Principles of Macroeconomics Chapter 3 Supply and Demand

Supply and Demand 1. Which of the following best describes the law of demand? a. a focus on final consumer goods but NOT on the productive resources demanded and purchased by business firms b. how much of a good people want, but NOT necessarily how much of that good they are willing to pay for c. when the price of a good falls, the quantity demanded will increase d. a focus only on goods that are NOT absolute necessities Correct: C 2. Which of the following scenarios best illustrates the law of demand? a. Sellers increase the amount of hardwood flooring they sell because the price of the product increases. b. A household buys more carpeting after the price of carpeting falls. c. Consumers will shop in specialty stores for flooring solutions. d. Tile workers are laid off after a drop in demand for tiled floors. Correct: B 3. Which of the following does the substitution effect help to explain? a. complementary goods b. substitute goods c. the law of demand d. the law of supply Correct: C 4. What effect is illustrated if the price of coffee increases and people feel poorer and do not buy as much as before? a. the substitution effect b. the income effect c. the price effect d. the demand effect Correct: B 5. How is the market demand for a good determined? a. by considering how many units you would be willing to purchase at each price b. by vertically summing the demand curves of the individuals in the market for this good c. by picking the middle price and adding up how many units all the consumers would buy at that price d. by horizontally summing the demand curves of the individuals in the market for this good Correct: D 6. What is the effect when the price of LED Smart TVs decreases, and purchases of LED Smart TVs increase. a. The demand curve for LED Smart TVs has shifted rightward. b. The quantity of LED Smart TVs demanded has fallen. c. The demand curve for houses has shifted leftward. d. The quantity of LED Smart TVs demanded has increased. Correct: D 7. What is the only factor that will cause a change in quantity demanded (a movement along the demand curve)? a. a change in income b. a change in consumer tastes c. a change in the price of the good d. a change in population Correct: C 8. Which of the following will NOT shift the demand curve for snow tires in Canada? a. an increase in the amount of snow b. a rise in income c. an influx of immigrants to Canada d. an increase in the price Correct: D 9. Suppose the price of peanut butter ice cream increases, then the demand curve for peanut butter ice cream would: a. not be affected by this change. b. shift to the right. c. shift to the left. d. rotate counter-clockwise. Correct: A 10. Suppose consumers consider apple juice and orange juice to be substitutes. If the price of apple juice decreases, then the demand curve for orange juice would: a. not be affected by this change. b. shift to the right. c. shift to the left. d. rotate counter-clockwise. Correct: C 11. Suppose consumer consider green beans and yellow beans to be substitutes. If the price of green beans increases, then the demand curve for yellow beans would: a. not be affected by this change. b. shift to the right. c. shift to the left. d. rotate counter-clockwise. Correct: B 12. Refer to the figure Shifts in Demand. What does the graph illustrate? Shifts in Demand a. an increase in supply b. a decrease in supply c. an increase in demand d. a decrease in demand Correct: C 13. Refer to the figure Shifts in Demand. What does the graph illustrate? Shifts in Demand a. an increase in supply b. a decrease in supply c. an increase in demand d. a decrease in demand Correct: D 14. Refer to the figure Shifts in Demand. What does the graph illustrate? Shifts in Demand a. an increase in supply b. an increase in quantity supplied c. a decrease in demand d. a decrease in quantity demanded Correct: C 15. Because Adidas and Nike products are substitutes, what would be the result of a fall in the price of Adidas shoes? a. increased demand for Adidas b. decreased demand for Nike c. increased demand for Nike d. decreased demand for Adidas Correct: B 16. Yesterday, a large latte cost $4 at the local coffee bar and a sweet roll was selling for $2. Today, you notice that the price of the roll has increased to $3. What has happened? a. The relative price of the sweet roll has risen. b. The relative price of the latte has risen. c. The nominal price of the latte has fallen. d. The nominal price of the sweet roll has fallen. Correct: A 17. How does a decrease in the price of golf clubs affect the demand for golf balls? a. Since they are complements, the demand for golf balls will increase. b. Since they are substitutes, the demand for golf balls will increase. c. Since they are complements, the demand for golf balls will decrease. d. Since they are substitutes, the demand for golf balls will decrease. Correct: A 18. Which of the following will decrease the demand for gasoline (shift the demand curve to the left)? a. an increase in the prices of gas-guzzling SUVs b. improvements in the provincial highway system that make cars more attractive relative to other modes of travel c. an increase in the price of crude oil that causes the price of gasoline to rise d. a decrease in the prices of gas-guzzling SUVs Correct: A 19. As Adam's income increases, his demand for restaurant meals increases. For Adam, what type of good is a restaurant meal? a. an inferior good b. a normal good c. a positive good d. a complementary good Correct: B 20. Which of the following is the most likely example of an inferior good? a. passenger vans b. motorcycles c. bus passes d. hybrid cars Correct: C 21. According to the law of supply, what happens when the price goes up? a. quantity supplied increases b. quantity supplied decreases c. supply increases d. supply decreases Correct: A 22. Which of the following statements best illustrates the law of supply? a. More resources mean more goods can be produced. b. Supply, NOT demand, sets market values. c. As prices rise, sellers are willing to sell more goods than before. d. Business firms are the source of all economic production. Correct: C 23. A farmer uses land and fertilizer to produce sunflowers. What will likely be the result if the price of fertilizer rises? a. an increase in the supply of fertilizer b. a decrease in the demand for fertilizer c. a decrease in the supply of sunflowers d. an increase in the supply of sunflower Correct: C 24. The price of aluminum increases. What will be the effect on the market for canned pop? a. The demand for canned pop will increase. b. The demand for canned pop will decrease. c. The supply of canned pop will increase. d. The supply of canned pop will decrease. Correct: D 25. Refer to Shifts in the Supply Curve. What explains the shift from S1 to S2? Shifts in the Supply Curve a. an increase in income b. an advancement in technology c. an increase in population d. a change in consumer tastes Correct: B 26. If a hurricane destroys the Central American coffee bean crops, what would be the effect on the market for coffee? a. supply would decrease b. supply would increase c. demand would decrease d. demand would increase Correct: A