Ch 3 Individual Markets: Demand And Supply

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Ch 3 Individual Markets: Demand And Supply - Quiz

For every demand there must be a supply and if the demand for a product or service exceeds the supply there is a gap in the market. The quiz below is a study test for the Ch. 3 McConnell and Brue 15 ed on individual markets. Take it up and see how well you understood the chapter.


Questions and Answers
  • 1. 

    A market is any arrangement that brings together the buyers and sellers of a particular good or service.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    This statement is true because a market is indeed a place or a system where buyers and sellers come together to exchange goods or services. It can be a physical location like a store or a marketplace, or it can be a virtual platform like an online marketplace. In a market, buyers express their demand for a product or service, while sellers offer their supply. The interaction between buyers and sellers in a market determines the price and quantity of goods or services exchanged.

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  • 2. 

    Demand is the amount of a good or service that a buyer will purchase at a particular price.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The statement is incorrect because demand refers to the quantity of a good or service that buyers are willing and able to purchase at various price levels, not just at a particular price. Demand is influenced by factors such as price, income, preferences, and availability of substitutes. Therefore, the correct answer is False.

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  • 3. 

    The law of demand states that as price increases, other thing being equal, the quantity of the product demanded increases.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The law of demand states that as price increases, other things being equal, the quantity of the product demanded decreases. This means that there is an inverse relationship between price and quantity demanded. As price goes up, consumers are less willing or able to purchase the product, resulting in a decrease in demand. Conversely, as price decreases, consumers are more willing or able to purchase the product, leading to an increase in demand. Therefore, the given statement is incorrect.

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  • 4. 

    The law of diminishing marginal utility is one explanation of why there is an incerse relationship between price and quantity demanded.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The law of diminishing marginal utility states that as a person consumes more and more units of a good, the satisfaction or utility derived from each additional unit decreases. This means that the more of a good a person has, the less they are willing to pay for an additional unit. As a result, when the price of a good increases, the quantity demanded decreases because the marginal utility gained from consuming the additional unit is lower than the price. Therefore, there is an inverse relationship between price and quantity demanded, which is explained by the law of diminishing marginal utility.

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  • 5. 

    The substitution effect suggests that, at a lower price, you have the incentive to substitute the more expensive product for similar products which are relatively less expensive.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The explanation for the answer "False" is that the substitution effect suggests that at a lower price, you have the incentive to substitute the more expensive product for similar products which are relatively less expensive. This statement is incorrect because the substitution effect actually suggests that at a lower price, you have the incentive to substitute the more expensive product for similar products which are relatively more expensive.

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  • 6. 

    The is no difference between individual demand schedules and the market demand schedules.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Individual demand schedules and market demand schedules are not the same. Individual demand schedules represent the quantity of a good or service that an individual consumer is willing and able to purchase at different prices, while the market demand schedule represents the quantity of a good or service that all consumers in the market are willing and able to purchase at different prices. Therefore, there is a difference between individual demand schedules and market demand schedules.

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  • 7. 

    In graphing supply and demand schedules, supply is put on the horizontal axis and demand on the vertical axis.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    In graphing supply and demand schedules, demand is put on the horizontal axis and supply on the vertical axis. This is because the horizontal axis typically represents the quantity demanded or supplied, while the vertical axis represents the price. By placing demand on the horizontal axis, it allows for a clearer representation of the relationship between price and quantity demanded.

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  • 8. 

    If price falls, there will be an increase in demand.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    This statement is incorrect because according to the law of demand, when the price of a good falls, the quantity demanded will increase, not the demand itself. Demand refers to the entire relationship between price and quantity demanded, while quantity demanded refers to the specific amount of a good that consumers are willing and able to purchase at a given price. Therefore, a decrease in price will lead to an increase in the quantity demanded, but not necessarily an increase in demand.

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  • 9. 

    If consumer tastes or preferences for a product decrease, the demand for the product will tend to decrease.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    If consumer tastes or preferences for a product decrease, it means that consumers are less interested in the product. This will lead to a decrease in demand for the product because fewer people will be willing to purchase it. When consumer preferences decrease, they are more likely to seek alternative products or simply not purchase the product at all. Therefore, the statement is true.

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  • 10. 

    An increase in income will tend to increase the demand for a product.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    An increase in income often leads to an increase in purchasing power, allowing individuals to afford more products. As a result, the demand for products tends to increase when income increases. This is because people have more disposable income to spend on goods and services, leading to a higher demand for products. Therefore, the statement "An increase in income will tend to increase the demand for a product" is true.

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  • 11. 

    When two products are substitute goods, the price of one and the demand for the other will tend to move in the same direction.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    When two products are substitute goods, it means that they can be used interchangeably to satisfy a similar need or want. In this case, if the price of one substitute good increases, consumers will likely switch to the other substitute good, causing an increase in demand for it. Similarly, if the price of one substitute good decreases, consumers will be less likely to purchase the other substitute good, resulting in a decrease in demand for it. Therefore, the price of one substitute good and the demand for the other substitute good will tend to move in the same direction.

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  • 12. 

    If two goods are complementary, an increase in the price of one will tend to increase the demand  for the other.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    If two goods are complementary, an increase in the price of one will tend to decrease the demand for the other. Complementary goods are those that are typically consumed together, such as peanut butter and jelly. When the price of one of these goods increases, consumers are less likely to purchase it, which in turn reduces the demand for the complementary good. For example, if the price of peanut butter increases, consumers may be less likely to buy it, resulting in a decrease in the demand for jelly. Therefore, the statement that an increase in the price of one complementary good will increase the demand for the other is false.

