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purchase Jessie's demand schedule for candy bars indicates: A Her opportunity cost of buying candy bars B How much she likes candy bars C How many candy bars she will actually buy D Why she likes candy bars 10 The term opportunity cost refers to the: A Value of all the alternatives given up when a good or service is produced B Financial costs of all the factors of production used to produce a good or service C Amount of resources used to produce a good or service D Value of the best alternative given up when a good or service is produced 11 The most desired goods or services that are given up when a choice is made is called the: A Rationing device B Economic profit C Opportunity cost D Utility cost 12 Ceteris paribus, if the opportunity cost of purchasing a good rises, then the maximum price a particular consumer is willing to pay for that good: A Does not change since the demand curve does not change B Decreases C Increases D Decreases as long as supply also falls 13 According to the law of demand, during a given period of time, the quantity of a good demanded: A Increases as its price rises, ceteris paribus B Increases as its price falls, ceteris paribus C Decreases as its price falls, ceteris paribus D Does not change when price changes 14 According to the law of demand, a demand curve: A Has a negative slope B Is a horizontal, or flat, line C Has a positive slope D Exceeds the economy's ability to produce 15 A lower quantity demanded of a good reflects, ceteris paribus: A Lower income B A downward shift of the supply curve C A higher price of the good D Fewer units actually purchased 16 Ceteris paribus, if the price of a digital camera rises, then we can expect: A An increase in the demand for digital cameras B An increase in the quantity demanded of digital cameras C A decrease in the demand for digital cameras D A decrease in the quantity demanded of digital Problem set – Topic Supply and Demand Multiple Choice Questions A factor market is any place where: A Finished goods are bought and sold B Land, labor, or capital is bought and sold C Finished services are bought and sold D Factories are bought and sold Which of the following is purchased in a product market? A Cell phone service B Undeveloped farmland in Texas C Crude oil D The skills of an X-ray technician Which of the following is purchased in a factor market? A A bag of jellybeans B National defense C The labor of a state university professor D A motorized scooter Business firms supply goods and services to and purchase factors of production in A Factor markets; product markets B National markets; factor markets C Product markets; factor markets D Factor markets; national markets Individual consumers supply _ and purchase _ A Factors of production; final goods and services B Intermediate goods; final goods and services C Final goods and services; factors of production D National goods and services; factors of production International participants: A Take no part in American markets B Participate only in American product markets C Participate only in American factor markets D Participate in both American factor markets and American product markets A market in which final goods and services are exchanged is a: A Public-goods market B Product market C Factor market D Labor market A buyer is said to have a demand for a good only when: A The buyer wants to own the good B The buyer is both willing and able to purchase the good at alternative prices C The price of the good is low enough D An adequate supply of the good is available for cameras 17 Ceteris paribus, which of the following is most likely to cause an increase in the quantity demanded of perfume? A A decrease in the price of perfume B A decrease in tastes for perfume C An increase in income D An increase in the price of electricity 18 Which of the following is not held constant along a given demand curve for a good? A Price B Consumer's income C The price of substitutes D Consumer tastes 19 Ceteris paribus, which of the following would generally cause an increase in the demand for automobiles? A A decrease in the price of automobiles B An increase in consumers' income C The new models are perceived as ugly compared with old models D Consumer expectations that the price of automobiles will be lower next year 20 Ceteris paribus, which of the following would you expect to have no effect on the demand for automobiles? A A rise in the price of gasoline B Consumer expectation that the price of automobiles will be lower next year C Consumer expectation that a significant recession will develop and last for a year D An increase in the price of automobiles 21 Ceteris paribus, if buyers expect the price of airline tickets to fall in the future, then right now there should be: A An increase in the demand for airline tickets B A decrease in the supply of airline tickets C A decrease in the demand for airline tickets D No change in the supply of or demand for airline tickets because the price is not changing right now 22 Which determinant of demand changes in the personal computer market as more individuals become interested in "surfing the Internet"? A Cost of factors of production B Income C Expectations D Number of buyers 23 Assume that pencils and pens are substitutes If the price of pencils rises, then