Kim attends the farmer’s market in her hometown of Bakersfield every Sunday. She notices that all of the oranges sold by the many different farmers at the market have roughly the same price, as do most other products that are alike. Which statement best explains why the prices are so similar?

For a market to be competitive:
a.    each buyer and seller is small, relative to the whole market; no single decision-maker has any influence over the market price.
b.    sellers must produce goods and services that are different from their competitors.
c.    sellers should have substantial pricing power.
d.    all you need are many buyers and many sellers.
e.    the price must be a fair price.


ANS:    A    DIF:    Easy    REF:    Competitive Markets  
TOP:    I.A.    MSC:    Understanding      

    2.    Kim attends the farmer’s market in her hometown of Bakersfield every Sunday. She notices that all of the oranges sold by the many different farmers at the market have roughly the same price, as do most other products that are alike. Which statement best explains why the prices are so similar?
a.    The farmer’s market in Bakersfield is an imperfect market so prices are set by the producers.
b.    The farmer’s market in Bakersfield is a monopoly because it is the only place to buy fresh fruit on Sundays.
c.    The farmer’s market in Bakersfield is a competitive market so prices are set by the consumer.
d.    The farmer’s market in Bakersfield is a competitive market so neither the consumer nor the producer has a large influence on the price, allowing for the market to set the price.
e.    The farmer’s market in Bakersfield is an imperfect market where Kim’s decision to purchase or not purchase an orange will not change the price of an orange.


ANS:    D    DIF:    Medium    REF:    Competitive Markets  
TOP:    I.A.    MSC:    Applying

    3.    A monopoly:
a.    exists when either the buyer OR the seller has the ability to influence the market price.
b.    exists when there are so many buyers and sellers that each has only a small impact on the market price and output.
c.    exists when a single consumer demands the entire market for a particular good or service.
d.    can have many sellers but only one buyer.
e.    exists when a single company supplies the entire market for a particular good or service.


ANS:    E    DIF:    Easy    REF:    Imperfect Markets  
TOP:    I.B.    MSC:    Remembering      

    4.    Imperfect markets:
a.    do not exist in democracies.
b.    always result in supply exceeding demand.
c.    always result in demand exceeding supply.
d.    occur when the buyer or seller has an influence on the price.
e.    can’t occur if there are many buyers and many sellers.


ANS:    D    DIF:    Easy    REF:    Imperfect Markets  
TOP:    I.B.    MSC:    Remembering      

    5.    According to the law of demand, all other things being equal,
a.    the quantity demanded falls when the price falls, and the quantity demanded rises when the price rises.
b.    the quantity demanded falls when the price rises, and the quantity demanded rises when the price falls.
c.    the demand falls when the price falls, and the demand rises when the price rises.
d.    the demand falls when the price rises, and the demand rises when the price falls.
e.    price and quantity are always positively correlated.


ANS:    B    DIF:    Medium    REF:    What Determines Demand?
TOP:    II.A.    MSC:    Remembering      

    6.    A demand schedule:
a.    is a curve representing the relationship between the price of a good or service and the quantity demanded.
b.    is a list of goods and services demanded at different prices.
c.    is a table representing the relationship between the price of a good or service and the quantity demanded.
d.    can only be used to analyze the individual’s demand for a good or service.
e.    can only be used to analyze the entire market’s demand for a good or service.


ANS:    C    DIF:    Easy    REF:    The Demand Curve  
TOP:    II.A.    MSC:    Remembering      

    7.    When the price of an hour of tutoring increases,
a.    the demand for tutoring decreases.
b.    the demand for tutoring increases.
c.    the demand curve for tutoring shifts.
d.    the quantity demanded for tutoring increases.
e.    the quantity demanded for tutoring decreases.


ANS:    E    DIF:    Medium    REF:    The Demand Curve  
TOP:    II.A.    MSC:    Applying

8. According to the figure below, at the price of $5:

 

a.    the equilibrium quantity is 500.
b.    the quantity demanded is 500.
c.    the demand is 500.
d.    there is a surplus.
e.    there is a shortage.


ANS:    B    DIF:    Easy    REF:    Market Demand   
TOP:    II.A.    MSC:    Analyzing

9.    Refer to the table below:
 
Assume that the market for iPods has only two consumers: Chuck and Ryan. According the table above, if the price of an iPod is $85, the market will demand:
a.    8 iPods.
b.    6 iPods.
c.    5 iPods.
d.    28 iPods.
e.    45 iPods.


ANS:    A    DIF:    Medium    REF:    Market Demand   
TOP:    II.A.    MSC:    Analyzing

    10.    Something is a normal good if the demand for the good:
a.    increases as the consumer’s income increases.
b.    increases as the consumer’s income decreases.
c.    decreases if the price of a substitute good increases.
d.    increases if the price of a complement good increases.
e.    decreases as the income of the consumer increases.


ANS:    A    DIF:    Easy    REF:    Shifts in the Demand Curve
TOP:    II.B.1.a.    MSC:    Remembering