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Solution Manual for Computer Accounting with Sage 50 Complete Accounting 2013, 17th Edition

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Solution Manual for Computer Accounting with Sage 50 Complete Accounting 2013, 17th Edition helps you reinforce learning with in-depth, accurate solutions.

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    1 Managerial Economics and Strategy (Perloff/Brander) Chapter 1 Introduction 1.1 Managerial Decision Making 1) Microeconomics studies the allocation of A) decision makers. B) scarce resources. C) models. D) unlimited resources. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: Old 2) Society faces trade - offs because of A) government regulations. B) profit motive. C) price setting by firms. D) scarcity. Answer: D Difficulty: Analytical AACSB: Analytic Skills Status: New 3) Managerial economics A) describes how pay for managers is set. B) ensures managers always make good decisions. C) helps managers make decisions in the face of scarcity. D) explains which products consumers will buy. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: New 4) CEOs should focus on A) beating their competitors. B) maximizing firm profits. C) getting the best pay package for the senior management team. D) minimizing costs. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: New

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    2 5) Profit is A) maximized when the marketing department coordinates with the production department. B) maximized when revenue is maximized. C) used to beat a company's rivals. D) the difference between a firm's revenues and its costs. Answer: D Difficulty: Analytical AACSB: Analytic Skills Status: New 6) Firms face tradeoffs because A) managers don't know which inputs to use. B) inputs are scarce. C) markets set prices of goods they sell. D) marginal reasoning leads to uncertainty. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: New 7) A firm's managers are constrained by A) consumers. B) workers. C) government. D) All of the above. Answer: D Difficulty: Conceptual AACSB: Analytic Skills Status: New 8) A market A) always involves the personal exchange of goods for money. B) allows interactions between consumers and firms. C) always takes place at a physical location. D) has no influence on prices. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: Old

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    3 9) In a market A) the primary participants are consumers and firms. B) government policies play a very small part. C) decision makers always maximize. D) the goods sold are always closely related. Answer: A Difficulty: Definition AACSB: Analytic Skills Status: New 10) Which of the following would NOT be considered part of a firm's strategy? A) production levels B) which inputs to use C) sales strategy D) None of the above - all are part of a firm's strategy. Answer: D Difficulty: Analytical AACSB: Analytic Skills Status: New 11) What is the purpose of having a strategy? Answer: A strategy defines for a manager the actions to be taken to maximize the firm's profits. Difficulty: Conceptual AACSB: Communication Status: New 12) Explain what the statement "We can't have everything we want" means. Answer: Because resources are scarce, we face tradeoffs. For example, a baker cannot use a piece of dough she has for both pizza and a croissant, so she has to decide which to make. Difficulty: Conceptual AACSB: Reflective Thinking Status: New 13) What is profit? Answer: Profit is the difference between a firm's revenue or income and its costs or expenses. Difficulty: Definition AACSB: Communication Status: New 14) Give an example of a tradeoff a pizza restaurant might face. Answer: Whether to make pepperoni or combination pizzas. Difficulty: Definition AACSB: Analytic Skills Status: New

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    4 15) Why might raising the price of a good by a dollar lead to lower profits? Answer: If the extra profit margin made on the units sold does not cover the lost profit from selling fewer units, then profits will actually decrease if the price is raised. Difficulty: Analytical AACSB: Analytic Skills Status: New 16) Why might raising the price of a good by a dollar lead to higher profits? Answer: If the extra profit margin made on the units sold covers the profit lost from selling fewer units, then profits will increase if the price is raised. Difficulty: Analytical AACSB: Analytic Skills Status: New 17) Raising the price of a good by one dollar A) increases profits. B) decreases profits. C) leaves profits unchanged. D) leads to an indeterminant change in profits. Answer: D Difficulty: Analytical AACSB: Analytic Skills Status: New 18) All private firms seek to A) maximize revenue. B) maximize profit. C) minimize headcount. D) maximize employee salaries. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: New 19) Behavioral economics A) studies why people choose not to maximize. B) studies why people maximize. C) studies why people sometimes don't maximize. D) studies why people behave badly when buying and selling. Answer: C Difficulty: Definition AACSB: Analytic Skills Status: New

