2. The supply of a good or service is determined by
a. those who buy the good or service.
b. the government.
c. those who sell the good or service.
d. both those who buy and those who sell the good or service.
C
3. In a competitive market, the quantity of a product produced and the price of the product are
determined by
a. a single buyer.
b. a single seller.
c. one buyer and one seller working together.
d. all buyers and all sellers.
D
4. A competitive market is one in which
a. there is only one seller, but there are many buyers.
b. there are many sellers and each seller has the ability to set the price of his product.
c. there are many sellers and they compete with one another in such a way that some sellers
are always being forced out of the market.
d. there are so many buyers and so many sellers that each has a negligible impact on the price
of the product.
D
5. The highest form of competition is called
a. absolute competition.
b. cutthroat competition.
c. perfect competition.
d. market competition.
C
6. Buyers and sellers who have no influence on market price are referred to as
a. market pawns.
b. monopolists.
c. price takers.
d. price makers.
C
7. A monopoly is a market
a. with one seller, and that seller is a price taker.
b. with one seller, and that seller sets the price.
c. with one buyer, and that buyer is a price taker.
d. with one buyer, and that buyer sets the price.
B
8. The quantity demanded of a good is the amount that buyers
a. are willing to purchase.
b. are willing and able to purchase.
c. are willing and able and need to purchase.
d. are able to purchase.
B
9. The law of demand states that, other things equal,
a. an increase in price causes quantity demanded to increase.
b. an increase in price causes quantity demanded to decrease.
c. an increase in quantity demanded causes price to increase.
d. an increase in quantity demanded causes price to decrease.
B
10. The following table contains a demand schedule for a good.
Price Quantity Demanded
$10 100
$20 ?
If the law of demand applies to this good, then “?” could be
a. 0.
b. 100.
c. 200.
d. 400.
A
11. A demand schedule is a table that shows the relationship between
a. quantity demanded and quantity supplied.
b. income and quantity demanded.
c. price and quantity demanded.
d. price and income.
C
12. When drawing a demand curve,
a. demand is on the vertical axis and price is on the horizontal axis.
b. quantity demanded is on the vertical axis and price is on the horizontal axis.
c. price is on the vertical axis and demand is on the horizontal axis.
d. price is on the vertical axis and quantity demanded is on the horizontal axis.
D
13. The market demand curve
a. is found by vertically adding the individual demand curves.
b. slopes upward.
c. represents the sum of the prices that all the buyers are willing to pay for a given quantity
of the good.
d. represents the sum of the quantities demanded by all the buyers at each price of the good.
D
14. A market demand curve shows how the total quantity demanded of a good varies as
a. income varies.
b. price varies.
c. the number of buyers varies.
d. supply varies.
B
15. When quantity demanded decreases at every possible price, we know that the demand curve has
a. shifted to the left.
b. shifted to the right.
c. not shifted; rather, we have moved along the demand curve to a new point on the same
curve.
d. not shifted; rather, the demand curve has become flatter.
A
16. An increase in demand is represented by
a. a movement downward and to the right along a demand curve.
b. a movement upward and to the left along a demand curve.
c. a rightward shift of a demand curve.
d. a leftward shift of a demand curve.
C
17. A decrease in demand is represented by
a. a movement downward and to the right along a demand curve.
b. a movement upward and to the left along a demand curve.
c. a rightward shift of a demand curve.
d. a leftward shift of a demand curve.
D
18. Which of the following changes would not shift the demand curve for a good or service?
a. a change in income
b. a change in the price of the good or service
c. a change in expectations about the future price of the good or service
d. a change in the price of a related good or service
B
19. Which of the following is not a determinant of the demand for a particular good?
a. the prices of related goods
b. income
c. tastes
d. the prices of the inputs used to produce the good
D
20. Each of the following is a determinant of demand except
a. tastes.
b. technology.
c. expectations.
d. the prices of related goods.
B
21. If the demand for a good falls when income falls, then the good is called
a. a normal good.
b. a regular good.
c. a luxury good.
d. an inferior good.
A
22. Pizza is a normal good if
a. the demand for pizza rises when income rises.
b. the demand for pizza rises when the price of pizza falls.
c. the demand curve for pizza slopes downward.
d. the demand curve for pizza shifts to the right when the price of burritos rises, assuming
pizza and burritos are substitutes.
