supply and demand. chapter 3 exam review questions

Question 1

1) The relative price of a good is all of the following except

A) the ratio of one price to another.
B) an opportunity cost.
C) the money price of the good divided by a price index.
D) the same as the money price of a good.
E) determined in a market.

Answer 1

D

Question 2

2) How many sides does a market have?
A) one side - buyers
B) one side - sellers
C) two sides - buyers and sellers 
D) three sides - buyers, sellers, and the government
E) two sides - domestic and foreign

Answer 2

C

Question 3

3) Which market is an example of a market for goods?
A) labour market
B) haircut market
C) manufactured input market
D) apple market
E) energy market

Answer 3

D

Question 4

4) Which market is an example of a market for services?
A) orange market
B) tennis lessons market
C) manufactured input market
D) energy market
E) labour market

Answer 4

B

Question 5

5) Which market is an example of a resource market?
A) furniture market
B) apple market
C) automobile market
D) haircut market
E) labour market

Answer 5

E

Question 6

6) The demand and supply model determines
A) relative prices.
B) money prices.
C) supply prices.
D) demand prices.
E) absolute prices.

Answer 6

A

Question 7

year cf tea cola
2010 1.25 1.10 0.8
2011 1.50 1.00 1.00
2012 1.25 1.20 1.00

7) Refer to Table 3.1.1. In 2010, the relative price of coffee in terms of tea is
A) 1.25.
B) 1.10.
C) 1.00.
D) 0.88.
E) 1.14.

Answer 7

E

Question 8

12) A market where no single buyer or seller can influence the price is
A) a buyer's market.
B) a seller's market.
C) a competitive market.
D) an output market.
E) an input market.

Answer 8

C

Question 9

13) A relative price is
A) the ratio of one price to another.
B) an opportunity cost.
C) a quantity of a "basket" of goods and services forgone.
D) determined by demand and supply.
E) all of the above.

Answer 9

E

Question 10

14) William Gregg owned a mill in South Carolina. In December 1862, he placed a notice in the Edgehill Advertister announcing his willingness to exchange cloth for food and other items. Here is an extract:

1 yard of cloth for 1 pound of bacon
2 yards of cloth for 1 pound of butter
4 yards of cloth for 1 pound of wool
8 yards of cloth for 1 bushel of salt

If the money price of bacon was 20¢ a pound and the money price of salt was $2.00 a bushel, people would ________.
A) buy bacon and trade it for cloth because they could buy 8 yards of cloth for only $1.60, and use that cloth to obtain a bushel of salt
B) not buy bacon and trade it for cloth because they would have to buy 8 yards of cloth for $1.60 and then give Mr. Gregg an extra $0.40 to buy a bushel of salt
C) buy bacon and trade it for cloth and then trade the cloth for salt because salt is more important for life than either cloth or bacon
D) not buy bacon and trade it for cloth because the relative price of 1 bushel of salt is only 1/8 yard of cloth
E) buy bacon and trade it for cloth because cloth is more expensive than bacon

Answer 10

A

Question 11

15) The opportunity cost of good A in terms of good B is equal to the
A) money price of good A minus the money price of good B.
B) money price of good B minus the money price of good A.
C) ratio of the money price of good A to the money price of good B.
D) ratio of the money price of good B to the money price of good A.
E) money price of good A plus the money price of good B.

Answer 11

C

Question 12

16) Suppose the price of a football is $20.00 and the price of a basketball is $10.00. The ________ of a football is ________.
A) relative price; 2 basketballs per football
B) relative price; 1/2 basketball per football
C) opportunity cost; $15.00
D) opportunity cost; $10.00
E) relative price; $10

Answer 12

A

Question 13

1) The law of demand states that, other things remaining the same,
A) the higher the price of a good, the smaller is the quantity demanded.
B) the higher the price of a good, the smaller is the quantity supplied.
C) price and quantity supplied are positively related.
D) as income increases, willingness to pay for the last unit increases.
E) the higher the price of a good, the greater is the quantity demanded.