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    5 For the following, please answer "True" or "False" and explain why. 20) Managers have to understand the decision making of others. Answer: True. Other entities such as governments and rivals may undertake actions that constrain a firm. Consumers and workers make decisions on how to spend their scarce resources, such as budgets and time. To maximize profits, the manager must understand how these other entities will behave. Difficulty: Conceptual AACSB: Analytic Skills Status: New 1.2 Economic Models 1) The purpose of making assumptions in economic model building is to A) force the model to yield the correct answer. B) minimize the amount of work an economist must do. C) simplify the model while keeping important details. D) express the relationship mathematically. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: Old 2) Einstein was quoted saying "Everything should be made as simple as possible, but not simpler." When it comes to economic models this means that A) models shouldn't be too complex. B) models shouldn't be too simple. C) models should have a level of abstraction appropriate to the topic investigated. D) All of the above. Answer: D Difficulty: Analytical AACSB: Analytic Skills Status: Old 3) If a model's predictions are correct, then A) its assumptions must have been correct. B) it is proven to be correct. C) Both A and B above. D) None of the above. Answer: D Difficulty: Analytical AACSB: Analytic Skills Status: Old

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    6 4) Economists tend to judge a model based upon A) the reality of its assumptions. B) the accuracy of its predictions. C) its simplicity. D) its complexity. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: Old 5) Which of the following is an example of a normative statement? A) A higher price for a good causes people to want to buy less of that good. B) A lower price for a good causes people to want to buy more of that good. C) To make the good available to more people, a lower price should be set. D) If you consume this good, you will be better off. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: Old 6) Which of the following is an example of a normative statement? A) Since this food is bad for you, you should not consume it. B) This food has negative health effects. C) If you consume this food, you will get sick. D) People usually get sick after consuming this food. Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: New 7) Which of the following is an example of a positive statement? A) Since this food is bad for you, you should not consume it. B) If this food is bad for you, you should not consume it. C) If you consume this food, you will get sick. D) None of the above. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: New

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    7 8) If an important assumption is omitted from an economic model A) the model's predictions will be accurate 50% of the time. B) the model's predictions will be inaccurate. C) the model will not predict anything. D) the model will be rejected by other economists. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: Old 9) Economic models are most useful in A) explaining outcomes resulting from management decisions. B) predicting the direction of the stock market. C) explaining the future with the past. D) generating untestable hypotheses. Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: New 10) Economic models are most useful in A) predicting changes in one variable due to a change in one or more other variables. B) predicting the direction of the stock market. C) explaining the future with the past. D) generating untestable hypotheses. Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: Old 11) Economic models are most often tested A) using computer simulations. B) using data from the distant past. C) using data from the real world. D) using logic alone. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: Old

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    8 12) A microeconomic model CANNOT be used to A) evaluate the impact of a price change on a firm's revenue. B) predict the impact of an increase in the minimum wage on unemployment. C) evaluate the fairness of a proposal to nationalize health insurance. D) evaluate the effect of an increase in stadium size on the price of a sport team's tickets. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: Old 13) Economic models are only useful in analyzing government policy. A) True, individuals are irrational and therefore economic models are useless. B) False, economic models can be used to predict individual and firm behavior. C) True, economists only model those questions for which they are hired. D) False, economic models are not even useful in analyzing government policy. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: Old 14) Microeconomic models are used to A) make predictions. B) explain real - life phenomena. C) evaluate production alternatives. D) All of the above. Answer: D Difficulty: Analytical AACSB: Analytic Skills Status: New 15) If a theory's predictions are incorrect A) then economists always reject it. B) then the data used was clearly faulty. C) then economists will likely reduce their confidence in the theory. D) then the model must be too simple. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: New

