Supply and Demand

Unit 2 Multiple Choice. Choose the one alternative that best completes the statement or answers the question. 1. Improvements in technology have reduced the cost of producing personal computers. As a result, you accurately predict that in the market for personal computers, there will be a(n) a. increase in the supply of personal computers, a reduction in the price, and an increase in the demand. b. increase in the supply of personal computers, a decrease in the price, and an increase in the quantity demanded. c. decrease in the supply of personal computers, an increase in the price, and a decrease in the demand. d. increase in the quantity supplied of personal computers, a reduction in the price, and an increase in the quantity demanded. Answer: B Refer to the information provided in Figure 1 below to answer the following questions. Figure 1 2. Refer to Figure 1. A(n) ________ will cause a movement from Point C to Point B on demand curve D2. a. increase in the price of pizza b. decrease in the price of hamburgers, assuming that pizza and hamburgers are substitutes c. decrease in the price of pizza d. decrease in income, assuming pizza is a normal good Answer: A 1 3. Which of the following best explains why the quantity demanded of Pepsi decreased? a. Pepsi advertising was not as effective as in the past b. income of Pepsi consumers increased c. price of Pepsi increased d. price of Coca-Cola increased Answer: C Refer to the information provided in Figure 2 below to answer the questions that follow. Figure 2 4. Refer to Figure 2. When the economy moves from Point A to Point B, there has been an ________ and an ________. a. increase in quantity demanded; increase in supply b. increase in demand; increase in quantity supplied c. increase in quantity demanded; increase in quantity supplied d. increase in demand; increase in supply Answer: B Refer to the information provided in Table 1 below to answer the questions that follow. Table 1 2 5. Refer to Table 1. In this market there will be an excess supply of 150 gardenburgers at a price of a. $6. b. $10. c. $12. d. $14. Answer: D Refer to the information provided in Figure 3 below to answer the questions that follow. Figure 3 6. Refer to Figure 3. When the economy moves from Point A to Point C, there has been a. an increase in supply and a decrease in quantity demanded. b. a decrease in supply and a decrease in quantity demanded. c. a decrease in supply and an increase in quantity demanded. d. a decrease in quantity supplied and a decrease in demand. Answer: B 7. Demand curves are derived while holding constant a. income, tastes, and the price of the good. b. only income and tastes. c. only tastes and the price of other goods. d. income, tastes, and the prices of other goods. Answer: D 8. Why do firms engage in the activity of production? a. To help society advance technologically 3 b. To develop a supply schedule c. To participate in the circular flow d. To acquire profits Answer: D Refer to the information provided in Figure 4 below to answer the following questions. Figure 4 9. Refer to Figure 4. An increase in the wage rate of gardenburger makers will cause a movement from Point B on supply curve S2 to a. supply curve S1. b. Point B on supply curve S2. c. supply curve S3. d. Point A on supply curve S2. Answer: A 10. If the quantity demanded of a good is smaller than the quantity supplied of the good at the current price, then: a. Price will increase until it reaches the equilibrium price. b. The demand curve will shift to the left to create an equilibrium. c. The supply curve will shift to the right to create an equilibrium. d. There is a surplus of the good. Answer: D 4 11. In economics, the term "equity" means a. only elected ofÏcials have high standards of living. b. the hardest working individuals consume all they want. c. economic benefits are distributed fairly. d. everyone has an equal standard of living. Answer: C 12. If the price of automobiles were to increase substantially, the demand curve for gasoline would most likely. a. shift leftward. b. shift rightward. c. become steeper. d. remain unchanged. Answer: A Refer to the information provided in Figure 5 below to answer the questions that follow. Figure 5 13. Refer to Figure 5. As the price of W increased, the demand for Y shifted from D1 to D2. The crossprice elasticity of demand between W and Y is a. positive. b. zero. c. negative. d. indeterminate from this information. Answer: A 5 14. Which of the following will shift the supply curve? a. An increase in the price of the product b. An increase in consumer income c. A decrease in the price of an input d. An increase in demand for the product Answer: C Refer to the information provided in Figure 24 below to answer the questions that follow. Figure 6 15. Refer to Figure 6. If consumer income falls, the demand for tuna fish sandwiches shifts from D0 to D1. This implies that for consumers tuna fish sandwiches are a(n) ________ good. a. normal b. substitute c. complementary d. inferior Answer: D Demand and supply for trucks (millions of trucks per year) 6 Table 2 7 Complete Table 2. Then answer the indicated questions. 