we will see: A An increase in the demand for pens B A decrease in the demand for pens C An increase in the supply of pens D A decrease in the supply of pens 24 If bagels and donuts are substitutes, then a decrease in the price of donuts will result in: A An increase in the demand for donuts B A decrease in the demand for donuts C An increase in the demand for bagels D A decrease in the demand for bagels 25 If there are only two airlines that fly between Dallas and New Orleans, what will happen in the market for one airline if the other one goes out of business? A The demand curve will shift to the right B The demand curve will shift to the left C There will be a movement to the right along the initial demand curve D There will be a movement to the left along the initial demand curve 26 Peanut butter and jelly are complements A decrease in the price of one will result in: A A decrease in the demand for the other B A decrease in the quantity demanded of the other C An increase in the demand for the other D An increase in the quantity demanded of the other 27 Assume a series of forest fires reduces the supply of lumber which is an input in the production of wooden bats Baseballs and wooden bats are complements If the price of wooden bats increases, we can expect the: A Demand for baseballs to decrease B Supply of baseballs to decrease C Demand for baseballs to increase D Supply of baseballs to increase 28 Ceteris paribus means: A Holding everything constant except for the variables you are interested in examining B Allowing the free market to decide, not government C Changing prices to see how demand or supply shifts D Holding constant the determinant of demand or supply that you are interested in examining 29 A change in demand means there has been a shift in the demand curve, and a change in quantity demanded: A Results from a change in price of other goods B Means a shortage or surplus will result from holding prices constant C Also means demand has shifted D Means that price has changed and there is movement along the demand curve 30 Market demand is determined by all of the following except for: A The number of potential sellers B Income C Tastes D Expectations about future income 31 To calculate market demand we: A Add the quantities demanded for each individual demand schedule horizontally B Add the quantities demanded for each individual demand schedule vertically C Find the average quantity demanded at each price D Find the difference between the quantity demanded and the quantity supplied at each price 32 Which of the following is a determinant of supply? A Suppliers' tastes for the good they produced B Consumers' income C Consumers' desire for the good D Available technology 33 Which of the following is a determinant of supply? A Consumer tastes or preferences B The prices of the factors of production C Income D Number of buyers 34 A change in the price of a good: A Causes a shift in the supply curve B Results in a change in quantity supplied C Results in a change in supply D Is a determinant of supply 35 Which of the following is not held constant along a given supply curve for a good? A The cost of factors of production B Price C Technology D Taxes 36 Ceteris paribus, which of the following is most likely to cause an increase in the quantity supplied of perfume? A An improvement in perfume-making technology B An increase in the salaries paid to perfume makers C An increase in the price of perfume D An increase in the number of sellers of perfume 37 A shift in supply is defined as a change in: A Price B Quantity supplied because of a change in price C Equilibrium quantity D Supply because of a change in a non-price determinant 38 Ceteris paribus, which of the following is most likely to cause a decrease in the supply of skateboards? A An increase in the price of skateboards B An increase in the cost of materials used to produce skateboards C An improvement in skateboard-making technology D All of the choices 39 The law of supply implies that: A Supply curves are flat B Supply curves are upward-sloping to the right C Supply curves are downward-sloping to the right D A change in a determinant of demand shifts the supply curve 40 To calculate market supply we: A Add the quantities supplied for each individual supply schedule horizontally B Add the quantities supplied for each individual supply schedule vertically C Find the average quantity supplied at each price D Find the difference between the quantity supplied and the quantity demanded at each price 41 Ceteris paribus, if the subsidies given to corn syrup producer decrease, then we can expect: A A decrease in the demand for corn syrup B A decrease in the supply of corn syrup C An increase in the demand for corn syrup D An increase in the supply of corn syrup 42 Which of the following events would cause a rightward shift in the market supply curve for automobiles? A A technological improvement which reduces the cost of production B An increase in the wages of autoworkers C A higher sales tax on automobiles D A decrease in the number of sellers 43 If corn and wheat are alternative pursuits for a farmer, a change in the supply of corn will take place when, ceteris paribus: A The price of corn changes B The price of wheat changes C The demand for corn changes D Consumers want to buy more corn at the same