CFA一级Preliminary Reading Demand and the Market Process.doc

五 Investment Tools: Economics: Microeconomic Analysis1.A: Preliminary Reading: Supply, Demand, and the Market ProcessQuestion ID: 12637The law of demand states that, given a decrease in:A.price, demand will decreaseB.price, demand will increase.C.real output, demand will increase.D.real output, demand will decrease. BThe law of demand states that, given an increase in price, demand will decrease. This relationship exists because higher prices induce some consumers to purchase substitute goods and/or simply forgo the use of the product.Question ID: 12638The law of supply states that, given a decrease in:A.price, supply will increase.B.price, supply will decrease.C.real output, supply will increase.D.real output, supply will decrease. BThe law of supply states that, given an increase in price, supply will increase and vice versa. This relationship exists because higher prices induce current producers to produce more units and new producers to enter the market.Question ID: 12672Given a shift to the right in the demand curve, which of the following identifies the short-run response and long-run response of price relative to beginning price?A.Short-Run Response of PriceLong-Run Response of PriceDecreases modestlyDecreases substantiallyB.Short-Run Response of PriceLong-Run Response of PriceIncreases substantiallyIncreases modestlyC.Short-Run Response of PriceLong-Run Response of PriceDecreases substantiallyDecreases modestlyD.Short-Run Response of PriceLong-Run Response of PriceIncreases modestlyIncreases substantiallyBGiven a shift to the right in the demand curve, the price will rise substantially in the short run because there is a limit to how much production can be increased in the short run. However, after more plant and equipment are added (in the long-run), production can be increased significantly which reduces the imbalance between demand and supply. The result is a decline in the price from the initial high level.Question ID: 24810Given that there is no shift in the supply or demand curve, what will bring the market into equilibrium if the supply for a product exceeds demand? Price will:A.increase, demand will increase, and supply will decrease.B.decrease, demand will decrease, and supply will decrease.C.decrease, demand will increase and supply will decrease.D.increase, demand will decrease, and supply will increase.CAssuming that there is no shift in the supply or demand curve and supply for a product is too high relative to demand, price must decrease to bring the market into equilibrium. The lower price of the product will increase demand by consumers for the product while discouraging producers to produce more of the product at the lower price. This will in turn reduce the quantity of goods that will be supplied, because fewer producers are willing to supply goods at the lower price.Question ID: 24808Given that there is no shift in the supply or demand curves and the supply for a product is too high relative to demand, which course of action will firms most likely take? Firms will:A.increase prices to increase inventory.B.reduce prices on their excess inventory.C.increase capacity to increase production.D.reduce production to increase prices.BGiven that there is no shift in the supply or demand curves, businesses will either decrease the amount of production or reduce prices in order to reduce the amount of excess inventory they are holding. Increasing capacity for production or increasing prices would result in increasing the amount of excess inventory and bring the market further away from equilibrium.Question ID: 12676Which of the following is not relevant to a shift in the supply curve to the left?A.Some of the producers have shut down their operations.B.An environmental tax has been imposed on the production process.C.The industry is experiencing increased product liability claims.D.The price of the product decreases. DChanges in price will enable movements along the supply curve and will not cause it to shift. Other factors will result in a shift in the supply curve to the left.Question ID: 12675Which of the following is most relevant to a shift in the demand curve to the right?A.The price of the product decreases.B.The price of substitute goods decreases.C.The cost of resources used to produce a product increases.D.Consumers income increases. DAn increase in consumers incomes will make it possible for consumers to be willing to pay higher prices for the same quantity. Higher prices will also lead to an increase in supply.Question ID: 24815Which of the following will cause a demand curve to shift?A.A new technology innovation related to the production of the product.B.An unexpected political change.C.A reduced price of resources used in the production of the product. D.An increased number of consumers in the target market for the product.DAn increased number of consumers in the target market for the product will increase the demand for the product at all price levels. There will be more consumers willing to purchase the product, causing a shortage of available products at previous price levels. Therefore, the demand curve must shift to reflect the change in quantity demanded at all price levels. Conversely, a reduced price in product resources, technology changes, and political changes will all impact the supply curve not the demand curve.Question ID: 14116All of the following will cause the demand curve to shift to the left EXCEPT:A.future prices are expected to