Supply and Demand: Theory MULTIPLE CHOICE 1. The law of demand states that price and quantity demanded are a. directly related, ceteris paribus. b. inversely related, ceteris paribus. c. independent. d. positively related, ceteris paribus. ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge DIF: Difficulty: Easy LOC: DISC: Supply and demand 2. Which of the following illustrates the law of demand? a. Jorge buys fewer pencils at $2 per pencil than at $1 per pencil, ceteris paribus. b. Chen buys more ice cream at $4 per half-gallon than at $3 per half gallon, ceteris paribus. c. Karissa buys fewer sweaters at $50 each than at $35 each, ceteris paribus. d. a, b, and c e. a and c ANS: E PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Moderate LOC: DISC: Supply and demand 3. At a price of $15 each, Marta buys 4 books per month. When the price increases to $20, Marta buys 3 books per month. Luz says that Marta's demand for books has decreased. Is Luz correct? a. Yes, Luz is correct. b. No, Luz is incorrect. Marta's demand has increased. c. No, Luz is incorrect. Marta's quantity demanded has decreased, but her demand has stayed the same. d. No, Luz is incorrect. Marta's quantity demanded has increased, but her demand has stayed the same. e. No, Luz is incorrect. Marta's quantity demanded has decreased and her demand has increased. ANS: C PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 4. One major reason for the law of demand is that a. one price changing requires at least one other price to change in the opposite direction. b. people substitute relatively lower-priced goods for relatively higher-priced goods. c. a higher price never reduces quantity demanded by enough to lower total revenue. d. people are willing to produce more units at a higher price. ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Moderate LOC: DISC: Supply and demand 5. A demand schedule is a numerical tabulation of a. b. c. d. prices and quantities supplied. costs and quantities demanded. prices and quantities demanded. incomes and quantities demanded. ANS: C PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge DIF: Difficulty: Easy LOC: DISC: Supply and demand 6. If Max's demand for hot dogs falls as his income rises, then for Max hot dogs are a. a bad good. b. an inferior good. c. a preferential good. d. a normal good. e. a neutral good. ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Moderate LOC: DISC: Supply and demand 7. An increase in the number of buyers in a particular market will result in a a. movement up the demand curve. b. movement down the demand curve. c. leftward shift in the demand curve. d. rightward shift in the demand curve. ANS: D PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Moderate LOC: DISC: Supply and demand 8. If the demand curve for a good shifts leftward, a. quantity demanded is less at each price. b. quantity demanded remains constant at each price. c. quantity demanded is greater at each price. d. demand is greater at each price. ANS: A PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Moderate LOC: DISC: Supply and demand 9. If people begin to favor science fiction novels to a greater degree than previously, the demand curve for science fiction novels a. shifts rightward. b. shifts leftward. c. stays constant. d. can shift either rightward or leftward. PTS: 1 ANS: A NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Moderate LOC: DISC: Supply and demand 10. As the price of good X rises, the demand for good Y falls. Therefore, goods X and Y are a. substitutes. b. c. d. e. normal goods. complements. inferior goods. none of the above ANS: C PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Moderate LOC: DISC: Supply and demand 11. As the price of good A rises, the demand for good B rises. Therefore, goods A and B are a. normal goods. b. inferior goods. c. substitutes. d. complements. e. none of the above ANS: C PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Moderate LOC: DISC: Supply and demand 12. "As the price of apples goes up, the demand for apples goes down." The author of this statement a. implies that price and demand are unrelated. b. uses the word "demand" when he should use the word "supply." c. uses the word "demand" when he should use the words "quantity demanded." d. implies that demand and price have a direct relationship. ANS: C PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 13. The law of supply states that price and quantity supplied are a. inversely related, ceteris paribus. b. directly related, ceteris paribus. c. not related. d. fixed. ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge DIF: Difficulty: Easy LOC: DISC: Supply and demand 14. Which of the following is true about the relationship between price and quantity supplied? a. There is always a direct relationship. b. There is always an inverse relationship. c. There is usually a direct relationship. d. There is usually an inverse relationship. ANS: C PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Moderate LOC: DISC: Supply and demand 15. Resource X is necessary to the production of good Y. If the price of resource X rises, a. the supply curve of Y shifts leftward. b. the supply curve of Y shifts rightward. c. the supply curve of Y is unaffected. d. there is a movement down the supply curve of Y. e. there is a movement up the supply curve of Y. ANS: A PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Moderate LOC: DISC: Supply and demand 16. If the workers of a firm successfully negotiate an increase in wages, which of the following is most likely to happen? a. The demand curve for the product the firm produces shifts rightward. b. The demand curve for the product the firm produces shifts leftward. c. The supply curve of the product the firm produces shifts rightward. d. The supply curve of the product the firm produces shifts leftward. ANS: D PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 17. An advance in technology causes a. a rightward shift in the supply curve. b. a leftward shift in the supply curve. c. the supply curve to go from upward sloping to vertical. d. the supply curve to go from vertical to upward sloping. ANS: A PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Moderate LOC: DISC: Supply and demand 18. The fundamental reason why most supply curves are upward sloping is that a. consumers substitute lower-priced goods for higher-priced goods. b. the quantity supplied increases as more firms enter the market. c. a higher price never reduces quantity supplied by enough to lower total revenue and so higher production is motivated. d. higher production raises the opportunity costs of production and so price must rise to induce more output. ANS: D PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Moderate LOC: DISC: Supply and demand 19. Tobacco production is one of the more heavily subsidized industries in the United States. Suppose that as a result of intense lobbying from health-related concerns, Congress repeals the tobacco firms' subsidies. Which of the following scenarios would likely occur? a. The tobacco firms' supply curve would shift rightward, as it would now be cheaper to produce each level of output. b. The tobacco firms' supply curve would shift leftward, since it would now cost more to produce each level of output. c. The tobacco firms would not experience any shift in their supply curves; subsidies don't affect output. d. There would be a movement along the supply curve for tobacco, but the supply curve would not shift. ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 20. Suppose the government decides that every family should own its own home. To bring this about, the government decides to subsidize the home-construction industry by giving the home-construction companies $10,000 for every house that they build. As a result of this, a. the supply curve of new houses would shift leftward, since it now costs $10,000 more for builders to produce a house. b. the demand curve for new houses would shift rightward, since now every family would want to buy a house. c. the demand curve for new houses would shift leftward. d. the supply curve of new houses would shift rightward, since builders would be willing to produce and sell more houses at each given price. e. c and d ANS: D PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Moderate LOC: DISC: Supply and demand 21. Oil producers expect that oil prices next year will be lower than oil prices this year. As a result, oil producers are most likely to a. place more oil on the market this year, thus shifting the present supply curve of oil rightward. b. hold some oil off the market this year, thus shifting the present supply curve of oil leftward. c. place more oil on the market this year, thus increasing the quantity supplied of oil at lower but not higher prices. d. hold some oil off the market this year, thus decreasing the quantity supplied of oil at lower but not higher prices. ANS: A PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 22. Oil producers expect that oil prices next year will be higher than oil prices this year. As a result, oil producers are most likely to a. place more oil on the market this year, thus shifting the present supply curve of oil rightward. b. hold some oil off the market this year, thus shifting the present supply curve of oil leftward. c. place more oil on the market this year, thus increasing the quantity supplied of oil at lower but not higher prices. d. hold some oil off the market this year, thus decreasing the quantity supplied of oil at lower but not higher prices. ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 23. Which of the following will not shift a supply curve? a. a change in the price of relevant resources b. a change in the good's own price c. a change in the number of sellers d. a change in per-unit costs brought about by a change in taxes. ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Moderate LOC: DISC: Supply and demand 24. At a price above the equilibrium price, there is a. a shortage. b. a surplus. c. excess demand. d. super-equilibrium. e. none of the above ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Easy LOC: DISC: Supply and demand 25. At a price below the equilibrium price, there is a. a surplus. b. a shortage. c. excess supply. d. sub-equilibrium. e. none of the above ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Easy LOC: DISC: Supply and demand 26. On a supply-and-demand diagram, equilibrium is found a. where the supply curve intercepts the vertical axis. b. where the demand curve intercepts the horizontal axis. c. where the demand and supply curves intersect. d. at every point on either curve ANS: C PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge DIF: Difficulty: Easy LOC: DISC: Equilibrium 27. On a supply-and-demand diagram, quantity demanded equals quantity supplied a. only at the single equilibrium price. b. at every price at or above the equilibrium price. c. at every price at or below the equilibrium price. d. at every price. ANS: A PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge DIF: Difficulty: Easy LOC: DISC: Equilibrium 28. At a price for which quantity demanded exceeds quantity supplied, a __________ is experienced, which pushes the price __________ toward its equilibrium value. a. surplus; downward b. surplus; upward c. shortage; downward d. shortage; upward ANS: D PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 29. On a supply-and-demand diagram, consider a price for which the horizontal distance to the supply curve exceeds the horizontal distance to the demand curve. There is a __________ at that price and the current price must be __________ the equilibrium price. a. shortage; above b. shortage; below c. surplus; above d. surplus; below ANS: C PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 30. On a supply-and-demand diagram, consider a price for which the horizontal distance to the supply curve is shorter than the horizontal distance to the demand curve. There is a __________ at that price and the current price must be __________ the equilibrium price. a. shortage; above b. shortage; below c. surplus; above d. surplus; below ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 31. If the supply curve and the demand curve for lettuce both shift to the left by an equal amount, what can we say about the resulting changes in price and quantity? a. The price will increase, but the quantity may increase or decrease. b. The price will increase, and the quantity will increase. c. The price will decrease, and the quantity will increase. d. The price will stay the same, but the quantity will increase. e. The price will stay the same, but the quantity will decrease. ANS: E PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Moderate LOC: DISC: Supply and demand 32. If demand increases by a lesser amount than supply decreases, then equilibrium price __________ and equilibrium quantity __________. a. rises; falls b. falls; falls c. rises; rises d. falls; rises ANS: A PTS: 1 NAT: BUSPROG: Analytic DIF: Difficulty: Challenging LOC: DISC: Supply and demand KEY: Bloom's: Application 33. If demand increases by a lesser amount than supply increases, then equilibrium price __________ and equilibrium quantity __________. a. rises; falls b. falls; falls c. rises; rises d. falls; rises ANS: D PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 34. If demand decreases by a greater amount than supply decreases, then equilibrium price __________ and equilibrium quantity __________. a. rises; rises b. rises; falls c. falls; rises d. falls; falls ANS: D PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 35. If demand decreases by a greater amount than supply increases, then equilibrium price __________ and equilibrium quantity __________. a. rises; rises b. rises; falls c. falls; rises d. falls; falls ANS: D PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand Exhibit 3-1 36. Refer to Exhibit 3-1. Equilibrium price and quantity are a. $2 and 250 units. b. $4 and 250 units. c. $2 and 150 units. d. $6 and 250 units. e. none of the above ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Easy LOC: DISC: Equilibrium 37. Refer to Exhibit 3-1. At a price of $2 there is a a. shortage of 100 units. b. shortage of 200 units. c. shortage of 150 units. d. surplus of 200 units.. e. surplus of 150 units. ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Moderate LOC: DISC: Supply and demand 38. Refer to Exhibit 3-1. At a price of $6 there is a a. surplus of 100 units. b. surplus of 150 units. c. surplus of 200 units. d. shortage of 150 units. e. shortage of 200 units. ANS: C PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Moderate LOC: DISC: Supply and demand Exhibit 3-2 Good X 39. Refer to Exhibit 3-2. Which of the following would result in a movement from point A on D 1 to point B on D2? a. There was a decrease in the price of a substitute for good X. b. There was an increase in the price of a complement to good X. c. There was a decline in technology in the production of good X. d. There was an increase in the price of a substitute for good X. ANS: D PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand NOT: New 40. Refer to Exhibit 3-2. Which of the following would result in a movement from point B on D 2 to point A on D1? a. There was an increase in income (assuming that good X is an inferior good) and technology remained constant. b. There was an increase in income (assuming that good X is a normal good) and technology remained constant c. There was an increase in income (assuming that good X is an inferior good) and technology improved. d. There was an increase in income (assuming that good X is a normal good) and technology declined. ANS: A PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 41. Refer to Exhibit 3-2. Suppose equilibrium is at point B. Something then changes and equilibrium becomes point C. Which of the following is consistent with the change in equilibrium from point B to C (assuming that good X is a normal good)? a. There was an increase in resource prices and income stayed constant. b. There was a decrease in resource prices and income stayed constant. c. There was an increase in resource prices and income decreased. d. There was an increase in resource prices and income increased. ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 42. Refer to Exhibit 3-2. Suppose equilibrium is at point A. Something then changes and equilibrium becomes point C. Which of the following is consistent with the change in equilibrium from point A to C (assuming that good X is a normal good)? a. There was an increase in income and production technology advanced. b. There was a decrease in income and production technology advanced. c. There was an increase in the price of a substitute and an increase in wages. d. There was a decrease in the price of a complement and an increase in wages. ANS: A PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 43. Refer to Exhibit 3-2. Suppose equilibrium is at point A. Something then changes and equilibrium becomes point C. Which of the following is consistent with the change in equilibrium from point A to C (assuming that good X is a normal good)? a. There was a decrease in the number of buyers and business taxes increased. b. There was an increase in the number of buyers and business taxes decreased. c. There was an increase in the number of buyers and business taxes increased. d. There was a decrease in the number of buyers and business taxes decreased. ANS: B PTS: 1 DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application LOC: DISC: Supply and demand NOT: New 44. Refer to Exhibit 3-2. Suppose equilibrium is at point C. Something then changes and equilibrium becomes point B. Which of the following is consistent with the change in equilibrium from point C to B (assuming that good X is a normal good)? a. There was an increase in resource prices and income stayed constant. b. There was a decrease in resource prices and income stayed constant. c. There was an increase in resource prices and income decreased. d. There was a decrease in resource prices and income increased. ANS: A PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand NOT: New 45. A rightward shift in the demand curve for tennis balls could be caused by a. a fall in the price of tennis balls. b. a fall in the price of tennis rackets. c. a rise in the price of tennis lessons. d. a fall in income, assuming tennis balls are a normal good. ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Challenging LOC: DISC: Supply and demand 46. An increase in the price of good B caused an increase in the demand for good C. This indicates that a. B and C are complements. b. B and C are substitutes. c. B and C are neither substitutes nor complements. d. B and C are normal goods. ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Moderate LOC: DISC: Supply and demand Exhibit 3-3 6 Price (dollars) 5 Z V 4 3 2 W 1 D D2 1 Quantity Good Y 47. Refer to Exhibit 3-3. A movement from point Z to point W would have been the result of a. a reduction in the price of good Y. b. an increase in taxes paid by the producers of good Y. c. a decline in technology in the production of good Y. d. an increase in the number of buyers of good Y. ANS: A PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Moderate LOC: DISC: Supply and demand NOT: New 48. Refer to Exhibit 3-3. A movement from point W to point Z would have been the result of a. a reduction in the price of good Y. b. an increase in the number of buyers in the area where good Y is being sold. c. a decrease in business taxes paid by the producers of good Y. d. a decrease in the number of buyers in the area where good Y is being sold. e. an increase in the price of good Y. ANS: E PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Moderate LOC: DISC: Supply and demand MSC: New 49. Refer to Exhibit 3-3. A movement from point V to point W could not have been the result of a. a increase in the price of good Y. b. an increase in good Y buyers’ income (assuming that good Y is an inferior good). c. an increase in the price of a complement to good Y. d. a decrease in the number of buyers of good Y. e. a decrease in good Y buyers’ income (assuming that good Y is a normal good). ANS: A PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Challenging LOC: DISC: Supply and demand 50. Refer to Exhibit 3-3. A shift in demand from D1 to D2 can NOT occur from a change in the a. population. b. price of a substitute for good Y. c. average income of good Y buyers. d. price of good Y. ANS: D PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Application DIF: Difficulty: Moderate LOC: DISC: Supply and demand 51. If the supply of and demand for a product both decrease, then equilibrium a. quantity and equilibrium price must both decline. b. quantity must decline, but equilibrium price may either rise, fall, or remain unchanged. c. price must fall, but equilibrium quantity may either rise, fall, or remain unchanged. d. quantity must fall and equilibrium price must rise. ANS: B PTS: 1 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension DIF: Difficulty: Moderate LOC: DISC: Supply and demand