price 44 Which of the following would not cause the market supply of cell phones to change? A Telecommunications are deregulated, and anyone who wants to can produce and sell cell phones B A cheaper technology for producing plastics used in producing cell phones is developed C A reduction in the demand for cell phones causes the price to fall D Taxes levied on cell phone production are reduced 45 Assume that steel is used to produce monkey wrenches Ceteris paribus, if the price of steel rises, then: A The supply curve for monkey wrenches will shift to the left B The supply curve for monkey wrenches will shift to the right C There will be a leftward movement along the initial supply curve for monkey wrenches D There will be a rightward movement along the initial supply curve for monkey wrenches 46 Which of the following can change without shifting either demand or supply, ceteris paribus? A The price of the good itself B The prices of other goods C Incomes D Expectations 47 Ceteris paribus, which of the following is most likely to shift both the demand and the supply curve? A Technology B Expectations C The price of the good itself D Income 48 A market is said to be in equilibrium when: A Demand is fully satisfied at all alternative prices B The buying intentions of all consumers are realized C The supply intentions of all sellers are realized D The quantity demanded equals the quantity supplied 49 The equilibrium price in a market is found where: A The market supply curve intersects the market demand curve B The market supply curve intersects the y-axis C The market demand curve intersects the y-axis D The market supply curve intersects the x-axis 50 At the equilibrium price there are: A Shortages B Surpluses C Excess inventories D No shortages or surpluses 51 If there is a shortage at a given price, then: A That price is the equilibrium price B That price is greater than the equilibrium price C That price is less than the equilibrium price D There is no equilibrium price in the market 52 If there is a surplus at a given price, then: A The market is in equilibrium at that price B That price is greater than the equilibrium price C That price is lower than the equilibrium price D The price is zero 53 In most markets, the equilibrium price is achieved: A Through detailed databases B Using an equilibrium price formula C Through government mandate D Through trial and error 54 The term market mechanism refers to: A The use of market prices and sales to determine resource allocation B The establishment of a ceiling price in a market C Supply and demand curves D Government laws and regulations concerning how the market should operate 55 When a surplus exists for a product: A Producers increase supply B Consumers increase demand C Government purchases decrease D Producers reduce the level of output and reduce price 56 A ballet performance had many empty seats This implies that the: A Hall where the performance was being held was very large B Price of the tickets must have been very low because of the low demand C Ballet group was not very well known D Price of the tickets must have been above the equilibrium price 57 If the quantity demanded of a good is greater 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 equilibrium C The supply curve will shift to the right to create equilibrium D There is a surplus of the good 58 A market shortage is: A The amount by which the quantity demanded exceeds the quantity supplied at a given price B The result of a price floor C A situation in which producers cannot sell all the goods and services that they are willing and otherwise able to sell D The amount by which the cost of production exceeds the price of a good 59 As a result of a shortage: A Consumers increase demand for the product B Producers reduce supply C Producers increase output and raise the price D Government purchases decrease 60 Tickets to a sporting event go on sale and sell out almost instantly This implies that: A There are too many tickets to the event B The price for the tickets is below the equilibrium price C The tickets must be very expensive D There is a surplus of tickets 61 A rightward shift in a demand curve and a rightward shift in a supply curve both result in a: A Lower equilibrium price B Lower equilibrium quantity C Higher equilibrium price D Higher equilibrium quantity 62 A rightward shift in a demand curve and a leftward shift in a supply curve both result in a: A Lower equilibrium price B Lower equilibrium quantity C Higher equilibrium price D Higher equilibrium quantity 63 A leftward shift of the market demand curve for HDTVs, ceteris paribus, causes equilibrium price to: A Increase and quantity to decrease B Decrease and quantity to decrease C Increase and quantity to increase D Decrease and quantity to increase 64 Ceteris paribus, an increase in the number of sellers of running shoes causes equilibrium price to: A Decrease and equilibrium quantity to increase B Decrease and equilibrium quantity to decrease C Increase and equilibrium quantity to increase D Increase and equilibrium quantity to decrease 65 Assume peanut butter and jelly are complements Ceteris paribus, an increase in the price of peanut butter will cause the equilibrium price for jelly to: A Increase and the equilibrium quantity of jelly to decrease B Increase and the equilibrium