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    9 16) Legislators argue that a minimum wage law is instituted to help poor people. Economists can attack the minimum wage law on two fronts. First, some argue that government should not help the poor. Second, some argue that minimum wage laws actually hurt the poor because it creates unemployment. Which argument is normative and which is positive? Answer: An opinion about the role of government is a normative statement. An observation about the impact of a law is a positive statement. Difficulty: Analytical AACSB: Analytic Skills Status: Old 17) Explain why a model that delivers good enough approximations is a good model. Answer: Models make simplifying assumptions in order to make them less complex and complicated and therefore usable. But when we simplify, we do leave out parts of the real world that have an impact on the results. If a model gives predictions or approximations that are close to reality, then the model is useful. Difficulty: Analytical AACSB: Analytic Skills Status: New 18) Explain why economists might disagree on the content of a model. Answer: Economists might have different theories or might make different simplifying assumptions. Difficulty: Conceptual AACSB: Analytic Skills Status: New For the following, please answer "True" or "False" and explain why. 19) Normative analysis offers decision makers the most valuable information when choosing among alternatives. Answer: False. Normative analysis states subjective goals but not how those goals can be achieved. To choose among alternatives a decision maker uses positive analysis. Difficulty: Analytical AACSB: Analytic Skills Status: Old 20) If a model fits reality but doesn't generate testable predictions, it is of little value to economists. Answer: True. If the model doesn't deliver testable predictions it cannot be tested against competing models. Difficulty: Analytical AACSB: Analytic Skills Status: Old

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    10 21) If actual experience supports two competing theories, then both theories are proven to be true. Answer: False. Neither theory can be rejected but if they are competing, then the test is inconclusive. Difficulty: Analytical AACSB: Analytic Skills Status: Old

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    1 Managerial Economics and Strategy (Perloff/Brander) Chapter 2 Supply and Demand 2.1 Demand 1) An increase in consumer incomes will lead to A) a rightward shift of the demand curve for plasma TVs. B) a movement upward along the demand curve for plasma TVs. C) a rightward shift of the supply curve for plasma TVs. D) no change of the demand curve for plasma TVs. Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: Old 2) If the price of automobiles were to increase substantially, the demand curve for gasoline would most likely A) shift leftward. B) shift rightward. C) remain unchanged. D) become steeper. Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: Old 3) If the price of automobiles were to decrease substantially, the demand curve for public transportation would most likely A) shift rightward. B) shift leftward. C) remain unchanged. D) remain unchanged while quantity demanded would change. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: Old 4) If the price of automobiles were to decrease substantially, the demand curve for pizza would most likely A) shift rightward. B) shift leftward. C) remain unchanged. D) remain unchanged while quantity demanded would change. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: New

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    2 5) Consumers have been buying fewer CDs as downloadable music has become easier to purchase and use. We would represent this as A) a leftward shift of the demand curve for CDs. B) a rightward shift of the demand curve for CDs. C) a change in the price of CDs. D) a leftward shift of the supply curve for downloadable music. Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: New 6) As people have become more health - conscious and decided to eat food that is better for them A) the demand curve for scooters has shifted to the right. B) the demand curve for cupcakes has shifted to the right. C) the demand curve for oranges and apples has shifted to the right. D) None of the above. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: New 7) If a yet - to - be released video game receives a positive review in a popular gaming magazine, what happens to the demand curve for the video game? A) The demand curve is expected to shift to the right. B) The demand curve is expected to shift to the left. C) The demand curve is not expected to change. D) For those who read the review, demand shifts to the left. For those who don't read the review, demand shifts to the right. Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: New 8) Which of the following cultural events likely increased the demand for the product highlighted in the event? A) the banning of cigarette advertising on television B) the inclusion of Reese's Pieces in the movie E.T. C) increased environmental awareness about the impacts of sport utility vehicles (SUVs) D) concerns over "Mad Cow" disease in beef Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: New