Answer 13

A

Question 14

2) Which one of the following events shifts the demand curve for grape jelly to the right?
A) an increase in income if grape jelly is a normal good
B) a decrease in the price of strawberry preserves, a substitute for grape jelly
C) a decrease in the price of grape jelly
D) an increase in the price of peanut butter, a complement of grape jelly
E) a decrease in the population

Answer 14

A

Question 15

3) The demand curve slopes downward to the right because
A) an increase in income leads to increased consumption.
B) of the law of supply.
C) of the law of demand.
D) of comparative advantage.
E) as income rises, the quantity demanded increases.

Answer 15

C

Question 16

4) An increase in the price of ground beef
A) increases the demand for chicken, a substitute for ground beef.
B) increases the demand for hamburger buns, a complement of ground beef.
C) increases the quantity demanded of ground beef.
D) decreases the quantity demanded of ground beef.
E) both A and D.

Answer 16

E

Question 17

5) An increase in income
A) increases the demand for turnips if a turnip is an inferior good.
B) increases the demand for turnips if a turnip is a normal good.
C) increases the supply of turnips.
D) decreases the demand for turnips if turnips have a very low price.
E) decreases the supply of turnips.

Answer 17

B

Question 18

6) A turnip is an inferior good if
A) an increase in the price of a turnip decreases the quantity of turnips that consumers want to buy.
B) an increase in income decreases the demand for turnips.
C) an increase in income increases the demand for turnips.
D) turnips violate the law of demand.
E) turnips are a low quality good.

Answer 18

B

Question 19

7) If a turnip is an inferior good, then, ceteris paribus, an increase in the price of a turnip will  
A) decrease the demand for turnips. 
B) increase the demand for turnips. 
C) decrease the supply of turnips. 
D) increase the supply of turnips. 
E) none of the above.

Answer 19

E

Question 20

8) Suppose income increases. Choose the correct statement.
A) The equilibrium price of turnips falls if a turnip is an inferior good.
B) The equilibrium price of turnips rises if a turnip is an inferior good.
C) The equilibrium quantity of turnips decreases if a turnip is an inferior good.
D) The supply of turnips decreases whether or not a turnip is an inferior good.
E) Both A and C.

Answer 20

E

Question 21

18) Which one of the following would lead to an increase in the demand for hamburgers?
A) a new fad hamburger diet
B) a decrease in population size
C) a rise in the price of French fries, a complement of hamburgers
D) a decrease in consumer income if hamburgers are a normal good
E) a news report that hamburgers can cause skin diseases

Answer 21

A

Question 22

19) Which of the following "other things" are not held constant along a demand curve?
A) income
B) prices of related goods
C) the price of the good itself
D) preferences
E) expected future income and credit

Answer 22

C

Question 23

20) Good A is a normal good if
A) a rise in the price of a complement causes the demand for A to decrease.
B) income and the demand for A are negatively related.
C) a rise in the price of a substitute causes the demand for A to increase.
D) the demand for A increases when income rises.
E) good A satisfies the law of demand.

Answer 23

D

Question 24

21) A decrease in quantity demanded is represented by a
A) rightward shift of the supply curve.
B) rightward shift of the demand curve.
C) leftward shift of the demand curve.
D) movement upward and to the left along the demand curve.
E) movement downward and to the right along the demand curve.

Answer 24

D

Question 25

22) Some sales managers are talking shop. Which of the following quotations refers to a movement along the demand curve?
A) “Since our competitors raised their prices, our sales have doubled.”
B) “It has been an unusually mild winter; our sales of wool scarves are down from last year.”
C) “We decided to cut our prices, and the increase in our sales has been remarkable.”
D) “The Green movement has sparked an increase in our sales of biodegradable products.”
E) None of the above.

Answer 25

C

Question 26

23) Some sales managers are talking shop. Which one of the following quotations refers to a rightward shift of the demand curve?
A) “Since our competitors raised their prices, our sales have doubled.”
B) “It has been an unusually harsh winter; our sales of wool scarves are up from last year.”
C) “We decided to cut our prices, and the increase in our sales has been remarkable.”
D) “The Green movement has sparked an increase in our sales of biodegradable products.”
E) All of the above except C.