quantity of jelly to increase C Decrease and the equilibrium quantity of jelly to decrease D Decrease and the equilibrium quantity of jelly to increase 66 A rightward shift of the market demand curve for MP3 players, ceteris paribus, causes equilibrium: A Price to increase and quantity to decrease B Price to decrease and quantity to decrease C Price to increase and quantity to increase D Price to decrease and quantity to increase 67 When the demand for coffee increases, ceteris paribus, the equilibrium price will also increase because: A A shortage exists at the old equilibrium price B There must be a surplus of the good C The market supply and demand curves not intersect D Market demand must be upward sloping 68 Assume two goods are substitutes Ceteris paribus, a decrease in the price of one good will cause the equilibrium price of the other good to: A Increase and the equilibrium quantity of the other good to increase B Increase and the equilibrium quantity of the other good to decrease C Decrease and the equilibrium quantity of the other good to increase D Decrease and the equilibrium quantity of the other good to decrease 69 Assume milk is used to produce ice cream Ceteris paribus, a decrease in the price of milk will cause the equilibrium price of ice cream to: A Increase and the equilibrium quantity of ice cream to increase B Increase and the equilibrium quantity of ice cream to decrease C Decrease and the equilibrium quantity of ice cream to increase D Decrease and the equilibrium quantity of ice cream to decrease 70 An increase in the supply of gasoline, ceteris paribus, will cause equilibrium price: A To rise and quantity to fall B To fall and quantity to rise C And quantity to rise D And quantity to fall 71 In 2007 a company sold 35,000 MP3 players at $150 each In 2008 the same company sold 40,000 MP3 players at $170 each This information suggests that: A The supply of MP3 players increased from 2007 to 2008 B The demand for MP3 players increased from 2007 to 2008 C The price of MP3 players increased because the costs of production increased from 2007 to 2008 D >From 2007 to 2008 the demand curve for MP3 players was upward sloping because of improved technology 72 Suppose there are a series of forest fires which affect the lumber industry while, at the same time, consumers demand more wooden furniture The wooden furniture market would experience: A An increase in price and an indeterminate change in quantity B An increase in price and an increase in quantity C An increase in quantity and an indeterminate change in price D A decrease in price and an indeterminate change in quantity 73 Suppose both the demand and supply of salsa increase (although not necessarily by the same amount) What can we conclude about changes in the price and quantity of salsa? A Both the price and quantity increase B The price increases but the change in the quantity cannot be determined C The quantity increases but the change in the price cannot be determined D Both the price and quantity decrease 74 An increase in the equilibrium price of electricity can be caused by: A An increase in the supply of electricity B An increase in the demand for electricity C A decrease in the demand for electricity D An increase in the quantity demanded of electricity 75 A decrease in the price of electricity can best be explained by: A A decrease in the population B Abnormally cold winters and hot summers C The increased use of electronic devises such as computers D A growing economy 76 Which of the following is most likely to occur because of an increase in the price of electricity in California? A An increase in electricity imported into California B A decrease in electricity imported into California C An increase in the consumption of electricity in California D A decrease in the supply of electricity in California 77 When the market mechanism is allowed to operate freely, prices will determine: A The mix of output to be produced and the resources to be used in the production process B The resources to be used in the production process and for whom the output is produced C The mix of output to be produced, the resources to be used in the production process, and for whom the output is produced D For whom the output is produced and the mix of output to be produced 78 In a market economy, the people who receive the goods and services produced are those who: A Need the goods and services the most B Want the goods and services the most C Have the most political power D Are willing and able to pay the market price 79 When economists talk about "optimal outcomes" in the marketplace, they mean that: A The allocation of resources by the market is perfect B All the consumer desires are satisfied and business profits are maximized C The allocation of resources by the market is likely to be the best possible, given scarce resources and income constraints D Everyone who wants a good or service can have it 80 Price ceilings are intended to address the problem of: A Inefficiency in production B Inequity in the distribution of goods and services C Business bankruptcies D Shortages 81 The price ceiling that federal government placed on human organs caused: A An increase in demand B An increase in supply C A shortage D A surplus 82 If the government places a binding price ceiling on cancer-treating