Schiller 15e chapter 03 tb answerkey PDF

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The Macro Economy Today, 15e (Schiller) Chapter 3 Supply and Demand 1) Who participates in markets? A) Business firms. B) Business firms and consumers. C) Consumers and government agencies. D) All of the choices are correct. Answer: D Explanation: Consumers, business firms, government agencies, and foreigners participate in the marketplace. Difficulty: 2 Medium Topic: Market Participants Learning Objective: 03-03 How market prices and quantities are established. Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 2) The goal of the consumer in a market economy is to use his or her limited income to buy A) The greatest number of goods and services possible. B) The goods and services that maximize profits for businesses. C) Those goods and services with the lowest prices. D) The set of goods and services that maximizes the consumer's total utility. Answer: D Explanation: Consumers are motivated by their desire to maximize utility. Difficulty: 2 Medium Topic: Market Participants Learning Objective: 03-03 How market prices and quantities are established. Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

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3) The goal of the business firms in a market economy is to maximize A) Total profits. B) Total sales. C) Total utility. D) Total welfare. Answer: A Explanation: Businesses are motivated by profit. Difficulty: 2 Medium Topic: Market Participants Learning Objective: 03-03 How market prices and quantities are established. Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 4) People benefit by participating in the market because A) Resources are no longer limited. B) There are always participants in the market that are more efficient than you are in production. C) Market participation allows individuals to specialize and, with trade, ultimately consume more. D) Participants in the market do not have to make choices. Answer: C Explanation: Consumers' limited time, energy, resources, and ability to produce all things lead us to specialize and exchange goods with others who can produce a good at a lower opportunity cost. This ultimately increases how much we can consume. Difficulty: 2 Medium Topic: Market Participants Learning Objective: 03-03 How market prices and quantities are established. Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

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5) Which of the following is a market transaction? A) A stock increases in value over the 30 years that it is owned. B) A college student purchases a laptop computer. C) Weather destroys a farmer's crops, leaving the farmer unable to buy groceries. D) A radio station changes its programming from classical to rock. Answer: B Explanation: A market transaction involves an exchange of either barter or currency for goods or resources. Difficulty: 3 Hard Topic: The Circular Flow Learning Objective: 03-03 How market prices and quantities are established. Bloom's: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 6) A factor market is any place or process where A) Finished goods are bought and sold. B) Land, labor, or capital is bought and sold. C) Finished services are bought and sold. D) None of the choices are correct. Answer: B Explanation: A factor market is where the factors of production (land, labor, or capital) are bought and sold. Difficulty: 1 Easy Topic: The Circular Flow Learning Objective: 03-03 How market prices and quantities are established. Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 7) Which of the following is purchased in a product market? A) Cell phone service. B) Undeveloped farmland in Texas. C) Crude oil. D) The skills of an X-ray technician. Answer: A Explanation: A product market is where finished goods and services are bought and sold. Cell phone service is a finished product. Difficulty: 3 Hard Topic: The Circular Flow Learning Objective: 03-03 How market prices and quantities are established. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 3 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

8) Which of the following is purchased in a factor market? A) A bag of jellybeans. B) National defense. C) The labor of a state university professor. D) A motorized scooter used for commuting by a student. Answer: C Explanation: A factor market is where the factors of production, in this case labor, are bought and sold. Difficulty: 3 Hard Topic: The Circular Flow Learning Objective: 03-03 How market prices and quantities are established. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 9) Business firms supply goods and services to ________ and purchase factors of production in ________. A) factor markets; product markets B) national markets; factor markets C) product markets; factor markets D) factor markets; national markets Answer: C Explanation: A factor market is where the factors of production (land, labor, or capital) are bought and sold. A product market is where finished goods and services are bought and sold. A pair of shoes is a finished good. Difficulty: 2 Medium Topic: The Circular Flow Learning Objective: 03-03 How market prices and quantities are established. Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