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    3 9) Recently, many cities have attempted to pass laws taxing the sale of sugary drinks such as soda pop. If one of these laws passes, we would expect A) the supply curve for soda pop to shift to the right. B) the supply curve for soda pop to become more vertical. C) the demand curve for soda pop to shift to the right. D) the demand curve for soda pop to shift to the left. Answer: D Difficulty: Analytical AACSB: Analytic Skills Status: New 10) If a city were to ban the use of automobiles within its city limits, we would expect A) the demand curve for automobiles to shift to the left. B) people to move to another city. C) the demand curve bicycles to shift to the left. D) the demand curve for automobiles to remain the same. Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: New 11) The CB radio was very popular in the 1970s and 1980s for communicating while driving, and people bought them because other drivers had them too and they could therefore talk with many others on their trips. This illustrates A) that the demand curve for CB radios was inelastic. B) the network effect. C) that CB radios and gasoline are complementary goods. D) the effects of mobile phones on the demand curve for CB radios. Answer: B Difficulty: Conceptual AACSB: Analytic Skills Status: New 12) The quantity demanded for a good A) must equal the quantity actually sold. B) can be less than the quantity actually sold. C) can be greater than the quantity actually sold. D) is always greater than the quantity actually sold. Answer: C Difficulty: Conceptual AACSB: Analytic Skills Status: New

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    4 13) An individual who is only willing to pay a relatively low amount for a particular good A) would fall in the upper portion of the demand curve. B) would fall in the middle portion of the demand curve. C) would fall in the lower portion of the demand curve. D) would not be considered part of the demand curve. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: Old 14) Assume Joe is only willing to pay $5 for a Ferrari sports car. A) Joe is not considered part of the demand for Ferraris. B) Joe won't be sold a Ferrari. C) Joe is not considered rational. D) Joe's willingness to pay is not indicative of how much he values the Ferrari. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: Old 15) A downward sloping demand curve indicates that A) individuals all have the same valuation of the same product. B) individuals have different valuations of the same product. C) individuals have no valuations of a particular product. D) certain individuals are uninformed about certain aspects of the product. Answer: B Difficulty: Conceptual AACSB: Analytic Skills Status: Old 16) If the price is $5 and the quantity demanded is 100 units, then at a price of $10, the quantity demanded will be A) less than or equal to 100 units. B) greater than or equal to 100 units. C) less than or equal to 1000 units. D) equal to 100 units. Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: Old

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    5 17) According to the Law of Demand, the demand curve for a good will A) shift leftward when the price of the good increases. B) shift rightward when the price of the good increases. C) slope downward. D) slope upward. Answer: C Difficulty: Conceptual AACSB: Analytic Skills Status: Old 18) The law of demand A) was passed by the 102nd U.S. Congress. B) is a natural law, much like the law of gravity. C) is considered a "law" in economics because of the overwhelming empirical evidence that supports its logic. D) is considered a "law" in economics in order to force economic models to operate fully. Answer: C Difficulty: Conceptual AACSB: Analytic Skills Status: Old 19) Which of the following would NOT change demand? A) the price of the product B) information about the product's health effects C) the income of the consumers D) the price of related products Answer: A AACSB: Analytic Skills Status: Old 20) If a demand curve shifts left, it implies A) as a group, consumers are willing and able to pay less for the product. B) as a group, consumers are willing and able to pay more for the product. C) government has regulated how many people can purchase the product. D) the profit motive of the firms is making the price too high. Answer: A Difficulty: Conceptual AACSB: Analytic Skills Status: Old