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  • 13. 

    A change in the quantity demanded means that there has been a change in demand.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    A change in the quantity demanded refers to a movement along the demand curve due to a change in price, while a change in demand refers to a shift of the entire demand curve due to factors such as income, prices of related goods, or consumer preferences. Therefore, a change in the quantity demanded does not necessarily mean that there has been a change in demand.

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  • 14. 

    Supply is a schedule that shows the amounts of a product a producer can make in a limited amount of time.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The explanation for the given answer is that a supply schedule does not show the amounts of a product a producer can make in a limited amount of time. Instead, a supply schedule shows the quantities of a product that a producer is willing and able to supply at different price levels. It represents the relationship between the price of a product and the quantity that producers are willing to offer for sale in the market.

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  • 15. 

    An increase in resource prices will tend to decrease supply.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    An increase in resource prices will tend to decrease supply because higher costs for resources make it less profitable for businesses to produce goods or services. As a result, they may reduce their production levels or even exit the market altogether. This decrease in supply can lead to higher prices for consumers and a decrease in the overall quantity of goods available in the market. Thus, the statement is true.

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  • 16. 

    A government subsidy for the production of a product will tend to decrease supply.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    A government subsidy for the production of a product will tend to increase supply. This is because a subsidy provides financial support to producers, reducing their costs of production. As a result, producers are incentivized to increase their output, leading to an increase in the overall supply of the product in the market.

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  • 17. 

    An increase in the prices of other goods that could be made by the producers will tend to decrease the supply of the current good that the producer is making.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    An increase in the prices of other goods that could be made by the producers will tend to decrease the supply of the current good that the producer is making. This is because when the prices of other goods increase, producers have an incentive to switch their resources and production towards those goods, reducing the supply of the current good they were making. This is a basic principle of economics known as the substitution effect. As a result, the statement is true.

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  • 18. 

    A change in supply means that there is a movement along an existing supply curve.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    A change in supply does not mean a movement along an existing supply curve. Instead, it refers to a shift of the entire supply curve, either to the right (increase in supply) or to the left (decrease in supply). This shift occurs due to factors such as changes in production costs, technology, or government regulations, which affect the quantity of goods or services that suppliers are willing and able to produce at each price level.

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  • 19. 

    A surplus indicates that the quantity demanded is less that the quantity supplied.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    A surplus occurs when there is an excess supply of a product or service in the market. This means that the quantity supplied is greater than the quantity demanded. In this case, the statement is saying that a surplus indicates that the quantity demanded is less than the quantity supplied, which is true. When there is a surplus, it often leads to lower prices as suppliers try to sell off the excess inventory.

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  • 20. 

    If the market price of a product is below its equilibrium price, the market price will will tend to rise because demand will decrease and supply will increase.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    If the market price of a product is below its equilibrium price, the market is experiencing a surplus, as demand is lower than supply. In this situation, sellers will have to lower their prices to encourage consumers to buy more, which will ultimately lead to a decrease in supply. Therefore, the statement that the market price will tend to rise is incorrect. The correct answer is False.

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  • 21. 

    The equilibrium price of a good is the price at which the demand and the supply of the good are equal.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The explanation for the answer being false is that the equilibrium price of a good is indeed the price at which the demand and the supply of the good are equal. This is the point where the quantity demanded by consumers matches the quantity supplied by producers. At this price, there is no excess demand or supply in the market. Therefore, the statement is incorrect.

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  • 22. 

    The rationing function of prices is the elimination of shortages and surpluses.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The rationing function of prices refers to how prices regulate the supply and demand of goods and services in the market. When there is a shortage, prices increase, which encourages suppliers to increase production and consumers to reduce their demand. Conversely, when there is a surplus, prices decrease, which discourages suppliers from producing more and encourages consumers to increase their demand. Therefore, the rationing function of prices helps to eliminate shortages and surpluses by adjusting the equilibrium between supply and demand.

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  • 23. 

    If the supply of a product increases and the demand decreases, the equilibrium price and quantity will increase.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    If the supply of a product increases and the demand decreases, the equilibrium price will decrease because there is an excess supply of the product in the market. This excess supply will lead to a decrease in price as sellers compete to sell their products. The equilibrium quantity will also decrease as a result of the decrease in demand. Therefore, the correct answer is False.

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  • 24. 

    If the demand for a product increases and the supply of the product decreases, the equilibrium price will increase and the equilibrium quantity will be indeterminant.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    When the demand for a product increases, it creates a higher desire for the product, leading to an increase in the equilibrium price. On the other hand, when the supply of the product decreases, there is a limited quantity available, which also leads to an increase in the equilibrium price. However, the effect on the equilibrium quantity is indeterminant because the increase in demand and decrease in supply can have conflicting impacts on the quantity. Therefore, the statement is true.

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  • 25. 

    Economists often make the assumption of other things equal to hold constant the effects of other factors when examining the relationship between prices and quantities demanded and supplied.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Economists often assume that other factors remain constant in order to isolate the relationship between prices and quantities demanded and supplied. This assumption allows them to analyze the impact of price changes on demand and supply without the interference of other variables. By holding other things equal, economists can better understand the cause and effect relationship between prices and quantities.

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  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Sep 07, 2009
    Quiz Created by
    Ecofanics
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