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10) Individual consumers supply ________ and purchase ________. A) factors of production; final goods and services B) intermediate goods; final goods and services C) final goods and services; factors of production D) national goods and services; factors of production Answer: A Explanation: Individual consumers supply factors of production such as their own labor and purchase final goods and services such as groceries. Difficulty: 2 Medium Topic: The Circular Flow Learning Objective: 03-03 How market prices and quantities are established. Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 11) International participants A) Take no part in American markets. B) Participate only in American product markets. C) Participate only in American factor markets. D) Participate in both American factor markets and American product markets. Answer: D Explanation: International participants take part in the U.S. market by supplying imports, purchasing exports, and buying and selling factors of production. Difficulty: 2 Medium Topic: The Circular Flow Learning Objective: 03-03 How market prices and quantities are established. Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 12) A market in which final goods and services are exchanged is a A) Public goods market. B) Product market. C) Factor market. D) Labor market. Answer: B Explanation: A product market is where finished (final) goods and services are bought and sold. Difficulty: 1 Easy Topic: The Circular Flow Learning Objective: 03-03 How market prices and quantities are established. Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 5 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

13) A buyer is said to have a demand for a good only when A) The buyer is not willing to buy the good and does not have enough income to purchase the good. B) The buyer is both willing and able to purchase the good. C) The buyer has the income but the good is not preferred. D) An adequate supply of the good is available for purchase. Answer: B Explanation: Demand is the ability and willingness to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus Difficulty: 2 Medium Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 14) Jessie's demand schedule for candy bars indicates A) Her opportunity cost of buying candy bars. B) How much she likes candy bars. C) How many candy bars she will actually buy. D) Why she likes candy bars. Answer: A Explanation: A demand schedule is a table showing the quantities of a good a consumer is willing and able to buy at alternative prices. It reflects the value of her or his opportunity cost of buying a good, such as a candy bar, at each price. Difficulty: 3 Hard Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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15) The term opportunity cost refers to the A) Value of every other good given up when a good or service is obtained. B) Financial costs of all the factors of production used to produce a good or service. C) Amount of resources used to produce a good but not a service. D) The most desired good or service given up when something is obtained. Answer: D Explanation: Opportunity cost refers to the most desired goods or services forgone, not all the goods forgone, because not all choices would have been given up-just the best alternative. Difficulty: 1 Easy Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 16) The most desired goods or services that are given up when a choice is made are called the A) Rationing device. B) Economic profit. C) Opportunity cost. D) Utility cost. Answer: C Explanation: Opportunity cost is defined as the most desired goods or services that are forgone in order to obtain something else. Difficulty: 1 Easy Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 17) According to the law of demand, during a given period of time, the quantity of a good demanded A) Increases as its price rises, ceteris paribus. B) Increases as its price falls, ceteris paribus. C) Decreases as its price falls, ceteris paribus. D) Does not change when price changes. Answer: B Explanation: Quantity demanded of an item and price of the same item are inversely related. Difficulty: 2 Medium Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 7 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

18) According to the law of demand, a demand curve A) Has a negative slope. B) Is a horizontal or flat line. C) Has a positive slope. D) Exceeds the economy's ability to produce. Answer: A Explanation: Because price and quantity demanded are inversely related, the demand curve is downward-sloping (has a negative slope). Difficulty: 1 Easy Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 19) A lower quantity demanded of a good reflects, ceteris paribus, A) Lower income. B) A downward shift of the supply curve. C) A higher price of the good. D) Fewer units actually purchased. Answer: C Explanation: Quantity demanded of an item and price of the same item are inversely related. Difficulty: 2 Medium Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 20) Ceteris paribus, if the price of a digital camera rises, then we can expect A) An increase in the demand for digital cameras. B) An increase in the quantity demanded of digital cameras. C) A decrease in the demand for digital cameras. D) A decrease in the quantity demanded of digital cameras. Answer: D Explanation: Quantity demanded and price are inversely related. Difficulty: 3 Hard Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 8 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