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    6 21) An increase in the price of pork will lead to A) a movement up along the demand curve. B) a movement down along the demand curve. C) a rightward shift of the demand curve. D) a leftward shift of the demand curve. Answer: A Difficulty: Conceptual AACSB: Analytic Skills Status: Old 22) Holding all other factors constant, consumers demand more of a good the A) higher its price. B) lower its price. C) steeper the downward slope of the demand curve. D) steeper the upward slope of the demand curve. Answer: B AACSB: Analytic Skills Status: Old 23) As the price of a good increases, the change in the quantity demanded can be shown by A) shifting the demand curve leftward. B) shifting the demand curve rightward. C) moving down along the same demand curve. D) moving up along the same demand curve. Answer: D AACSB: Analytic Skills Status: Old 24) A increase in quantity demanded as a result of a change in price A) is a rightward shift of the demand curve. B) is a leftward shift of the demand curve. C) leaves the demand curve unchanged. D) is not possible. Answer: C Difficulty: Conceptual AACSB: Analytic Skills Status: New

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    7 25) If the price of automobiles were to increase substantially, the demand curve for automobiles would most likely A) shift rightward. B) shift leftward. C) remain unchanged. D) become steeper. Answer: C Difficulty: Conceptual AACSB: Analytic Skills Status: New 26) If the price of a pizza were to increase to $50, many people would give up eating pizza while others would continue to eat it. This would indicate A) those who are buying pizza value it at least $50 per pizza. B) those who are not buying pizza value it more than $50 per pizza. C) only those who are extremely wealthy are buying pizza. D) the price of pizza needs to be regulated by the federal government. Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: New 27) Which of the following is NOT possible according to the law of demand? A) A horizontal demand curve B) A vertical demand curve C) A downward - sloping supply curve D) An upward - sloping demand curve Answer: D Difficulty: Conceptual AACSB: Analytic Skills Status: New 28) A change in a relevant factor other than the price of the good itself causes a ________ the demand curve, and a change in a good's own price causes a ________ the demand curve. A) shift of; shift of B) shift of; movement along C) movement along; shift of D) movement along; movement along Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: New

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    8 29) The above figure shows a graph of the market for pizzas in a large town. No pizzas will be demanded unless price is less than A) $0. B) $5. C) $12. D) $14. Answer: D Difficulty: Analytical AACSB: Analytic Skills Status: Old 30) The above figure shows a graph of the market for pizzas in a large town. If the price falls from $10 to $7 per pizza, the quantity of pizzas demanded will A) increase by 20. B) decrease by 30. C) increase by 30. D) decrease by 10. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: Old 31) Assume the price of a movie is $10. Jenna demands 2 movies per week, Sam demands 3 movies per week, and Jordan demands 8 movies per week. From this information we can conclude that A) the market quantity demanded at a price of $10 is at least 13 movies per week. B) Jordan is obviously more wealthy than either Sam or Jeanna. C) Sam is irrational compared to Jenna or Jordan. D) the movie industry is unprofitable. Answer: A AACSB: Analytic Skills Status: Old

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    9 32) To determine the total demand for all consumers, sum the quantity each consumer demands A) at a given price. B) at all prices and then sum this amount across all consumers. C) Both A and B will generate the same total demand. D) None of the above. Answer: A AACSB: Analytic Skills Status: Old For the following, please answer "True" or "False" and explain why. 33) If a good is not produced, then there is no demand for it. Answer: False. The demand for a product is independent of its supply. It is possible that people want to buy some of the product but at prices that are below what sellers would require to begin production. Difficulty: Conceptual AACSB: Analytic Skills Status: Old 34) The quantity of a good that consumers demand depends only on the price of the good. Answer: False. The quantity of a good demanded depends on many factors including: its own price, consumers' incomes, and the price of related goods. Difficulty: Conceptual AACSB: Analytic Skills Status: Old 35) Suppose the demand for a particular product can be expressed as Q = 100/p. Calculate the total amount spent on this good when p = 10, 20, and 50. Can you make a generalization about the mathematical form of this demand curve and consumer behavior in this market? Answer: In all cases, total expenditure equals 100 (since p * Q = 100). In general, a nonlinear demand curve of the form Q = A/p means that consumers wish to spend a total of A on this good regardless of its price. Difficulty: Analytical AACSB: Analytic Skills Status: Old

