rate of refinery workers B) A decrease in the price of gasoline C) An improvement in oil refining technology D) A decrease in the price of crude oil

Q: Which of the following events will cause a leftward shift in the supply curve of gasoline? A) A decrease in the price of gasoline B) An increase in the wage rate of refinery workers C) Decrease in the price of crude oil D) An improvement in oil refining technology E) all of the above

Q: Assume that steak and potatoes are complements. When the price of steak goes up, the demand curve for potatoes: A) shifts to the left. B) shifts to the right. C) remains constant. D) shifts to the right initially and then returns to its original position.

Q: Sugar can be refined from sugar beets. When the price of those beets falls, A) the demand curve for sugar would shift right. B) the demand curve for sugar would shift left. C) the supply curve for sugar would shift right. D) the supply curve for sugar would shift left.

Q: When an industry's raw material costs increase, other things remaining the same, A) the supply curve shifts to the left. B) the supply curve shifts to the right. C) output increases regardless of the market price and the supply curve shifts upward. D) output decreases and the market price also decreases.

Q: Which of the following would shift the demand curve for new textbooks to the right? A) A fall in the price of paper used in publishing texts B) A fall in the price of equivalent used textbooks C) An increase in the number of students attending college D) A fall in the price of new textbooks.

Q: Coffee and cream: A) are both luxury goods. B) are complements. C) are both more inelastic in demand in the long run than in the short run. D) have a positive cross price elasticity of demand.

Q: Plastic and steel are substitutes in the production of body panels for certain automobiles. If the price of plastic increases, with other things remaining the same, we would expect: A) the price of steel to fall. B) the demand curve for steel to shift to the right. C) the demand curve for plastic to shift to the left. D) nothing to happen to steel because it is only a substitute for plastic. E) the demand curve for steel to shift to the left.

Q: A supply curve reveals: A) the quantity of output consumers are willing to purchase at each possible market price. B) the difference between quantity demanded and quantity supplied at each price. C) the maximum level of output an industry can produce, regardless of price. D) the quantity of output that producers are willing to produce and sell at each possible market price.

Q: Which of the following is NOT an application of supply and demand analysis? A) Understanding changing world economic conditions and their effects on prices B) Evaluating the effects of government price controls on the agricultural industry C) Determining how taxes affect aggregate consumption spending patterns D) all of the above E) none of the above

Q: The Corporate Average Fuel Economy (CAFE) standards are designed to improve the average fuel economy of cars and light trucks sold in the U.S. The economic analysis used to develop the CAFE standards was: A) macroeconomic. B) positive. C) normative. D) none of the above

Q: To evaluate the potential impact of introducing the hybrid Prius auto into the U.S. market, Toyota Motor Corporation would use: A) positive economic analysis. B) normative economic analysis. C) negative economic analysis. D) forensic analysis.

Q: The Clean Air Act is designed to restrict automobile emissions and reduce the external costs of air pollution. The economic analysis used to develop the Clean Air Act was: A) normative. B) positive. C) macroeconomic. D) none of the above

Q: To evaluate the potential impact of changes to its SUV business, Ford Motor Company would use: A) normative economic analysis. B) positive economic analysis. C) negative economic analysis. D) arbitrage analysis.

Q: Which of the following is NOT an example of a way in which microeconomic analysis can help in designing environmental policy? A) Determining the optimal level of vehicle fuel efficiency standards B) Designing laws to provide incentives for firms to implement clean technologies in new vehicles C) Lobbying consumers and firms to reduce consumption of energy D) Examining the tradeoffs between ecological benefits of environmental legislation and its impacts on consumers' standard of living

Q: Which of the following is NOT an example of ways in which microeconomic analysis can help Toyota Motor Corporation its in corporate decision making? A) Forecasting demand for new automobiles B) Determining how many automobiles to produce in order to maximize profits C) Predicting how competitors will react to the firm's pricing strategy D) Forecasting the effect of Toyota's hiring patterns on the U.S. unemployment rate E) Forecasting the effect of an oil price increase on demand for hybrid autos

Q: We can approximate the real return on an investment by subtracting the inflation rate from the nominal return on the investment. For example, an investment that returns 10% per year while inflation is 4% per year has a real (inflation adjusted) return of approximately 6%. Which of the following outcomes is NOT possible? A) Nominal and real returns are positive B) Nominal return is positive, real return is negative C) Nominal return is negative, real return is positive D) all of these outcomes are possible

Q: The "core" inflation rate is typically defined as the change in consumer prices for all goods included in the CPI basket except energy and food products. Suppose the overall inflation rate based on the CPI was 4 percent for the past year, and energy and food prices did not change during the year. Is the core inflation rate for the past year higher or lower than 4 percent? A) Higher B) Lower C) They are the same D) We do not have enough information to answer this question

Q: Suppose we expect consumer prices to increase by about 30 percent between 2010 and 2020, and the minimum wage was $7.25 per hour in What should be the minimum wage in 2020 if it is set to maintain the same purchasing power as in 2010? A) $7.25 B) $7.55 C) $9.42 D) none of the above.