drugs, then: A Fewer people will die from cancer B More people will die from cancer C There will be no change in the number of people who die from cancer D The supply of cancer-treating curves will increase 83 If a price ceiling is to be binding, it should be set: A Below the equilibrium price and it will create a market shortage B Below the equilibrium price and it will create a market surplus C Above the equilibrium price and it will create a market shortage D Above the equilibrium price and it will create a market surplus 84 Suppose a hurricane hits Florida causing widespread damage to houses and businesses The governor of Florida places a price ceiling on all building materials to keep the prices reasonable Which of the following is the most likely result? A A faster recovery from the storm B More people will be able to purchase building materials C Shortages of building materials and a slower recovery from the storm D The supply of building materials to Florida will increase 85 Which of the following statements about markets is not true? A Markets necessarily have a physical location B Markets have to have both a demand side and a supply side C The two types of markets include the factor and product markets D Every market transaction involves an exchange of dollars for goods or resources 86 Price elasticity of demand shows how: A To compute the slope of the demand curve B Responsive the quantity demanded is to a change in price C Responsive the quantity demanded is to a change in the price of related goods D Responsive the price is to a change in demand 87 The price elasticity of demand is equal to: A Percentage change in quantity demanded times the percentage change in price B Unit change in price divided by the unit change in quantity demanded C Percentage change in quantity demanded divided by the percentage change in price D Unit change in quantity demanded times the unit change in price 88 Along a downward-sloping linear demand curve, the price elasticity of demand: A Is constant at each point on the curve B Varies throughout the demand curve C Tends to be elastic at relatively low prices D Is equal to the slope of the demand curve 89 The price elasticity of demand for a good is likely to be elastic if the marginal utility for that good: A Decreases slowly as additional units are consumed B Remains constant as additional units are consumed C Increases rapidly as additional units are consumed D Decreases rapidly as additional units are consumed 90 Assume the price elasticity of demand for U.S Frisbee Co frisbees is 0.5 If the company increases the price of each frisbee from $12 to $16, the number of frisbees demanded will: A Decrease by 14.3 percent B Decrease by 33.3 percent C Increase by 20.0 percent D Increase by 7.0 percent 91 Assume the price elasticity of demand for JT Chip Co chips is 4.0 If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will: A Decrease by 78 percent B Increase by 95 percent C Increase by 48 percent D Increase by 78 percent 92 If the price elasticity of demand is 0.6, then a 10 percent increase in the price of the good will lead to a in the quantity demanded A percent increase B percent decrease C 0.6 percent increase D 0.6 percent decrease 93 For product XYZ, the price elasticity of demand has an absolute value of 3.5 This means that quantity demanded will increase by: A percent for each 3.5 percent decrease in price, ceteris paribus B unit for each $3.50 decrease in price, ceteris paribus C 3.5 percent for each percent decrease in price, ceteris paribus D 3.5 units for each $1 decrease in price, ceteris paribus 94 Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per boat The absolute value of the price elasticity of demand is closest to: A 0.20 B 1.29 C 0.78 D 0.29 95 Suppose a university raises its tuition by percent and as a result the enrollment of students decreases by percent The absolute value of the price elasticity of demand is: A 0.5 B 2.0 C 8.0 D 6.0 96 A demand curve that is completely inelastic is: A Horizontal B Vertical C Upward sloping D Downward sloping 97 When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus: A Demand is elastic B Demand is inelastic C Demand is unitary elastic D Elasticity is impossible to calculate 98 When Claudia goes to the gas station she buys 10 gallons of gas no matter what the price per gallon What does this imply about her price elasticity of demand for gasoline? A It is unitary B It is relatively elastic C It is perfectly inelastic D It is perfectly elastic 99 A demand curve that is completely elastic is: A Horizontal B Vertical C Upward sloping D Downward sloping 100 Which of the following does not influence the price elasticity of demand? A The availability of substitutes B The price of the item relative to your budget C Costs of production D The length of time 101 Which of the following would most likely have a price-elasticity coefficient greater than 1? A Cigarettes B Gasoline in the short run C Electricity D Airline travel in the long run 102 Which of the following would most likely have a price-elasticity coefficient less than 1? A Coffee B Televisions C Fresh fish D New cars 103 Which of the following is likely to have the most inelastic price elasticity of demand? A Automobiles B Pickup trucks C Hondas D The Hondas one Honda dealer sells 104 Ceteris paribus, as the