Chapter: Supply and Demand: An Initial Look
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1. One motive for "fighting the invisible hand" is
a. unhappiness about the prices which occur in free markets.
b. envy toward those who apparently benefit from certain prices.
c. a desire to have government "correct" some problems.
d. an attempt to produce justice between buyers and sellers.
e. all of the above.

2. If the government has stated that it will pay whatever it must to obtain 1,000 units of good X, then which demand curve in Figure 1 is appropriate?
a. 1
b. 2
c. 3
d. 4

3. The U.S. government banned cigarette advertising on radio and television after January 1971. You would expect to find that, after the ban took effect,
a. the price of magazine ads for all goods fell.
b. the price of magazine ads for only cigarettes fell.
c. the price of magazine ads for all goods rose.
d. the price of magazine ads for only cigarettes rose.

4. The price of coal fell and the quantity sold also fell. Everything else being equal, it is consistent that
a. the price of oil fell.
b. coal miners received large wage increases.
c. more efficient mining equipment was installed)
d. consumer incomes rose.
e. supply of coal fell.

5. If the suppliers of a good will sell any amount at $30 but there are no sales, then the market can best be represented by which graph in Figure 2?
a. 1
b. 2
c. 3
d. 4

6. In late 1995 and early 1996, the Federal Reserve System reduced interest rates, the price which borrowers pay. As a result, economists expect that quantity of money supplied will
a. increase.
b. decrease.
c. not change.
d. Uncertain; economic theory has no answer to this question.

7. A severe freeze has once again damaged the Florida orange crop. The impact on the market for oranges will be a leftward shift in
a. demand as consumers try to economize because of the shortage.
b. both the supply and demand curves.
c. the supply curve.
d. the supply and a rightward shift in the demand, which will result in a higher price.

8. A market will experience a ________ when the price is above equilibrium and a ________ when the price is below equilibrium.
a. shortage, shortage
b. surplus, surplus
c. shortage, surplus
d. surplus, shortage

9. Price ceilings likely
a. result in the accumulation of surpluses.
b. increase the volume of transactions as we move along the demand curve.
c. increase production as producers respond to higher consumer demand at the low ceiling price.
d. result in the development of black markets.

10. What are the major problems that will tend to arise if there are legal limits on the movement of prices?
a. favoritism and corruption of officials and market participants
b. unenforceability of laws and higher costs of transactions
c. increasing restrictions to enforce the laws
d. misallocation of resources as prices no longer correspond to costs
e. all of the above



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