16. In Table 2, if the worldwide price of trucks was $30,000, the international truck market would: a. Be in equilibrium. b. Experience a shortage of 170 million trucks per year. c. Experience a surplus of 100 million trucks per year. d. Experience a shortage of 160 million trucks per year. Answer: A 17. Consider the following products. Which of them has the flattest demand curve? a. Cigarettes b. Salt c. Insulin d. Butter Answer: D 18. Suppose income increases 5 percent in a year and as a result, housing construction falls from 10 million to 5 million units annually. Based on this information housing constructions are: a. An inferior good. b. A normal good. c. Price elastic. d. Price inelastic. Answer: A 19. How are the fundamental economic decisions determined in a centrally planned economy? a. individuals, firms, and the government interact in a market to make these economic decisions b. these decisions are made by the country's elders who have had much experience in answering these questions 8 c. the United Nations decides d. the government decides Answer: D 20. Ceteris paribus, which of the following is most likely to cause a increase in the supply of skateboards? a. An increase in the cost of materials used to produce skateboards. b. An improvement in skateboard-making technology. c. All of the above. d. An increase in the price of skateboards. Answer: B 21. An increase in consumer incomes will lead to a. a movement upward along the demand curve for plasma TVs. b. no change of the demand curve for plasma TVs. c. a rightward shift of the supply curve for plasma TVs. d. a rightward shift of the demand curve for plasma TVs. Answer: D 22. Which of the following statements is true? a. If both demand and supply increase there must be an increase in equilibrium price; equilibrium quantity may either increase or decrease. b. An increase in demand causes a change in equilibrium price; the change in price does not cause a further change in demand or supply. c. If demand decreases and supply increases one cannot determine if equilibrium price will increase or decrease without knowing which change is greater. d. A decrease in supply causes equilibrium price to rise; the increase in price then results in a decrease in demand. Answer: D 9 23. An increase in the equilibrium price for a product will result a. when there is a decrease in supply and an increase in demand for the product. b. when the quantity demanded for the product exceeds the quantity supplied. c. when there is a decrease in supply and a decrease in demand for the product. d. when there is an increase in demand and an increase in the number of firms producing the product. Answer: A 24. "Because apples and oranges are substitutes, an increase in the price of oranges will cause the demand for apples to increase. This initial shift in demand for apples results in a higher price for apples; this higher price will cause the demand curve for apples to shift to the right." Which of the following correctly comments on this statement? a. The statement is false because oranges are inferior goods; apples are normal goods. b. The statement is false because one cannot assume that apples and oranges are substitutes for all consumers. c. The statement is false because a change in the price of apples would not change the demand for apples. d. The statement will be true, if consumer tastes for apples and oranges do not change. Answer: C 25. Fluctuations in the prices of oil are the result of two important forces: a. Global demand and Oil-exporting countries, especially OPEC, behaviour in production b. Demand by the U.S. and Europe c. Demand by China and the West d. The supply of oil in non-OPEC producing countries and Asian demand Answer: A 26. In July, market analysts predict that the price of gold will rise in August. In July, what happens in the gold market, holding everything else constant? a. The supply curve shifts to the left. 10 b. The supply curve shifts to the right. c. The quantity demanded and the quantity supplied of gold increase. d. The demand curve shifts to the left. Answer: A 27. If a firm expects that the price of its product will be lower in the future than it is today a. the firm has an incentive to increase supply now and decrease supply in the future. b. the firm will not change supply until it knows for certain what will happen to its price. c. the firm has an incentive to decrease supply now and increase supply in the future. d. the firm has an incentive to increase quantity supplied now and decrease quantity supplied in the future. Answer: A 28. If a firm expects that the price of its product to be higher in the future than it is today a. the firm has an incentive to increase supply now and decrease supply in the future. b. the firm will go out of business. c. the firm has an incentive to decrease supply now and increase supply in the future. d. the firm has an incentive to decrease quantity supplied now and increase quantity supplied in the future. Answer: C 29. The substitution effect of a price change refers to a. the movement along the demand curve due to a change in purchasing power brought about by the price change. b. the shift of a demand curve when the price of a substitute good changes. c. the change in quantity demanded that results from a change in price (thus making a good more or less expensive relative to other goods that are substitutes). d. the shift in the demand curve due to a change in purchasing power brought about by the price change. Answer: C 30. If the price of grapefruits rise, the substitution effect due to the price change will cause 11 a. a decrease in the demand for grapefruit. b. a decrease in the quantity of grapefruits supplied. c. a decrease in the demand for oranges, a substitute for grapefruit. d. a decrease in the quantity of grapefruits demanded. Answer: D 12