number of substitutes for a good increase, the: A Price elasticity of demand should become smaller B Price elasticity of demand should become larger C Cross-price elasticity of demand should become negative D Income elasticity of demand should become negative 105 Which of the following causes demand to be more elastic with respect to price? A Shorter periods of time to adjust to a change in price B A steeper demand curve for a given price and quantity C Fewer substitutes D A high ratio of price to income 106 Ceteris paribus, the longer the time period, the: A Smaller the income elasticity for the good B Less elastic the demand for the good C More unitary elastic the demand for the good D More elastic the demand for the good 107 If price elasticity of demand is equal to 2, the good has _ demand A Elastic B Inelastic C Unit elastic D Restrictive 108 The total revenue effect of a movement along a demand curve can best be predicted using the: A Law of diminishing marginal utility B Price elasticity of demand C Utility-maximizing rule D Law of demand 109 The local baseball team owner hires you to help maximize the team's profits You are told that costs are constant because enough help is always hired in case of a full stadium, so assume your task is to maximize revenues from ticket sales Your advice to the owner should be: A Set the ticket price in the inelastic region of the demand curve in order to increase revenues B Raise the price as high as possible until the number of tickets sold begins to fall C Set the price as low as possible to make sure the stadium is always full D Set the price of tickets at the unitary elasticity price 110 Assume a good has a downward-sloping, linear demand curve Starting at a price of zero, as the price of the good increases, total revenue: A Increases indefinitely B Decreases indefinitely because the quantity sold will decrease C Remains constant D Increases, then decreases 111 If the price elasticity of demand is 1.0, and a firm raises its price by 10 percent, the total revenue will: A Rise by 10 percent B Fall by 10 percent C Not change D Rise by 100 percent 112 If Carmen's Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43, the company should: A Increase the price of coffee B Decrease the price of coffee C Keep the price constant since a price increase or decrease will cause total revenue to fall D Advertise since this is only option that will increase total revenue 113 Carter has budgeted $40 per month for candy bars No matter how the price of candy bars changes, he spends exactly $40 per month Carter's price elasticity of demand for candy bars must: A Equal zero B Be unitary C Be very inelastic since the amount he spends is not responsive to a price change D Be very elastic since the quantity he demands will change significantly if the price changes 114 Assume the price elasticity of demand for MC Pretzel Co pretzels is 0.8 If the company increases the price of each bag of pretzels, total revenue will: A Decrease because fewer bags will be sold B Increase because the company will receive more revenue per bag C Increase because the percentage increase in price is greater than the percentage decrease in quantity demanded D Be impossible to predict because the percentage change in price is not known 115 When demand is price inelastic, ceteris paribus, an increase in: A Price leads to lower total revenue B Total revenue means quantity rises C Total revenue indicates a reduction in price D Price leads to greater total revenue 116 A price decrease will cause total revenue to fall if: A Demand is elastic B Demand is inelastic C Demand is unitary-elastic D The price elasticity of demand is less than zero 117 If the price of Good X falls and total revenue rises, then: A Demand for Good X is inelastic B Demand for Good X is unitary elastic C Demand for Good X is elastic D The price elasticity of demand for Good X is equal to 118 Maximum total revenue occurs when: A Total revenue is -1.0 B The absolute value of the price elasticity of demand is 1.0 C Price multiplied by quantity is 1.0 D The absolute value of the price elasticity of demand is 100 119 Which of the following is the best measure of the effects of a recession? A Income elasticity of demand B Price elasticity of demand C Cross-price elasticity of demand D Utility-maximizing rule 120 Suppose the income elasticity of demand for used jet skis is 3.5 If the level of income decreases by percent, the number of used jet skis sold will, ceteris paribus: A Rise by 0.29 percent B Rise by 3.5 percent C Fall by 0.29 percent D Fall by 3.5 percent 121 If income falls percent for a year and as a result the quantity of new homes demanded falls from 23 million to 20 million units for the year, the value of the income elasticity of demand for housing is closest to: A 0.6 B 1.8 C 2.9 D 3.5 122 Suppose income falls percent in a year and as a result, housing construction falls from 10 million to million units annually Based on this information housing starts are: A An inferior good B A normal good C Price elastic D Price inelastic 123 Ceteris paribus, if income increases and as a result, the demand for good X increases and the demand for good Y falls: A Good X is an inferior good and good Y is a normal good B Good X is a normal good and good Y is an inferior good C Goods X and Y are substitute