Question 1

When property rights are well defined and markets are competitive,

Accepted Answer

When property rights are well defined and markets are competitive, the total gains from trade (the combined area of producer and consumer surplus) are maximized at the market equilibrium. Moreover, the market equilibrium is consistent with economic efficiency in that all units creating more benefit than cost have been produced. Additionally, the market will automatically move toward the price and quantity where the quantity supplied and the quantity demanded are in balance. Therefore, all options A, B, and C are correct.

Question 2

If the demand for bicycles increases,

Accepted Answer

When demand increases, the equilibrium price rises, leading to an increase in the quantity supplied as suppliers respond to the higher price.

Question 3

An increase in supply will cause

Accepted Answer

An increase in supply will cause an increase in quantity demanded, as there will be more goods available at a lower price point, which will encourage consumers to buy more. However, it is important to note that an increase in supply will not directly cause an increase in demand or equilibrium price.

Question 4

When economists say that market equilibrium is consistent with economic efficiency, they mean

Accepted Answer

Economic efficiency means that resources are allocated in a way that maximizes total benefits to society. In market equilibrium, all units that create more benefit than cost have been produced and consumed, which means that there is no wastage of resources and the maximum possible benefits have been realized. Therefore, market equilibrium is consistent with economic efficiency. Choices A, C, and D all describe situations where economic efficiency is not achieved.

Question 5

When property rights are well defined and markets are competitive, the

Accepted Answer

Well-defined property rights and competitive markets promote economic efficiency by ensuring that resources are allocated efficiently based on supply and demand. In such markets, the market equilibrium (where quantity supplied equals quantity demanded at the market price) is consistent with economic efficiency.

Question 6

An increase in demand will cause

Accepted Answer

An increase in demand will cause an increase in quantity supplied. When the demand for a product or service increases, sellers are motivated to produce and sell more in order to meet the higher demand. This results in an increase in the quantity supplied, or the amount of the product or service available for sale.

Question 7

Two studies published in the New England Journal of Medicine link the risk of breast cancer to alcohol consumption. Young women who have nine drinks per week were reportedly 150 percent more likely to develop breast cancer. According to economic analysis, how would this information affect the market for alcohol?

Accepted Answer

Since this study suggests that alcohol consumption poses a risk of breast cancer and particularly in young women, it is likely that demand for alcohol may decrease, leading to a decrease in price. This is because some consumers may choose to reduce or avoid their alcohol consumption altogether due to health concerns, leading to a reduction in demand.

Question 8

The price of a good will tend to fall when

Accepted Answer

When there is excess supply of a good, meaning there are more sellers than buyers, competition among sellers increases and they may lower the price to attract buyers.

Question 9

A decrease in demand will cause

Accepted Answer

The answer of A decrease in demand will cause
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Question 10

If you were a government official and wanted to raise the price of wheat, which of the following actions would you take?

Accepted Answer

Encouraging farmers to grow less wheat would decrease the supply of wheat and thus increase the price.

Question 11

Last year, 1,000 cases of bottled water were sold at $5; this year, 1,200 cases were sold at $7. These data could be explained by the

Accepted Answer

The answer of Last year, 1,000 cases of bottled water...

Question 12

Which of the following are true ?

Accepted Answer

All of the given statements are true. Economists use the criterion of economic efficiency to assess the benefits and costs of alternative outcomes, and an economic action is considered efficient if it maximizes the net benefits (benefits minus costs) for the individuals of the economy. Conversely, an economic action is considered inefficient if it results in more costs than benefits for individuals.

Question 13

Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found to cause cancer,

Accepted Answer

The answer of Saccharin and aspartame are both low-calorie substitutes...

Question 14

A decrease in supply will cause

Accepted Answer

The answer of A decrease in supply will cause
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Question 15

The price of a good will tend to rise when

Accepted Answer

When there is excess demand for a good, it means that there are more buyers willing and able to purchase the good than there are sellers willing and able to supply it. As a result, sellers can increase the price of the good to capture more of the consumer surplus, leading to an increase in the price of the good.

Question 16

A new hormone will increase the amount of milk each cow produces. If this hormone is adopted by many dairies, what will be the effect on the milk market?

Accepted Answer

The adoption of the hormone will increase the supply of milk as each cow will produce more. This will lead to a shift in the supply curve to the right. As a result, the equilibrium price will decrease, and the equilibrium quantity will increase. Therefore, the best choice is C.

Question 17

The Red Jacket Mountain View Inn in New Hampshire charges $150 per room in the winter ski season and $90 during the summer months. The number of rooms and operating costs are constant year round. These prices indicate

Accepted Answer

The fact that the price is higher in the winter indicates that there is higher demand for the rooms during the ski season. Therefore, the demand curve shifts to the right in the winter, which allows the hotel to charge a higher price. The lower summer price suggests a lower demand, which could be due to the fact that the hotel's location is less desirable during the warmer months. However, we don't have enough information to determine if there is a leftward shift in the supply curve in the summer.

Question 18

If an economic action generates more costs than benefits, the action

Accepted Answer

If an economic action generates more costs than benefits, it means that it imposes a net cost on the society. From an efficiency standpoint, such actions should not be undertaken as they lead to a reduction in overall welfare. Therefore, option B is the correct choice.

Question 19

Velcro is becoming more and more popular for a variety of uses, including as fasteners for shoes. What should happen to the equilibrium price and quantity for shoelaces as a result?

Accepted Answer

The answer of Velcro is becoming more and more popular...

Question 20

When economists say an activity is consistent with economic efficiency, they mean

Accepted Answer

Economic efficiency refers to the optimal allocation of resources, meaning that the benefits gained from an activity exceed the costs. Therefore, option B is the correct answer. Option A refers to democratic principle, not economic efficiency. Option C refers to the concept of Pareto efficiency, which is related to economic efficiency, but not the same thing. Option D is the opposite of economic efficiency.

Quiz 3: Demand, Supply, and the Market Process