Answer 26

E

Question 27

24) Some sales managers are talking shop. Which one of the following quotations refers to a leftward shift of the demand curve?
A) “Since our competitors raised their prices, our sales have doubled.”
B) “It has been an unusually mild winter; our sales of wool scarves are down from last year.”
C) “We decided to cut our prices, and the increase in our sales has been remarkable.”
D) “The Green movement has sparked an increase in our sales of biodegradable products.”
E) None of the above.
Answer: B

Answer 27

B

Question 28

25) If Hamburger Helper is an inferior good, then, ceteris paribus, a decrease in income will lead to
A) a leftward shift of the demand curve for Hamburger Helper.
B) a rightward shift of the demand curve for Hamburger Helper.
C) a movement up along the demand curve for Hamburger Helper.
D) a movement down along the demand curve for Hamburger Helper.
E) an initial movement up and then down along the demand curve for Hamburger Helper.

Answer 28

B

Question 29

26) Consider the market for cell phones. Suppose the price of a cell phone falls. Explain the effect of this event on the quantity of cell phones demanded and on the demand for cell phones.
A) The quantity of cell phones demanded is unchanged and the demand for cell phones increases.
B) The quantity of cell phones demanded decreases and the demand for cell phones is unchanged.
C) The quantity of cell phones demanded increases and the demand for cell phones is unchanged.
D) The quantity of cell phones demanded increases and the demand for cell phones also increases.
E) The quantity of cell phones demanded is unchanged and the demand for cell phones decreases.

Answer 29

C

Question 30

27) People buy more of good 1 when the price of good 2 rises. Good 1 and good 2 are
A) complements.
B) substitutes.
C) normal goods.
D) inferior goods.
E) substitutes in production

Answer 30

B

Question 31

28) Oatmeal is a normal good and cold cereal is a substitute for oatmeal. Raisins are a complement of oatmeal. Which of the following increases the demand for oatmeal?
A) an increase in the price of raisins
B) a decrease in income
C) a decrease in population
D) an increase in the price of cold cereal
E) an increase in the supply of oatmeal

Answer 31

D

Question 32

1) The law of supply tells us that other things remaining the same, as the
A) price of gasoline falls, the quantity of gasoline supplied decreases.
B) price of gasoline rises, the quantity of gasoline supplied decreases.
C) supply of gasoline increases, the price of gasoline falls.
D) cost of producing gasoline falls, the supply of gasoline will increase.
E) cost of producing gasoline increases, the price of gasoline rises.

Answer 32

A

Question 33

2) The supply curve of a good slopes upward to the right because of
A) technological improvements over time.
B) the law of supply.
C) the law of demand.
D) the existence of substitutes in production.
E) the fact that prices tend to rise over time.

Answer 33

B

Question 34

3) An increase in supply is shown by
A) a movement down along the supply curve.
B) a movement up along the supply curve.
C) a rightward shift of the supply curve.
D) a leftward shift of the supply curve.
E) an initial movement up and then down along the same supply curve.

Answer 34

C

Question 35

4) If goods X and Y are substitutes in production, then a rise in the price of good X
A) increases the demand for good Y.
B) decreases the demand for good Y.
C) increases the supply of good Y.
D) decreases the supply of good Y.
E) might change the supply of Y; it depends on whether X and Y are also substitutes.

Answer 35

D

Question 36

5) If a producer can use its factors of production to produce either good A or good B, then a rise in the price of A 
A) increases the supply of B. 
B) decreases the supply of A. 
C) increases the supply of A. 
D) decreases the supply of B. 
E) both C and D.

Answer 36

D

Question 37

6) The fact that a fall in the price of a good results in a decrease in the quantity of the good supplied illustrates

A) the law of supply. 
B) the law of demand. 
C) a change in supply. 
D) the nature of an inferior good. 
E) technological improvement.

Answer 37

A

Question 38

7) Which one of the following would not shift the supply curve of good X to the right?
A) a fall in the price of the factors of production used in producing X
B) an improvement in technology used in the production of X
C) a rise in the price of X
D) an increase in the price of Y, a complement in production of X
E) a fall in the price of Y, a substitute in production of X

Answer 38

C

Question 39

8) A decrease in the quantity supplied is shown by a
A) movement down along the supply curve.
B) movement up along the supply curve.
C) rightward shift of the supply curve.
D) leftward shift of the supply curve.
E) rightward shift of the demand curve.