goods D Goods X and Y are complementary goods 124 If a good is normal, then its: A Price elasticity of demand is positive B Income elasticity is negative C Income elasticity is positive D Cross-price elasticity is positive 125 154 If a good is inferior, then its: A Cross-price elasticity is negative B Price elasticity of demand is negative C Income elasticity is positive D Income elasticity is negative 126 If income rises by 10 percent and the quantity sold of a particular vehicle falls by percent, then this particular type of vehicle is: A A normal good B An inferior good C An irregular good D A sub-standard good 127 Which of the following is most likely an inferior good? A Rolex watches B Nike running shoes C Generic vitamins D A custom-built mansion 128 Assume that store brand cereal is an inferior good If income rises, then the price of store brand cereal will and the quantity sold of store brand cereal will A Rise; rise B Rise; fall C Fall; fall D Fall; rise 129 Suppose computer prices at an office supply store fall from $1,000 to $900 and as a result the quantity demanded of typewriters decreases from 40 to 20 per month The cross-price elasticity is closest to: A 0.16 B 0.2 C 5.0 D 6.3 130 Assume apples and oranges are substitutes Suppose apple growers launch a very successful advertising campaign that convinces consumers apples are a better product As a result the crossprice elasticity of apples and oranges will become: A Less negative (move closer to zero) B More negative C Less positive (move closer to zero) D More positive 131 MP3 players and MP3 files are complementary goods The cross-price elasticity of demand between MP3 players and MP3 files is expected to be: A Positive B Negative C Equal to zero D Undefined 132 When the prices of postage stamps rise, the demand for Internet service increases, ceteris paribus Postage stamps and Internet service are therefore: A Elastic B Inelastic C Complements D Substitutes 133 Suppose the price of video games falls from $40 to $20 and as a result the quantity demanded of scooters falls from 40,000 to 10,000 per year The value of the cross-price elasticity of demand is: A 1.80 B 1.00 C 0.83 D 0.56 134 Suppose the price of soccer shoes decreases by percent and as a result, there is a 12 percent rise in the quantity of shin guards demanded The value of the cross-price elasticity of demand is: A -1.71 B -0.58 C 1.71 D 0.58 135 If DVD players and DVDs are complementary goods, an increase in the price of DVDs will, ceteris paribus: A Increase the quantity demanded of DVDs B Increase the quantity demanded of DVD players C Reduce the demand for DVD players D Reduce the demand for DVDs 136 If the cross-price elasticity of demand for SUVs with respect to the price of gasoline is -0.10, and gasoline prices rise by 18 percent, then SUV sales should, ceteris paribus: A Fall by 1.8 percent B Fall by 18 percent C Rise by 1.8 percent D Rise by 18 percent 10 True / False Questions 137 As a result of specialization and trade individuals no longer have to make choices about how to spend their incomes 138 The basic goals of utility maximization, profit maximization, and welfare maximization explain most market activity 139 Unlike consumers and business firms, the public sector has no maximizing goals 140 One of the two reasons why we are driven to buy and sell goods and services in the market is that most of us are incapable of producing everything we want to consume 141 Markets require a physical location to permit sellers to supply money to buyers for goods and services 142 Land, labor, and capital, are bought and sold in the product market 143 Government goods are delivered "free," which means that they are costless 144 Money is critical in facilitating market exchanges and the specialization that these exchanges permit 145 "Demand" is a statement of actual purchases 146 According to the law of demand, a decrease in price leads to an increase in quantity demanded 147 A change in price changes the quantity demanded and is represented by a movement along the demand curve 148 If the prices of the factors used to produce a good change, both the demand curve and the supply curve of the good will shift 149 An increase in the price of one good can cause the demand for another good to increase if the goods are substitutes 150 An increase in the price of one good can cause the demand for another good to increase if the goods are complements 151 When the number of buyers in a market changes, the market demand curve shifts, even if individual demand curves not shift 152 When a seller sells a good, the supply curve shifts to the right 153 When individual supply curves shift, ceteris paribus, the market supply curve shifts 154 The market supply is a statement of actual sales by suppliers 155 The law of supply and the law of demand both rely on the concept of opportunity cost 156 The market price equals the equilibrium price if quantity demanded equals quantity supplied at the market price 157 Market price is the same thing as equilibrium price 158 The market mechanism satisfies all consumer desires and maximizes business profits 159 There are never shortages or surpluses when the price in a market is equal to the equilibrium price for the market 160 As one moves down the demand curve for carrots, the desire for carrots changes 161 Scalping is