A
23. If a decrease in income increases the demand for a good, then the good is
a. a substitute good.
b. a complementary good.
c. a normal good.
d. an inferior good.
D
24. Two goods are substitutes when a decrease in the price of one good
a. decreases the demand for the other good.
b. decreases the quantity demanded of the other good.
c. increases the demand for the other good.
d. increases the quantity demanded of the other good.
A
25. Two goods are complements when a decrease in the price of one good
a. decreases the quantity demanded of the other good.
b. decreases the demand for the other good.
c. increases the quantity demanded of the other good.
d. increases the demand for the other good.
D
26. Suppose the American Medical Association announces that men who shave their heads are less
likely to die of heart failure. We could expect the current demand for
a. hair gel to increase.
b. razors to increase.
c. combs to increase.
d. shampoo to increase.
B
27. Ford Motor Company announces that next month it will offer $3,000 rebates on new Mustangs. As
a result of this information, today’s demand curve for Mustangs
a. shifts to the right.
b. shifts to the left.
c. shifts either to the right or to the left, but we cannot determine the direction of the shift
from the given information.
d. will not shift; rather, the demand curve for Mustangs will shift to the right next month.
B
28. If the number of buyers in a market decreases, then
a. demand will increase.
b. demand will decrease.
c. supply will increase.
d. supply will decrease.
B
34. The quantity supplied of a good is the amount that
a. buyers are willing and able to purchase.
b. sellers are able to produce.
c. buyers and sellers agree will be brought to market.
d. sellers are willing and able to sell.
D
35. “Other things equal, when the price of a good rises, the quantity supplied of the good also rises, and
when the price falls, the quantity supplied falls as well.” This relationship between price and
quantity supplied
a. is referred to as the law of supply.
b. applies only to a few goods in the economy.
c. is represented by a downward-sloping supply curve.
d. All of the above are correct.
A
36. The difference between a supply schedule and a supply curve is that
a. a supply schedule incorporates demand and a supply curve does not.
b. a supply schedule incorporates profit and a supply curve does not.
c. a supply schedule can shift, but a supply curve cannot shift.
d. a supply schedule is a table and a supply curve is drawn on a graph.
D
37. The sum of all the individual supply curves for a product is called
a. total supply.
b. market supply.
c. aggregate supply.
d. total output.
B
38. A decrease in supply is represented by
a. a movement downward and to the left along a supply curve.
b. a movement upward and to the right along a supply curve.
c. a rightward shift of a supply curve.
d. a leftward shift of a supply curve.
D
39. A leftward shift of a supply curve is called
a. an increase in supply.
b. a decrease in supply.
c. a decrease in quantity supplied.
d. an increase in quantity supplied.
B
40. A movement along the supply curve might be caused by a change in
a. technology.
b. input prices.
c. expectations about future prices.
d. the price of the good or service that is being supplied.
D
41. Wheat is the main input in the production of flour. If the price of wheat decreases, then we would
expect the
a. demand for flour to increase.
b. demand for flour to decrease.
c. supply of flour to increase.
d. supply of flour to decrease.
C
42. A technological advance will shift the
a. supply curve to the right.
b. supply curve to the left.
c. demand curve to the right.
d. demand curve to the left.
A
43. If suppliers expect the price of their product to fall in the future, then they will
a. decrease supply now.
b. increase supply now.
c. decrease supply in the future but not now.
d. increase supply in the future but not now.
B
44. If the number of sellers in a market increases, then the
a. demand in that market will increase.
b. supply in that market will increase.
c. supply in that market will decrease.
d. demand in that market will decrease.
B
51. The unique point at which the supply and demand curves intersect is called
a. market harmony.
b. coincidence.
c. equivalence.
d. equilibrium.
D
52. A surplus exists in a market if
a. there is an excess demand for the good.
b. the situation is such that the law of supply and demand would predict an increase in the
price of the good from its current level.
c. the current price is above its equilibrium price.
d. quantity demanded exceeds quantity supplied.
C
53. A shortage exists in a market if
a. there is an excess supply of the good.
b. the situation is such that the law of supply and demand would predict a decrease in the
price of the good from its current level.
c. the current price is below its equilibrium price.
d. quantity supplied exceeds quantity demanded.
C
57. If the demand for a product increases, then we would expect
a. equilibrium price to increase and equilibrium quantity to decrease.
b. equilibrium price to decrease and equilibrium quantity to increase.
c. equilibrium price and equilibrium quantity both to increase.
d. equilibrium price and equilibrium quantity both to decrease.
