Download Chapter 3 Market Supply and Demand 1. Which of the following

Chapter 3
Market Supply and Demand
1. Which of the following causes the demand for veggie burgers to increase?
a. A decline in the price of veggie burgers.
b. An increase in the price of tofu burgers, perceived as a substitute by veggie burger
consumers.
c. An increase in the price of burger buns.
d. A technological innovation that lowers the cost of producing veggie burgers.
ANS
a. Incorrect. Remember that a decline in price causes movement down along a demand
curve (thus increasing quantity demanded), but price does not cause a shift in demand.
b. Correct. An increase in the price of a consumer substitute will cause some consumers
of tofu-burgers to shift to veggie-burgers, causing an increase in the demand for veggieburgers.
c. Incorrect. Buns are a complement to burgers, and an increase in bun prices will reduce
demand for burgers.
d. Incorrect. This will increase the supply curve, not the demand curve.
2. Which of the following would not cause market demand for a normal good to decline?
a. An increase in the price of a substitute.
b. An increase in the price of a complement.
c. A decline in consumer income.
d. Consumer expectations that the good will go on sale in the near future.
e. An announcement by the Surgeon General that the product contributes to premature
death.
ANS
a. Correct. This will increase demand.
b. Incorrect. This will decrease demand.
c. Incorrect. This will decrease demand.
d. Incorrect. This will decrease current demand.
e. Incorrect. This will decrease demand.
3. Low-income families consume proportionately more of which of the following kinds
of goods?
a. Luxury goods.
b. Substitute goods.
c. Normal goods.
d. Inferior goods.
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ANS
a. Incorrect. Higher income families will consume proportionately more luxury goods.
b. Incorrect. Without knowing more about the substitute, we cannot say that there is any
relationship between income and the consumption of substitute goods.
c. Incorrect. Higher income families will consume proportionately more normal goods.
d. Correct. For inferior goods, demand increases when income decreases.
4. Suppose that each of the seven dwarfs buys 4 mugs of ginger ale per week from Snow
White's cafe‚ when the price per mug is $2. If the seven dwarfs are the entire market
demand for Snow White's ginger ale, then which of the following is the correct value for
market quantity demanded of ginger ale at a price of $2?
a. 4.
b. 8.
c. 28.
d. 7.
ANS
a. Incorrect. This is the quantity demanded of only one of the seven dwarfs.
b. Incorrect. See the correct answer under c. below.
c. Correct. Market quantity demanded is the sum of each consumer's quantity demanded
at the prevailing price.
d. Incorrect. This is the number of dwarfs and not the total quantity demanded.
5. Which of the following increases the supply of corn?
a. The farm worker's union successfully negotiates a pay increase for corn harvest
workers.
b. The Surgeon General announces that eating corn bread contributes to baldness in men.
c. Congress and the president eliminate subsidies formerly paid to corn farmers.
d. Farmers who grow soybeans can also grow corn, and the price of soybeans drops by 75
percent.
ANS
a. Incorrect. This will raise production costs and decrease corn supply.
b. Incorrect. This will reduce corn demand.
c. Incorrect. This will raise the full cost of growing corn, and thus will decrease corn
supply.
d. Correct. Many soybean farmers will shift to growing corn, which increases the number
of corn sellers and thus increases corn supply.
6. With an upward-sloping supply curve, which of the following is true?
a. An increase in price results in a decrease in quantity supplied.
b. An increase in price results in an increase in supply.
c. A decrease in price results in a decrease in quantity supplied.
d. A decrease in price results in an increase in supply.
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ANS
a. Incorrect. This results in an “increase in quantity supplied.”
b. Incorrect. This results in an “increase in quantity supplied.”
c. Correct. This is a direct relationship between changes in price and quantity supplied.
d. Incorrect. This results in a “decrease in quantity supplied.”
7. A rightward shift in the demand curve is called a(an)
a. decrease in output.
b decrease in demand.
c. increase in demand.
d. increase in income.
ANS
a. Incorrect. It is an increase in demand.
b. Incorrect. It is an increase in demand.
c. Correct. Both phrases explains the same situation.
d. Incorrect. It is an increase in demand.
8. A surplus occurs when the
a. quantity demanded exceeds the quantity supplied.
b. price is below the equilibrium price.
c. price is at the equilibrium.
d. price is above the equilibrium.
ANS
a. Incorrect. This is a shortage.
b. Incorrect. This will cause a shortage.
c. Incorrect. There is neither a shortage nor a surplus at the equilibrium price.
d. Correct. This will cause a surplus.