21) Ceteris paribus, which of the following is most likely to cause an increase in the quantity demanded of perfume? A) A decrease in the price of perfume. B) A decrease in tastes for perfume. C) An increase in income. D) An increase in the price of electricity. Answer: A Explanation: Quantity demanded and price are inversely related. Tastes and income changes would cause a change in demand (a shift), and the price of electricity would impact the supply of perfume. Difficulty: 3 Hard Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 22) Which of the following is not held constant along a given demand curve for a good? A) Price of the good itself (own price). B) Consumer's income. C) The price of substitute goods. D) Consumer tastes. Answer: A Explanation: The demand curve reflects the quantity demanded at different price levels, which therefore cannot be held constant. Difficulty: 2 Medium Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

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23) Ceteris paribus, which of the following would generally cause an increase in the demand curve for new automobiles? A) A decrease in the price of new automobiles. B) An increase in consumers' income. C) The new models being perceived as ugly compared with old models. D) Consumer expectations that the price of new automobiles will be lower next year. Answer: B Explanation: A decrease in the price of new automobiles would cause a movement along the demand curve. Perceived ugliness and expectations of lower prices would decrease the demand. An increase in consumers' income would increase the demand for goods. Difficulty: 3 Hard Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 24) Ceteris paribus, which of the following would you expect to have no effect on the demand curve for new automobiles? A) A rise in the price of gasoline. B) Consumer expectations that the price of new automobiles will be lower next year. C) Consumer expectations that a significant recession will develop and last for a year. D) An increase in the price of new automobiles. Answer: D Explanation: An increase in the price of new automobiles will cause a movement along the demand curve. The entire curve would not change. Difficulty: 3 Hard Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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25) Ceteris paribus, if buyers expect the price of airline tickets to fall in the future, then right now there should be A) An increase in the demand for airline tickets. B) A decrease in the supply of airline tickets. C) A decrease in the demand for airline tickets. D) No change in the supply of or demand for airline tickets because the price is not changing right now. Answer: C Explanation: Expectations that prices will fall will cause consumers to buy fewer tickets now and wait to purchase airline tickets later, when the price actually falls. Difficulty: 3 Hard Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 26) Which determinant of demand changes in the personal computer market as more individuals become interested in "surfing the Internet"? A) Cost of factors of production. B) Income. C) Expectations. D) Number of buyers. Answer: D Explanation: As individuals become interested in 'surfing the Internet,' more people will be willing and able to buy personal computers. Difficulty: 3 Hard Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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27) Assume that pencils and pens are substitutes. If the price of pencils rises ceteris paribus, then we will see A) An increase in the demand for pens. B) A decrease in the demand for pens. C) An increase in the supply of pens. D) A decrease in the supply of pens. Answer: A Explanation: Consumers will substitute the relatively cheaper pens when the price of pencils rises, thereby causing the demand for pens to increase. Difficulty: 3 Hard Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 28) If bagels and doughnuts are substitutes, then a decrease in the price of doughnuts will result in A) An increase in the demand for doughnuts. B) A decrease in the demand for doughnuts. C) An increase in the demand for bagels. D) A decrease in the demand for bagels. Answer: D Explanation: Consumers will substitute the relatively cheaper doughnuts when the price of doughnuts falls, thereby causing the demand for bagels to decrease. Difficulty: 3 Hard Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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29) If there are only two airlines that fly between Dallas and New Orleans, what will happen in the market for one airline if the other one goes out of business? A) The demand curve will shift to the right. B) The demand curve will shift to the left. C) There will be a movement to the right along the initial demand curve. D) There will be a movement to the left along the initial demand curve. Answer: A Explanation: If one airline goes out of business, the number of consumers willing and able to buy from the other airline will increase, causing demand to increase. Difficulty: 3 Hard Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 30) Peanut butter and jelly are complements. A decrease in the price of one will result in A) A decrease in the demand for the other. B) A decrease in the quantity demanded of the other. C) An increase in the demand for the other. D) An increase in the quantity demanded of the other. Answer: C Explanation: Complementary goods are consumed together. If the price of peanut butter decreases, the quantity demanded of peanut butter will increase. Now that consumers have more peanut butter, they will buy more jelly. Difficulty: 3 Hard Topic: Demand Learning Objective: 03-01 The nature and determinants of market demand. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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