C
58. If the supply of a product increases, then we would expect
a. equilibrium price to increase and equilibrium quantity to decrease.
b. equilibrium price to decrease and equilibrium quantity to increase.
c. equilibrium price and equilibrium quantity both to increase.
d. equilibrium price and equilibrium quantity both to decrease.
B
59. When supply and demand both increase, equilibrium
a. price will increase.
b. price will decrease.
c. quantity may increase, decrease, or remain unchanged.
d. price may increase, decrease, or remain unchanged.
D
60. Suppose that demand for a good decreases and, at the same time, supply of the good decreases.
What would happen in the market for the good?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be
ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be
ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.
C
61. Suppose the number of buyers in a market increases and a technological advancement occurs also.
What would we expect to happen in the market?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be
ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be
ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.
D
1. The price elasticity of demand measures
a.
buyers’ responsiveness to a change in the price of a good.
b.
the extent to which demand increases as additional buyers enter the market.
c.
how much more of a good consumers will demand when incomes rise.
d.
the movement along a supply curve when there is a change in demand.
A
2. For a good that is a necessity,
a.
quantity demanded tends to respond substantially to a change in price.
b.
demand tends to be inelastic.
c.
the law of demand does not apply.
d.
All of the above are correct.
B
3. For a good that is a luxury, demand
a.
tends to be inelastic.
b.
tends to be elastic.
c.
has unit elasticity.
d.
cannot be represented by a demand curve in the usual way.
B
4. For a good that is a necessity, demand
a.
tends to be inelastic.
b.
tends to be elastic.
c.
has unit elasticity.
d.
cannot be represented by a demand curve in the usual way.
A
5. A good will have a more inelastic demand,
a.
the greater the availability of close substitutes.
b.
the broader the definition of the market.
c.
the longer the period of time.
d.
the more it is regarded as a luxury.
B
6. A good will have a more elastic demand,
a.
the greater the availability of close substitutes.
b.
the more narrow the definition of the market.
c.
the shorter the period of time.
d.
the more it is regarded as a necessity.
A
7. Other things equal, the demand for a good tends to be more inelastic, the
a.
fewer the available substitutes.
b.
longer the time period considered.
c.
more the good is considered a luxury good.
d.
more narrowly defined is the market for the good.
A
8. Economists compute the price elasticity of demand as the
a.
percentage change in price divided by the percentage change in quantity demanded.
b.
change in quantity demanded divided by the change in the price.
c.
percentage change in quantity demanded divided by the percentage change in price.
d.
percentage change in quantity demanded divided by the percentage change in income.
C
9. Demand is said to have unit elasticity if elasticity is
a.
less than 1.
b.
greater than 1.
c.
equal to 1.
d.
equal to 0.
C
10. The smaller the price elasticity of demand, the
a.
steeper the demand curve will be through a given point.
b.
flatter the demand curve will be through a given point.
c.
more strongly buyers respond to a change in price between any two prices P1 and P2.
d.
smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.
A
11. When quantity moves proportionately the same amount as price, demand is
a.
elastic, and the price elasticity of demand is 1.
b.
perfectly elastic, and the price elasticity of demand is infinitely large.
c.
perfectly inelastic, and the price elasticity of demand is 0.
d.
unit elastic, and the price elasticity of demand is 1.
D
12. The price elasticity of demand changes as we move along a
a.
horizontal demand curve.
b.
vertical demand curve.
c.
linear, downward-sloping demand curve.
d.
All of the above are correct.
C
13. If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is
a.
0.50.
b.
1.
c.
1.5.
d.
2.
D
14. Demand is said to be price elastic if
a.
the price of the good responds substantially to changes in demand.
b.
demand shifts substantially when income or the expected future price of the good changes.
c.
buyers do not respond much to changes in the price of the good.
d.
buyers respond substantially to changes in the price of the good.
D
15. If demand is price inelastic, then
a.
buyers do not respond much to a change in price.
b.
buyers respond substantially to a change in price, but the response is very slow.
c.
buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes.
d.
the demand curve is very flat.
A
16. Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,
a.
the equilibrium quantity decreases, and the equilibrium price is unchanged.
b.
the equilibrium price increases, and the equilibrium quantity is unchanged.
c.
the equilibrium quantity and the equilibrium price both are unchanged.
d.
buyers’ total expenditure on the good is unchanged.