fall.B.the price of complementary goods fall.C.consumer income falls.D.the price of substitute goods decreases. BThe demand curve will shift to the left for all of the possible answers except when the price of complementary goods falls. If the price of complementary goods falls the demand curve will shift to the right.Question ID: 14118Which of the following factors would NOT cause the demand curve for a normal good to shift to the right or left?A.An increase in the price of a complementary good.B.A decrease in the price of the good.C.A decline in consumer income.D.An increase in the price of a substitute good. BA change in price will not cause the demand curve to shift to left or right. A change in price will simply cause movement along the demand curve.Question ID: 24818Which of the following will cause a shift in the demand curve to the left?A.The product becomes less popular with consumers.B.Consumers expect the price of the goods to increase in the next period.C.The price of substitute goods increases.D.Consumer income increases.AChanges in consumer tastes and preferences cause a shift in the demand curve. A decreased preference for the product will cause the demand curve to shift to the left. The demand curve will shift to the right with an increase in the price of substitute goods, consumer expectations of increasing prices in the future, or increase in consumer income.Question ID: 24812All of the following factors will cause a demand curve to shift EXCEPT changes in:A.the cost of production for the product.B.the number of consumers in the market.C.the prices of related goods.D.consumer tastes and preferences.AChanges in the cost of production for the product will not cause a shift in the demand curve. Changes in production costs will cause the supply curve to shift. Therefore, this will result in a movement along a specific demand curve, resulting from a change in price. Factors that cause a demand curve to shift are changes in: consumer income, the prices of related goods, consumer expectations, the number of consumers in the market, consumer tastes and preferences, and demographics.Question ID: 24819In the short run, producers will respond to a decrease in demand most likely by:A.increasing the amount of labor used in production.B.increasing the amount of capital expenditures.C.reducing the price of goods.D.reducing the amount of capital expenditures. CIn the short run, producers will reduce the price of goods to bring the market into equilibrium with the price consumers are willing to pay. Producers can change their plant capacity in the long run by changes in capital expenditures. Increasing the amount of labor used in production would most likely increase the price of the goods. Question ID: 24820In the long run, a shift in the supply curve to the right will result in:A.an increase in price and an increase in quantity.B.a decrease in price and a decrease in quantity.C.a decrease in price and an increase in quantity.D.an increase in price and a decrease in quantity.CA shift in the supply curve to the right resulting from an increase in supply will cause the price of goods to decrease. More consumers will demand the product at the lower price and quantity increases at the new market equilibrium.Question ID: 12680Given a shift to the left in the demand curve, which of the following identifies the short-run response and long-run response of supply relative to beginning supply?A.Short-run Response of SupplyLong-Run Response of SupplyDecreases modestlyIncreases ModestlyB.Short-run Response of SupplyLong-Run Response of SupplyDecreases modestlyDecreases SubstantiallyC.Short-run Response of SupplyLong-Run Response of SupplyIncreases modestlyDecreases SubstantiallyD.Short-run Response of SupplyLong-Run Response of SupplyIncreases modestlyIncreases SubstantiallyBGiven a shift to the left in the demand curve, the lower price that results forces producers to produce fewer units. A producer can usually produce fewer units by working employees less, but to reduce production even more requires shutdown of plant and equipment, which takes time. In the long run, given the shutdown of plant and equipment, production can be reduced even more.Question ID: 24821New legislation setting a price ceiling will most likely cause:A.a market surplus.B.an increase in production.C.a decrease in demand.D.a market shortage.DPrice ceilings restrict the producer from increasing the selling price. The lower price will stimulate demand by consumers at this lower price. However, since producers will not be able to increase price there is little incentive for them to increase supply. Hence, production and supply will be limited at the price ceiling leading to a market shortage.Question ID: 12681Which of the following statements regarding supply and demand is TRUE? A price:A.ceiling means that the price is higher than equilibrium, resulting in a shortage of goods.B.floor means that the price is lower than equilibrium, resulting in a shortage of goods.C.floor means that the price is lower than equilibrium, resulting in a surplus of goods.D.ceiling means that the price is lower than equilibrium, resulting in a shortage of goods.DPrice ceilings are legally set maximum prices sellers may charge. Ceilings are usually initiated during inflationary periods, this will prevent the producer from increasing the selling price to cover rising costs. As a result this will lead to a reduction in supply that will cause a shortage.Question ID: 24822Government legislation setting a price