Answer 39

A

Question 40

9) Which one of the following will shift the supply curve of good X leftward?
A) a decrease in the wages of workers employed to produce X
B) an increase in the cost of machinery used to produce X
C) a technological improvement in the production of X
D) a situation where quantity demanded exceeds quantity supplied
E) a decrease in the cost of capital used to produce X

Answer 40

B

Question 41

10) Which of the following will shift the supply curve of good X rightward?
A) a decrease in the wages of workers employed to produce good X
B) an increase in the cost of capital used to produce good X
C) an increase in the price of energy
D) a decrease in the number of suppliers of good X
E) the price of Y, a substitute in production for good X, rises

Answer 41

A

Question 42

11) If a factor of production can be used to produce either good A or good B, then A and B are 
A) substitutes in production. 
B) complements in production. 
C) substitutes. 
D) complements. 
E) normal goods.

Answer 42

A

Question 43

12) A rise in the price of a good
A) decreases demand for the good.
B) creates a movement up along the supply curve.
C) creates a movement down along the demand curve.
D) increases the supply of the good.
E) increases preferences for the good.

Answer 43

B

Question 44

13) If the number of suppliers of good Y increases, then
A) a movement up along the supply curve of good Y will occur.
B) a movement down along the supply curve of good Y will occur.
C) the supply curve of good Y shifts rightward.
D) the supply curve of good Y shifts leftward.
E) the supply curve of good Y will remain unchanged.

Answer 44

C

Question 45

14) A shift of the supply curve for rutabagas occurs if there is
A) a change in preferences for rutabagas.
B) a change in the price of a related good that is a substitute for rutabagas.
C) a change in income.
D) a change in the price of rutabagas.
E) none of the above.

Answer 45

E

Question 46

15) Some producers are chatting over a beer. Which one of the following quotations refers to a movement along the supply curve?
A) “Wage increases have forced us to raise our prices.”
B) “Our new, sophisticated equipment will enable us to undercut our competitors.”
C) “Raw material prices have sky-rocketed; we will have to pass the cost on to our customers.”
D) “We anticipate a big increase in demand. Our product price should rise, so we are planning for an increase in output.”
E) “New competitors in the industry are causing prices to fall.”

Answer 46

D

Question 47

16) Some producers are chatting over a beer. Which one of the following quotations refers to a rightward shift of the supply curve?
A) “Wage increases have forced us to raise our prices.”
B) “Our new, sophisticated equipment will enable us to undercut our competitors.”
C) “Raw material prices have sky-rocketed; we will have to pass the cost on to our customers.”
D) “We anticipate a big increase in demand. Our product price should rise, so we are planning for an increase in output.”
E) Both A and C.

Answer 47

B

Question 48

17) Some producers are chatting over a beer. Which one of the following quotations refers to a leftward shift of the supply curve?
A) “Wage increases have forced us to raise our prices.”
B) “Our new, sophisticated equipment will enable us to undercut our competitors.”
C) “Raw material prices have sky-rocketed; we will have to pass the cost on to our customers.”
D) “We anticipate a big increase in demand. Our product price should rise, so we are planning for an increase in output.”
E) Both A and C.

Answer 48

E

Question 49

18) A decrease in the quantity supplied of a good is shown by
A) a movement down along the supply curve.
B) a leftward shift of the supply curve.
C) a movement up along the supply curve.
D) a rightward shift of the supply curve.
E) an initial rightward shift and then leftward shift of the supply curve.

Answer 49

A

Question 50

19) Which of the following decreases the supply of popcorn?
A) a decrease in the price of popcorn
B) an increase in the price of popcorn
C) a technological advance in the production of popcorn
D) a decrease in the demand for popcorn
E) a decrease in the number of popcorn producers

Answer 50

E

Question 51

20) Which of the following shifts the supply curve for good X leftward?
A) a situation in which the quantity demanded of X exceeds the quantity supplied of X
B) an increase in the cost of the machinery used to produce X
C) a technological advance in the production of X
D) a decrease in the wages of workers employed to produce X
E) a situation in which the quantity supplied of X exceeds the quantity demanded of X

Answer 51

B