B
17. The case of perfectly elastic demand is illustrated by a demand curve that is
a.
vertical.
b.
horizontal.
c.
downward-sloping but relatively steep.
d.
downward-sloping but relatively flat.
B
18. When demand is perfectly inelastic, the demand curve will be
a.
negatively sloped, because buyers decrease their purchases when the price rises.
b.
vertical, because buyers purchase the same amount as before whenever the price rises or falls.
c.
positively sloped, because buyers increase their purchases when price rises.
d.
positively sloped, because buyers increase their total expenditures when price rises.
B
19. When demand is inelastic, a decrease in price will cause
a.
an increase in total revenue.
b.
a decrease in total revenue.
c.
no change in total revenue, but an increase in quantity demanded.
d.
no change in total revenue, but a decrease in quantity demanded.
B
20. When demand is elastic, a decrease in price will cause
a.
an increase in total revenue.
b.
a decrease in total revenue.
c.
no change in total revenue, but an increase in quantity demanded.
d.
no change in total revenue, but a decrease in quantity demanded.
A
21. Income elasticity of demand measures how
a.
the quantity demanded changes as consumer income changes.
b.
consumer purchasing power is affected by a change in the price of a good.
c.
the price of a good is affected when there is a change in consumer income.
d.
many units of a good a consumer can buy given a certain income level.
A
22. To determine whether a good is considered normal or inferior, one could examine the value of the
a.
income elasticity of demand for that good.
b.
price elasticity of demand for that good.
c.
price elasticity of supply for that good.
d.
cross-price elasticity of demand for that good.
A
23. Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be
a.
positive.
b.
negative.
c.
either positive or negative. It depends whether A and B are normal goods or inferior goods.
d.
either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve.
A
24. Cross-price elasticity of demand measures how
a.
the price of one good changes in response to a change in the price of another good.
b.
the quantity demanded of one good changes in response to a change in the quantity demanded of another good.
c.
the quantity demanded of one good changes in response to a change in the price of another good.
d.
strongly normal or inferior a good is.
C
25. The cross-price elasticity of demand can tell us whether goods are
a.
normal or inferior.
b.
elastic or inelastic.
c.
luxuries or necessities.
d.
complements or substitutes.
D
26. A key determinant of the price elasticity of supply is the
a.
time horizon.
b.
income of consumers.
c.
price elasticity of demand.
d.
importance of the good in a consumer’s budget.
A
27. The supply of a good will be more elastic, the
a.
more the good is considered a luxury.
b.
broader is the definition of the market for the good.
c.
larger the number of close substitutes for the good.
d.
longer the time period being considered.
D
28. The price elasticity of supply measures how much
a.
the quantity supplied responds to changes in input prices.
b.
the quantity supplied responds to changes in the price of the good.
c.
the price of the good responds to changes in supply.
d.
sellers respond to changes in technology.
B
29. Frequently, in the short run, the quantity supplied of a good is
a.
impossible, or nearly impossible, to measure.
b.
not very responsive to price changes.
c.
determined by the quantity demanded of the good.
d.
determined by psychological forces and other non-economic forces.
B
30. When a supply curve is relatively flat,
a.
sellers are not at all responsive to a change in price.
b.
the equilibrium price changes substantially when the demand for the good changes.
c.
the supply is relatively elastic.
d.
the supply is relatively inelastic.
C
31. If the price elasticity of supply for wheat is less than 1, then the supply of wheat is
a.
inelastic.
b.
elastic.
c.
unit elastic.
d.
quite sensitive to changes in income.
A
32. As price elasticity of supply increases, the supply curve
a.
becomes flatter.
b.
becomes steeper.
c.
becomes downward sloping.
d.
shifts to the right.
A
35. Which of the following statements is valid when the market supply curve is vertical?
a. Market quantity supplied does not change when the price changes.
b. Supply is perfectly elastic.
c. An increase in market demand will increase the equilibrium quantity.
d. An increase in market demand will not increase the equilibrium price.
A
36. If the quantity supplied is the same regardless of price, then supply is
a.
elastic.
b.
perfectly elastic.
c.
perfectly inelastic.
d.
inelastic.
C
37. When supply is perfectly elastic, the value of the price elasticity of supply is
a.
0.
b.
1.
c.
greater than 0 and less than 1.
d.
infinity.
D
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