Multiple Choice: Identify the letter of the choice that best completes the
statement or answers the question. (5 points each)
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1.
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If a
competitive market is at equilibrium, and if there is a sudden increase in demand, then a
temporary a. | surplus will
occur and the price will increase. | b. | shortage will occur and the price will
fall. | c. | surplus will occur and the price will
fall. | d. | shortage will occur and the price will
increase. | | |
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2.
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Aluminum is used by business to insulate many items. Due to high energy costs and
aluminum’s insulating ability, the demand for aluminum has increased dramatically. Which of the
following describes what will happen to the aluminum market in the short run? a. | The price and
quantity will rise. | c. | The price will
rise, but quantity will fall. | b. | The price and quantity will
fall. | d. | The price will
fall, but quantity will rise. | | | | |
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3.
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In a
market economy, a high price is a signal for a. | producers to supply more and consumers to buy
less. | b. | producers to supply less and consumers to buy
more. | c. | government to intervene to protect
consumers. | d. | producers to supply less and consumers to buy
less. | | |
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4.
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Which
of the following is an indication of a market in equilibrium? a. | Prices are
rising. | c. | Prices are
moving up or down quickly. | b. | Prices are falling. | d. | Prices are stable. | | | | |
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5.
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When
the price of a product is ABOVE the equilibrium price, which of the following is
true? a. | Quantity
supplied is greater than quantity demanded. | b. | Quantity
demanded is greater than quantity supplied. | c. | Quantity
demanded is equal to quantity supplied. | d. | None of the above. | | |
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6.
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Prices enable a market economy to adjust to unexpected events by a. | maintaining
consumption and production at stable levels. | b. | government
rationing. | c. | ensuring that producers always earn a
profit. | d. | adjusting consumption and production. | | |
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7.
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What
happens when wages are set by law above the equilibrium level? a. | Firms employ the
same number of employees. | b. | Firms employ fewer workers than they would at the equilibrium
wage. | c. | Firms employ more workers than they would at the equilibrium
wage. | d. | Firms employ more workers with the least amount of experience
and skill. | | |
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8.
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Which
of the following is NOT a reason why prices effectively perform the allocation
function? a. | Competitive
markets find their own prices without interference. | b. | Prices favor
neither the producer nor the consumer. | c. | Prices remain surprisingly stable despite unexpected
events. | d. | Prices are easily understood. | | |
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9.
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The
federal minimum wage law demonstrates a. | market equilibrium. | b. | a societal
choice for economic equity over efficiency. | c. | the function of
equilibrium price in a competitive market. | d. | government intervention to ensure the equilibrium
price. | | |
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10.
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American Flags became very expensive right after the September 11 attacks, yet many
people who wanted flags and were willing to pay the higher price were unable to buy a flag. Which of
the following explains what happened in the flag market in the short run? a. | The supply rose
faster than the quantity demanded, causing prices to rise. | b. | The demand rose
faster than the quantity supplied, causing prices to fall. | c. | The demand rose
faster than the quantity supplied, creating a temporary shortage. | d. | The demand rose
faster than the quantity supplied, creating a temporary surplus. | | |
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