likely to appear when price is set below equilibrium price by the seller 162 Optimal market outcomes are the same as perfect market outcomes 163 In the U.S., market shortages of human organs are the result of price ceilings 164 In the U.S., price ceilings on human organs have caused an increase in demand 165 In the United States, consumers, businesses, government and foreigners participate in both the product and factor markets Problems and short answer questions Question 1: Use supply and demand curves to illustrate how each of the following events would affect the prive of butter and the quantity of butter bought and sold: a) An increase in the price of magarine b) An increase in the price of milk c) A decrease in average income levels Question 2: Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as 11 follow: a) b) c) d) Price Demand Supply ($) (millions) (millions) 60 22 14 80 20 16 100 18 18 120 16 20 Calculate the price elasticity of demand when the price is $80 When the price is $100 Calculate the price elasticity of supply when the price is $80 When the price is $100 What are the equilibrium price and quantity? Suppose the government sets a price ceiling of $80 Will there be a shortage, and if so, how large will it be? Question 3: Beef supplies are sharply reduced because of drought in the beef-raising states, and consumers turn to pork as a substitute for beef How would you illustrate this change in the beef-market in supply-and-demand terms? Question 4: Given the following data for widgets: P = 80 - Q (Demand) P = 20 + 2Q (Supply) a) Given the above demand and supply equations for widgets, find the equilibrium price and quantity b) Now suppliers must pay a tax of $6 per unit Find the new equilibrium price-inclusive price and quantity Question 5: In the market for good X, the demand curve and supply curve are given by: Qd = -5P + 150 Qs = 5P - 10 Where price is in $ and Qd, Qs are in units a) Calculate the price elasticity of demand when the price is $12 When the price is $18 b) Find the equilibrium price and quantity Calculate the price elasticity of demand at that price c) Suppose the government sets a price ceiling of $14 What will happen to the market? What should the government to keep the ceiling price effective? Question 6: Use a diagram to illustrate how each of the following events affects the equilibrium price and quantity of pizza a The price of mozzarella cheese rises b The health hazards of hamburgers are widely publicized c The price of tomato sauce falls d The incomes of consumers rise and pizza is an inferior good e Consumers expect the price of pizza to fall next week Question 7: Katherine advertises to sell cookies for $4 a dozen She sells 50 dozen, and decides that she can charge more She raises the price to $6 a dozen and sells 40 dozen What is the elasticity of demand? Assuming that the elasticity of demand is constant, how many would she sell if the price were $10 a box? Question 8: Yesterday, the price of envelopes was $3 a box, and Julie was willing to buy 10 boxes Today, the price has gone up to $3,75 a box, and Julie is now willing to buy boxes Is Julie's demand for envelopes elastic or inelastic? What is Julie's elasticity of demand? Question 9: In the market for good X, the demand curve and supply curve are given by 𝑃 = 100 − 𝑄! 𝑃 = 𝑄! − 12 Where price is in $ and 𝑄! , 𝑄! are in units a) Find the equilibrium price and quantity b) Suppose the government sets tax of $1 per unit What will happen to the market? How is the tax burden divided between buyers and sellers? c) Calculate the tax revenue Question 10: If consumers expect the price of some good to rise next week, then we generally observe the price of the good rising this week Explain this fact using a graph Question 11: The following table shows information on the demand and supply for bicycles, where the quantities of bicycles are measured in thousands a) What is the quantity demanded and the quantity supplied at a price of $210? b) At what price is the quantity supplied equal to 48,000? c) Graph the demand and supply curve for bicycles d) How can you determine the equilibrium price and quantity from the graph? How can you determine the equilibrium price and quantity from the table? What are the equilibrium price and equilibrium quantity? e) If the price was $120, what would the quantities demanded and supplied be? Would a shortage or surplus exist? If so, how large would the shortage or surplus be? Price ($) 120 150 180 210 240 Demand Supply 50 40 32 28 24 36 40 48 56 70 Question 12: Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the market for bagels if: Case 1: People realize how fattening bagels are Case 2: People have less time to make themselves a cooked breakfast 13 ... 20 07 to 20 08 B The demand for MP3 players increased from 20 07 to 20 08 C The price of MP3 players increased because the costs of production increased from 20 07 to 20 08 D >From 20 07 to 20 08 the... of an average price increase from $20 ,000 to $25 ,000 per boat The absolute value of the price elasticity of demand is closest to: A 0 .20 B 1 .29 C 0.78 D 0 .29 95 Suppose a university raises its... given as 11 follow: a) b) c) d) Price Demand Supply ($) (millions) (millions) 60 22 14 80 20 16 100 18 18 120 16 20 Calculate the price elasticity of demand when the price is $80 When the price