Q: For each city across the U.S., economists construct a price index for a similar basket of goods. In Los Angeles the index is 127.3 and the index for Dallas is 94.8. If you have been offered $137,000 for a job in Los Angeles and $117,000 for a similar job in Dallas, which job affords you the highest purchasing power of the bundle of goods in the price index? Use the Los Angeles value as the base.

Q: The following is a list of housing costs in five different countries along with their CPI. For which country is the real cost of housing declining? Use year 2 as the base year in your answer.

Q: The first column of the following table describes the price movement of AOL Corporation stock over a five-year period. The second column gives the period's consumer price index. Calculate the real value of the stock for each time period using year 5 as the base year. If you purchased $1,000 worth of AOL Corporation in year 1, what has happened to the purchasing power of your original $1,000 investment when you sell the stock in year 5? Year AOL CPI 1996 $4.00 147.8 1997 $3.84 155.3 1998 $7.00 163.0 1999 $37.00 165.4 2000 $70.00 172.1

Q: The price to attend a NBA basketball game in Chicago is $55 while the CPI in Chicago is 153. The CPI in Charlotte is 108 while the price to attend a NBA basketball game is $52. Which city offers a smaller real cost of attending a NBA basketball game?

Q: The nominal price of a 1990 laptop was $3,500 and the CPI that year was 130.7. The nominal price of a laptop in 2010 was $600 and the CPI that year was 218.1. What is the real price of a 2010 laptop in terms of 1990 dollars? By what percent has the real price of laptops changed?

Q: The nominal price of milk was $2.25 in 1998 while the CPI was 163.0 that year. Also, the CPI in 1970 was 38.8. What was the real value of 1998 milk in terms of 1970 dollars?

Q: The CPI in 1970 was 38.8 and in 1998 the CPI was 163.0. If the real value of a 1970 gallon of milk in terms of 1998 dollars is $0.70, what was the nominal price of milk in 1970?

Q: The reward for the capture of Jesse James was $500.00 in 1881. Suppose the CPI in 1881 was 0.25. What is the real value of the reward in 2010 dollars if the CPI was 218.1 in 2010?

Q: Suppose the minimum wage was $0.25 per hour in 1938 and the CPI in that year was 11.5. If the CPI in 1990 was 130.7, what is the real value of the 1938 minimum wage in terms of 1990 dollars? The real value of the 1990 minimum wage in terms of 1990 dollars is $4.25. Has the real value of the minimum wage declined since 1938?

Q: Suppose the Social Security Administration would like to guarantee the purchasing power of social security payments to the elderly does not diminish. That is, the real value of the payments does not decrease. The CPI in 1990 was 130.7 and the CPI in 1998 was 163.0. How much does the Social Security Administration need to increase payments from 1990 to 1998 to accomplish this objective?

Q: Which price index published by the US federal government represents retail price changes? A) Consumer Price Index B) Producer Price Index C) GDP deflator D) Dow-Jones Industrial Average

Q: Use the following statements to answer this question: I. The inflation rate (the rate of change in the general price level) calculated from a price index like CPI is the same regardless of the base year we use to form the price index. II. Although the CPI may indicate the general price level increased by 5% last year, there are some consumer products that may have experienced more or less inflation in the past year. A) I and II are true. B) I is true and II is false. C) I is false and II is true. D) I and II are false.

Q: When 1983 is the CPI base year, the CPI value is 82.4 for 1980 and 2 for 2000. Suppose we want to convert this CPI series to have a base year of 2000 (that is, CPI2000 = 100). What is the value of the revised CPI for 1980? A) 2 B) 100 C) 9 D) 0

Q: Which price index published by the US federal government represents wholesale price changes? A) Consumer Price Index B) Producer Price Index C) GDP deflator D) Dow-Jones Industrial Average

Q: Which of the following goods is NOT a likely component of the Consumer Price Index? A) Hamburger B) 87 octane gasoline C) Structural steel beams D) Movie tickets

Q: The nominal price of industrial red paint was $12 per gallon in 1993. To convert this value to the real price of paint in 2012 dollars, we should use the: A) Consumer Price Index. B) Producer Price Index C) Fed funds rate. D) 30-day T-bill rate.

Q: Suppose the nominal price of gasoline was $0.90 per gallon in 1987. To convert this value to the real price of 1987 gasoline in 2012 dollars, we should: A) multiply by the 1987 CPI and divide by the 2012 CPI. B) multiply by the 2012 CPI and divide by the 1987 CPI. C) not do anything because this is the real price in 2012 dollars. D) none of the above

Q: Over the past year price inflation has been 10%, but the price of a used Ford Escort has fallen from $6,000 to $5,000. The real price of a Ford Escort has fallen by: A) 12%. B) 17% C) 20%. D) 24% E) 32%.

Q: Since last year, the price of gold has risen from $1100 to $1420. What annual inflation rate would leave the real price of gold unchanged over the last twelve months? A) Approximately 29% B) 40% C) Approximately 71% D) 320% E) none of the above

Q: The price of a taco was $0.29 in 1970 and $1.09 in 2000. The CPI was 8 in 1970 and 172.2 in 2000. The 2000 price of a taco in 1970 dollars is: A) $0.25. B) $0.29. C) $1.09. D) $4.84.