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    10 2.2 Supply 1) Technological innovation in the production of computers has led to A) a decrease in the quantity demanded for computers. B) a rightward shift of the supply curve for computers. C) a decrease in the quantity supplied of computers. D) None of the above. Answer: B Difficulty: Conceptual AACSB: Analytic Skills Status: Old 2) The supply curve is influenced by A) the income of consumers. B) the number of customers in the market. C) the prices of the inputs required to produce the product. D) whether the economy is free - market or command. Answer: C AACSB: Analytic Skills Status: Old 3) The price of crude oil rose to over $100 per barrel in early 2013. What would we expect to see happen to the supply of plastic, which is produced using crude oil? A) The supply of plastic will increase. B) The supply of plastic will decrease. C) The supply of plastic will stay the same because the government requires plastic producers to meet statutory minimum production levels. D) The supply of plastic will stay the same because of the profit motives of plastic producers. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: New 4) Government regulations A) have no impact on supply. B) only change the quantity supplied, not the supply curve. C) are generally ineffective due to lobbying by suppliers. D) can change both quantity supplied as well as the supply curve. Answer: D Difficulty: Conceptual AACSB: Analytic Skills Status: New

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    11 5) The supply curve A) represents the quantity supplied at any given price. B) represents the quantity actually sold at any given price. C) is the opposite of the demand curve. D) always intersects the demand curve. Answer: A Difficulty: Conceptual AACSB: Analytic Skills Status: New 6) Suppose the demand curve for a good shifts rightward, causing the equilibrium price to increase. This increase in the price of the good results in A) a rightward shift of the supply curve. B) an increase in quantity supplied. C) a leftward shift of the supply curve. D) a downward movement along the supply curve. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: Old 7) An increase in the price of oil will A) shift the supply curve of oil to the left. B) shift the supply curve of oil to the right. C) leave the supply curve of oil unchanged. D) Not enough information to answer the question. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: Old 8) The expression "increase in quantity supplied" is illustrated graphically as a A) leftward shift in the supply curve. B) rightward shift in the supply curve. C) movement up along the supply curve. D) movement down along the supply curve. Answer: C Difficulty: Conceptual AACSB: Analytic Skills Status: Old

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    12 9) The Law of Supply states A) that supply curves slope upward. B) that supply curves can be vertical or horizontal. C) Both A and B D) None of the above. Answer: D Difficulty: Conceptual AACSB: Analytic Skills Status: New 10) Supply curves A) slope upward. B) slope downward. C) are horizontal. D) can have many shapes. Answer: D Difficulty: Conceptual AACSB: Analytic Skills Status: Old 11) If the supply curve of a product changes so that sellers are now willing to sell 2 additional units at any given price, the supply curve will A) shift leftward by 2 units. B) shift rightward by 2 units. C) shift vertically up by 2 units. D) shift vertically down by 2 units. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: Old

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    13 12) The above figure shows a graph of the market for pizzas in a large town. No pizzas will be supplied unless the price is above A) $0. B) $5. C) $12. D) $14. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: Old 13) Suppose there are 100 identical firms in the rag industry, and each firm is willing to supply 10 rags at any price. The market supply curve will be a A) vertical line where Q = 10. B) vertical line where Q = 100. C) vertical line where Q = 1000. D) horizontal line where Q = 1000. Answer: C Difficulty: Conceptual AACSB: Analytic Skills Status: Old 14) The market supply curve is found by A) horizontally summing all individual supply curves at a price. B) vertically summing all individual supply curves at a quantity. C) either A or B above since they both give the same answer. D) None of the above. Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: New

