Essentials of Economics Chapter 3

1. If housekeeping services are a normal good, then an increase in income will a. increase the supply of housekeeping services. b. decrease the supply of housekeeping services. c. increase the demand for housekeeping services. d. decrease the demand for housekeeping services. 2. If air travel to Hawaii becomes less expensive, what is likely to happen in the market for hotel rooms in Hawaii? a. The demand for hotel rooms will decrease. b. The demand for hotel rooms will increase. c. The supply of hotel rooms will decrease. d. The supply of hotel rooms will increase. 3. Consider the market for kayaks. What happens when the process of manufacturing kayaks becomes less costly through the use of new technology? a. The demand for kayaks will decrease. b. The demand for kayaks will increase. c. The supply of kayaks will decrease. d. The supply of kayaks will increase. 4. How would an increase in the price of cotton affect the market for cotton Tshirts at your university bookstore? a. The demand for T-shirts will decrease. b. The demand for T-shirts will increase. c. The supply of T-shirts will decrease. d. The supply of T-shirts will increase. 5. Suppose that over time, you have observed an increase in the number of people owning digital cameras and a decrease in the price of these cameras.

Which of the following would account for this? a. The supply has increased and demand has remained constant. b. The supply has decreased and demand has remained constant. c. The demand has increased and supply has remained constant. d. The demand has decreased and supply has remained constant. 6. Which of the following variables do consumers NOT take into account when deciding whether to purchase a backyard swimming pool? a. The cost of manufacturing the pool. b. The cost of maintaining the pool. c. The enjoyment they expect to derive from using the pool. d. The enjoyment they would expect from other goods they might purchase in place of the pool, such as a family entertainment center. 7. What happens in the market for wheat when dry winter weather causes a poor harvest? a. The demand for wheat increases, and the supply remains unchanged. b. The demand for wheat increases, and the supply decreases. c. The demand for wheat decreases, and the supply increases. d. The supply of wheat decreases, and the demand remains unchanged. 8. Which of the following changes would cause a decrease in the demand for DVD rentals? a. A decrease in the price of DVD players. b. A decrease in the price of movie admissions. c. Improved technology in the manufacture of DVD players. d. An increase in the supply of DVD players. 9. Which of the following would cause a surplus of newsprint? a. The supply of newsprint decreases, and the price is not permitted to change. b. The demand for newsprint decreases, and the price adjusts to the new equilibrium. c. The demand for newsprint decreases, and the price is not permitted to change. d. The supply of newsprint decreases, and the price adjusts to the new equilibrium. 10. If the supply curve shifts to the left, and the demand curve does not

change, a. then the equilibrium price and quantity both will increase. b. then the equilibrium price and quantity both will decrease. c. then the equilibrium price will increase, and the quantity will decrease. d. then the equilibrium price will decrease, and the quantity will increase. 11. If the demand curve shifts to the left, and the supply curve does not change, a. then the equilibrium price and quantity both will increase. b. then the equilibrium price and quantity both will decrease. c. then the equilibrium price will increase, and the quantity will decrease. d. then the equilibrium price will decrease, and the quantity will increase. 12. Federal Express and UPS are two firms that compete in providing overnight delivery services. How is the market for UPS affected by an increase in the rates charged by Federal Express? a. UPS will increase the supply of its services. b. UPS will decrease the supply of its services. c. The demand for UPS services will decrease. d. The demand for UPS services will increase. 13. Which of the following could account for the fact that ice cream prices have recently increased and that consumption of ice cream has declined? a. The supply of ice cream has decreased. b. The supply of ice cream has increased. c. The demand for ice cream has increased. d. The demand for ice cream has decreased. 14. The upward slope of the supply curve indicates that a. consumers seek to buy goods that are relatively less expensive. b. consumers do not take price into consideration when deciding whether to purchase a good. c. producers supply more of a good when its price increases. d. firms do not take price into consideration when deciding how much of a good to produce. 15. The downward slope of the demand curve indicates that, all else equal, a. consumers will buy more of a good when its price decreases.

b. producers will supply more of a good when its price increases. c. producers will supply more of a good when its price decreases. d. a decrease in the equilibrium price of a good will cause a shortage. 16. A surplus arises when a. demand for a good increases, causing an increase in the equilibrium price. b. demand for a good decreases, causing a decrease in the equilibrium price. c. the price of a good is held above the equilibrium price. d. the price of a good is held below the equilibrium price. 17. What would be the dominant effect in the market for new homes of an increase in the wages of skilled tradesmen who work in housing construction? a. The supply of new homes would shift to the right. b. The supply of new homes would shift to the left. c. The demand for new homes would shift to the right. d. The demand for new homes would shift to the left. 18. Suppose you manage a craft store that sells supplies for making scrapbooks and for yarn crafts such as knitting and needlepoint.What effect do you anticipate as you learn that scrapbooks are becoming more popular as a hobby and that yarn crafts are becoming less popular? a. You will be able to sell more supplies for yarn crafts at a relatively higher price than before. b. You will be able to sell more supplies for scrapbooks at a relatively higher price than before. c. You will see shortages of yarn craft supplies. d. You will see surpluses of scrapbook supplies. 19. The equilibrium price of a good is the price a. that consumers prefer. b. that producers prefer. c. at which there is no surplus and no shortage of the good. d. there is no opportunity cost associated with producing the good. 20. How is the market for dry cleaning services affected if there is a decrease in the supply of such services? a. The equilibrium price decreases and the equilibrium quantity decreases also. b. The equilibrium price increases and the equilibrium quantity increases also.

c. The equilibrium price decreases and the equilibrium quantity increases. d. The equilibrium price increases and the equilibrium quantity decreases.

Answers: For your reference 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. C B D C A A D B C C 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. B D A C A C B B C D