Q: What does it mean when the CPI is higher this year than last? A) The rate of inflation has increased. B) There has been inflation since last year. C) Real prices have increased. D) Real prices have decreased.

Q: The "constant dollar" price is: A) the real price of a good. B) the nominal price of a good adjusted for inflation. C) the "current dollar" price adjusted for inflation. D) all of the above E) none of the above

Q: A key factor that determines the geographic extent of a housing market is the distance that commuters are willing to travel from home to work. Which of the following events would NOT help to expand the geographic extent of the housing market in a metropolitan area? A) Price of gasoline declines B) State gasoline tax increases C) Public transit fares decrease D) none of the above

Q: Suppose the price of crude oil is $95 per barrel in New York and $85 per barrel in Texas, and the transaction costs for trading between the two markets are $15 per barrel. What actions should you take to arbitrage this price difference? A) Buy oil in Texas and sell oil in NY B) Sell oil in Texas and buy oil in NY C) Buy oil in both markets and wait for higher prices D) Do not buy or sell oil in either market

Q: Before their merger, XM and Sirius were competing sellers in the U.S. satellite radio market. The U.S. Department of Justice allowed the merger even though it created a single seller in the market. Why might we expect this merger to have limited impact on U.S. consumers? A) There are many close substitutes for satellite radio service (e.g., free AM-FM radio, internet radio) B) The merged firm is likely to act on behalf of its customers and keep its prices and profits low C) U.S. consumers are known to have perfectly inelastic demand for satellite radio (i.e., they are unresponsive to price changes) D) all of the above are correct

Q: From Example 1.2 in the textbook, Pindyck and Rubinfeld distinguish between the mass market and dealer market for bicycles. Although there are many dealers in the U.S. and only a few mass merchandisers, we should expect the dealer market to be somewhat less competitive than the mass market. Why? A) Due to their differences in quality and performance, dealer bicycles are not close substitutes. B) The geographic extent of the market for dealer bicycles is typically small, so the individual sellers do not have many local competitors. C) Dealers are small sellers and have little control over bicycle prices. D) A and B are correct. E) B and C are correct.

Q: Which of the following statement is FALSE? A) Perfectly competitive markets are composed of many buyers and sellers. B) Some markets may have only a few sellers but exhibit the properties of perfect competition. C) A market may be composed of only one buyer and one seller. D) All of the above statements are correct.

Q: Arbitraging price differences between two markets is generally not possible if: A) there are positive costs of transporting the products from one market to the other. B) the transportation costs are larger than the difference in prices. C) the government has prohibited exchange between the two markets. D) A and C above E) B and C above

Q: To arbitrage a price difference between two markets, you should: A) sell in the low-price market and buy in the high-price market. B) buy in the low-price market and sell in the high-price market. C) sell in both markets to capture a lower average "market price." D) none of the above

Q: Suppose you are in charge of product pricing and marketing strategy for a pharmaceutical company. You will have greater ability to independently set prices for your product if: A) there are no close substitutes for your product. B) there are lots of other firms selling closely related products in your market. C) your market is perfectly competitive. D) none of the above

Q: Use the following statements to answer this question: I. The price for a given product may differ across sellers if the market is not perfectly competitive. II. A single "market price" does not exist in imperfectly competitive markets. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

Q: Use the following statements to answer this question: I. If the extent of a market is broader, it is less likely that firms in the market can influence the market price. II. In determining whether two different products belong to the same market, it is necessary to know whether the two products can be used as substitutes for each other. A) I and II are both false. B) I is false, and II is true. C) I is true, and II is false. D) I and II are both true.

Q: Which of the following assertions, if proven true in a court of law, would help Archer-Daniels-Midland, a maker of corn syrup, in its attempt to acquire another corn syrup producer, the Clinton Corn Processing Company? A) Archer-Daniels-Midland is a dominant producer of corn syrup. B) There are no good substitutes for corn syrup for any of its major uses. C) Archer-Daniels-Midland and the Clinton Corn Processing Company together hold only a small share of the market for sweeteners including corn syrup and sugar. D) Archer-Daniels-Midland produces many other different agricultural products, in addition to corn syrup.

Q: Use the following statements to answer this question: I. Political candidates need to know the geographical extent of the market for TV commercials in determining how to reach the target number of eligible voters with the smallest possible expenditure. II. The geographical extent of the market for gasoline in Texas will determine whether an oil company drills for oil there. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

Q: Which of the following could not possibly be included in the same market as Coke? A) Pepsi B) Gatorade C) Milk D) Bread

Q: Although there are many reasons why a market can be non-competitive, the principal economic difference between a competitive and a non-competitive market is: A) the number of firms in the market. B) the extent to which any firm can influence the price of the product. C) the size of the firms in the market. D) the annual sales made by the largest firms in the market. E) the presence of government intervention.

Q: Which of the following statements about markets and industries is TRUE? A) A market includes buyers but not sellers. B) A market includes sellers but not buyers. C) An industry includes buyers but not sellers. D) An industry includes sellers but not buyers.