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    14 15) Suppose the following information is known about a market: 1. Sellers will not sell at all below a price of $2. 2. At a price of $10, any given seller will sell 10 units. 3. There are 100 identical sellers in the market. Assuming a linear supply curve, use this information to derive the market supply curve. Answer: First, Q = 100q since all firms are identical. This gives two points: (p = 2, Q = 0) and (p = 10, Q = 1000). From the first point, it is known that p = 2 + bQ. When Q = 1000, 10 = 2 + b(1000). Solving for b yields b = .008. Rearranging to solve for Q yields: Q = - 250 + 125p or P= 2 + .008Q. Difficulty: Analytical AACSB: Analytic Skills Status: Old 2.3 Market Equilibrium 1) Equilibrium is defined as a situation in which A) neither buyers nor sellers want to change their behavior. B) no government regulations exist. C) demand curves are perfectly horizontal. D) suppliers will supply any amount that buyers wish to buy. Answer: A Difficulty: Conceptual AACSB: Analytic Skills Status: Old 2) Once an equilibrium is achieved, it can persist indefinitely because A) shocks that shift the demand curve or the supply curve cannot occur. B) shocks to the demand curve are always exactly offset by shocks to the supply curve. C) the government never intervenes in markets at equilibrium. D) in the absence of supply/demand shocks no one applies pressure to change the price. Answer: D Difficulty: Conceptual AACSB: Analytic Skills Status: Old 3) A market equilibrium occurs A) only with government regulation. B) only because of the profit motive of firms. C) only because of the complacency of consumers. D) through the interaction of self - interested consumers and producers. Answer: D AACSB: Analytic Skills Status: Old

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    15 4) A market is said to "clear" when A) sellers give up selling their goods because they can't find any buyers. B) buyers and sellers are able to buy and sell as much as they want at the market price. C) the government decides to shut it down. D) sellers run out of goods to sell. Answer: B Difficulty: Conceptual AACSB: Analytic Skills Status: New 5) At equilibrium, quantity sold equals the quantity bought. This implies that A) to sell more, producers require more in payment than consumers are willing to pay. B) government regulation is necessary. C) to sell less would require a lower price but would yield greater profit. D) those who don't buy have been treated unfairly. Answer: A Difficulty: Conceptual AACSB: Analytic Skills Status: Old 6) The above figure shows a graph of the market for pizzas in a large town. At a price of $14, there will be A) no pizzas supplied. B) equilibrium. C) excess supply. D) excess demand. Answer: C AACSB: Analytic Skills Status: Old

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    16 7) The above figure shows a graph of the market for pizzas in a large town. At a price of $5, there will be A) excess demand. B) excess supply. C) equilibrium. D) zero demand. Answer: A AACSB: Analytic Skills Status: Old 8) The above figure shows a graph of the market for pizzas in a large town. What are the equilibrium price and quantity? A) p = 8, Q = 60 B) p = 7, Q = 40 C) p = 7, Q = 70 D) p = 10, Q = 40 Answer: A AACSB: Analytic Skills Status: Old 9) The figure above shows a graph of the market for pizzas in a large town. What characterizes the equilibrium in this market? A) There is excess supply at the equilibrium price of $7. B) The government has selected the appropriate price for pizzas. C) The quantity supplied equals the quantity demanded. D) Supply equals demand. Answer: C AACSB: Analytic Skills Status: Old 10) The above figure shows a graph of a market for pizzas in a large town. At a price of $7, what is the amount of excess demand? A) 0; there is excess supply at $7. B) 20 units C) 30 units D) 10 units Answer: C AACSB: Analytic Skills Status: Old

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    17 11) The above figure shows a graph of a market for pizzas in a large town. At a price of $10, the market A) is not in equilibrium. B) has excess supply. C) does not have excess demand. D) All of the above. Answer: D AACSB: Analytic Skills Status: Old 12) If Qs = - 20 + 10p, and Qd = 400 - 20p, what is the equilibrium price? A) 14 B) 42 C) 12.67 D) 38 Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: New 13) If Qs = - 20 + 10p, and Qd = 400 - 20p, what is the equilibrium quantity? A) 440 B) 146.6 C) 360 D) 120 Answer: A Difficulty: Analytical AACSB: Analytic Skills Status: New 14) After tickets for a major sporting event are purchased at the official box office price, a market often develops whereby these tickets sell at prices well above the official box office price. Which of the following scenarios would NOT be able to explain this result? A) The official price was below equilibrium from the moment the tickets were available. B) Increased publicity causes the demand curve for the event to shift rightward. C) The event was not a sellout. D) Not everyone who wanted a ticket was able to buy one at the box office. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: Old