floor will least likely result in:A.increased supply.B.increased demand.C.increased production.D.a surplus.BPrice floors are minimum prices that buyers must pay for a good. Price floors allow producers to receive a price above the equilibrium price. Therefore, producers will increase production and supply. Buyers will reduce their consumption at the higher price, resulting in a surplus.Question ID: 12682The invisible hand principal refers to the tendency of:A.market prices to rise and fall in response to supply and demand interaction.B.the stock market to rise during periods of rapid economic growth.C.market prices to direct individuals to productive activities.D.the stock market to decline during periods of negative economic growth. CThe invisible hand principal refers to the tendency of market prices to direct individuals to productive activities.Question ID: 12683Which of the following is NOT one of the components of the invisible hand?A.Motivating producers to work, use efficient production, and supply desired goods.B.Helping price products and providing order in the market.C.Communicating information to decisions makers.D.Government coordination of the actions of market participants. DThe item listed that is not a component of the invisible hand is government coordination of the actions of market participants. The whole idea of the invisible hand is that certain aspects of the economy do not need guidance from a central organization (like the government) to benefit society.Question ID: 12677Which of the following is most likely to cause a shift in the supply curve to the right?A.Consumers incomes decrease.B.Producers manufacturing cost declines.C.The price of substitute goods increases.D.The price of the product increases. BA decline in manufacturing cost will lead to greater profit at the same production level. Producers will increase production and prices will fall and the supply curve will shift to the right.Question ID: 12639Which of the following indicates the typical slope of the supply and demand curves?A.Supply CurveDemand CurveFlatVerticalB.Supply CurveDemand CurveUpward to the rightUpward to the leftC.Supply CurveDemand CurveUpward to the leftUpward to the leftD.Supply CurveDemand CurveVerticalFlatBGiven that price is on the vertical axis and quantity on the horizontal axis, the supply curve slopes upwards to the right indicating that supply increases as price increases. The demand curve slopes downward to the right indicating that demand increases as price decreases.Question ID: 12674Which of the following will NOT cause the demand curve to shift? A change in: A.the price of a substitute good.B.the relative price of a complimentary good.C.the price of a product. D.consumer preferences.CA change in the price of a product is movement along the demand curve. Other factors that cause a shift in the demand curve are: changes in consumer income, changes in consumer expectations regarding future prices of products, changes in the number of consumers in the market, demographic changes.Question ID: 12640The law of supply states that, given a decrease in:A.price, supply will decrease.B.real output, supply will increase.C.real output, supply will increase.D.price, supply will increase. AThe law of supply states that given a decrease in price supply will decrease. This relationship exists because higher prices induce current producers to produce more units and new producers to enter the market and vice versa.Question ID: 14117Which of the following factors would cause the demand curve for a normal good to increase (shift to the right)?A.An increase in the price of a complementary good.B.A decline in consumer income.C.A decrease in the price of the good.D.An increase in the price of a substitute good. DPrices of substitute goods influence demand. If two goods are similiar to one another, they are substitutes, if price rises on one of the goods, demand for the other will rise (shift upward to the right).Question ID: 12673Assuming there will be no shift in the supply or demand curve, what will bring the market into equilibrium if the demand for a product is too low relative to supply? Price will decline, demand will:A.rise, and supply will rise.B.decline, and supply will fall.C.decline, and supply will rise.D.rise, and supply will fall. DIf the demand for a product is too low relative to supply, price will fall. The lower price of the product will increase product demand while simultaneously motivating producers to produce less of the product.1.B: Preliminary Reading: The Economic Role of GovernmentQuestion ID: 12709Which of the following best describes economic inefficiency?A.Marginal revenue that is less than marginal cost.B.The lowest possible benefit for a given cost.C.An accounting loss.D.An economic loss. BAn economic action will be efficient if it produces the largest possible benefit for a given cost. Some of these benefits may not be quantifiable so that concepts like profit and marginal revenue are not appropriate.Question ID: 24833Two government functions that will help create the proper environment for economic efficiency are:A.protective and productive functions.B.productive and legislative functions.C.protective and legislative functions.D.legislative and economic functions.AThe protective and productive functions will help create the proper environment for economic efficiency. The protective function of the government helps to provide an environment in which citizens can interact peacefully with one another. An example of this is