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    18 15) At equilibrium, quantity sold equals the quantity bought. This implies that A) to sell more, producers require more in payment than consumers are willing to pay. B) government regulation is necessary. C) to sell less would require a lower price but would yield greater profit. D) those who don't buy have been treated unfairly. Answer: A Difficulty: Conceptual AACSB: Analytic Skills Status: Old 16) According to Adam Smith's invisible hand A) markets need the government to intervene. B) forces are constantly pushing markets out of equilibrium C) people coordinate their activities, resulting in equilibrium in the market. D) there is an invisible glove that restricts what markets can do. Answer: C Difficulty: Conceptual AACSB: Analytic Skills Status: New 17) A competitive equilibrium is described by A) a price only. B) a quantity only. C) the excess supply minus the excess demand. D) a price and a quantity. Answer: D Difficulty: Conceptual AACSB: Analytic Skills Status: Old 18) If price is initially above the equilibrium level A) the supply curve will shift rightward. B) the supply curve will shift leftward. C) excess supply exists. D) all firms can sell as much as they want. Answer: C Difficulty: Analytical AACSB: Analytic Skills Status: Old

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    19 19) If the price of a good is initially below the equilibrium level A) the supply curve will shift leftward. B) the supply curve will shift rightward. C) firms supply none of the good. D) excess demand exists. Answer: D Difficulty: Analytical AACSB: Analytic Skills Status: New 20) In some markets, ________ act to adjust the price to bring the market into equilibrium. A) bulls B) regulators C) market makers D) web sites Answer: C Difficulty: Conceptual AACSB: Analytic Skills Status: New For the following, please answer "True" or "False" and explain why. 21) When a market is in disequilibrium consumers and producers change their behavior. As a result the market reaches equilibrium. Answer: True. For example, when a shortage exists at a given price consumers bid up the price and firms increase production until the equilibrium is reached. Difficulty: Conceptual AACSB: Analytic Skills Status: Old 22) Explain why the equilibrium price is called the market clearing price. Answer: At the equilibrium price, sellers want to sell the exact amount consumers want to buy. There is no excess demand or excess supply. The market is exactly cleared of all goods. Difficulty: Conceptual AACSB: Analytic Skills Status: Old

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    20 2.4 Shocks to the Equilibrium 1) From the 1970s through the 1990s, the relative price of a college education has increased greatly. During the same time period, college enrollment has also increased. This evidence suggests that during this time period A) the demand curve for a college education has shifted leftward. B) the demand curve for a college education has shifted rightward. C) the supply curve for a college education has shifted leftward. D) the supply curve for a college education has shifted rightward. Answer: B Difficulty: Analytical AACSB: Analytic Skills Status: Old 2) Suppose a market were currently at equilibrium. A rightward shift of the demand curve would cause A) an increase in price but a decrease in quantity. B) a decrease in price but an increase in quantity. C) an increase in both price and quantity. D) a decrease in both price and quantity. Answer: C Difficulty: Conceptual AACSB: Analytic Skills Status: Old 3) A rightward shift of the demand curve will lead to a(n) A) increase in equilibrium price. B) excess demand at the old equilibrium price. C) increase in quantity supplied. D) All of the above. Answer: D Difficulty: Conceptual AACSB: Analytic Skills Status: Old 4) A leftward shift of the demand curve will lead to a(n) A) decrease in equilibrium price. B) excess supply at the old equilibrium price. C) decreased in quantity supplied. D) All of the above. Answer: D Difficulty: Conceptual AACSB: Analytic Skills Status: New

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