9. A shortage occurs when the
a. quantity supplied exceeds the quantity demanded.
b. price is below the equilibrium price.
c. price is at the equilibrium.
d. price is above the equilibrium.
ANS
a. Incorrect. This is a surplus.
b. Correct. This will cause a shortage.
c. Incorrect. There is neither a shortage nor a surplus at the equilibrium price.
d. Incorrect. This will cause a surplus.
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10. Which of the following decreases supply in the market for pizza?
a. Pizza shop employees successfully organize a union and negotiate a pay increase.
b. The Surgeon General announces that eating pizza reduces the incidence of stomach
cancer.
c. Cheese prices drop because price supports for dairy farmers are removed.
d. Some hot sandwich shops can also make and sell pizzas, and consumer demand for hot
sandwiches declines sharply, reducing the profitability of producing hot sandwiches.
ANS
a. Correct. This will raise production costs and decrease the pizza supply.
b. Incorrect. This will tend to increase demand.
c. Incorrect. This will reduce the cost of producing pizzas, and thus will increase supply.
d. Incorrect. This will tend to cause sandwich shops to convert to producing pizza, which
will increase the supply of pizza.
11. Which of the following results from an increase in the price of a one-week vacation at
beach resorts on the coast of Mexico?
a. An increase in the supply of bicycle tires in Toledo, Ohio.
b. An increase in the demand for vacations at resorts on Caribbean islands.
c. An increase in the supply of vacation opportunities at resorts on the coast of Mexico.
d. A decrease in the demand for vacations at resorts on Caribbean islands.
ANS
a. Incorrect. There is no obvious relationship between vacations at Mexican beach resorts
and the supply of bicycle tires in Toledo.
b. Correct. The Caribbean and Mexico are substitutes in the market for tropical resort
vacations, and when the price of Mexican vacations rises, some people who were
considering going to Mexico will instead go to a Caribbean island.
c. Incorrect. An increase in price moves us along a given supply curve, but does not result
in an increase in supply.
d. Incorrect. The effect is just the opposite.
12. There is news that the price of Tucker’s Root Beer will increase significantly next
week. If the demand for Tucker’s Root Beer reacts only to this factor and shifts to the
right, the position of this demand curve has reacted to a change in
a. tastes.
b. income levels.
c. the prices of related goods.
d. the number of buyers.
e. expectations.
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ANS
a. Incorrect. Preferences are not anticipation of a future price change.
b. Incorrect. Income levels are not anticipation of a future price change.
c. Incorrect. The prices of related goods are not anticipation of a future price change.
d. Incorrect. The number of buyers is not anticipation of a future price change.
e. Correct. The present demand curve can shift when consumers anticipate future price
changes.
13. Which of the following causes a shortage to become larger?
a. An increase in market price.
b. An increase in supply.
c. A decrease in demand.
d. A decrease in price.
ANS
a. Incorrect. This will reduce a shortage by increasing quantity supplied and decreasing
quantity demanded.
b. Incorrect. An increase in supply will reduce or eliminate a shortage.
c. Incorrect. A decrease in demand will reduce or eliminate a shortage.
d. Correct. This will increase a shortage by increasing quantity demanded and decreasing
quantity supplied.
14. Which of the following is true in ski-towns such as Crested Butte, Colorado and
Whistler, British Columbia during the peak winter ski season as compared to the months
of May and June?
a. Demand for motel rooms is higher.
b. Demand for motel rooms is lower.
c. There is a surplus of motel rooms.
d. The price of motel rooms will be lower.
ANS
a. Correct. There are more buyers of rental room services during the peak ski season than
in the late spring when the mountains are muddy.
b. Incorrect. There are more buyers of rental room services during the peak ski season
than in the late spring when the mountains are muddy.
c. Incorrect. There are more buyers of rental room services during the peak ski season
than in the late spring when the mountains are muddy, which if anything will tend to
create a shortage rather than a surplus.
d. Incorrect. During peak season when demand for rooms is high, people must generally
pay a higher price for rooms than during the "off-peak" season.
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15. In moving from a shortage toward the market equilibrium, which of the following is
true?
a. Price falls.
b. Price rises.
c. Quantity demanded increases.
d. Quantity supplied decreases.
ANS
a. Incorrect. A lower price would tend to create a larger shortage.
b. Correct. As price rises, quantity demanded falls and quantity supplied rises, eventually
eliminating the shortage.
c. Incorrect. Quantity demanded falls as we move from a shortage toward a market
equilibrium.
d. Incorrect. Quantity supplied rises as we move from a shortage toward a market
equilibrium.
16. The law of demand is the principle that there is ___________ relationship between
the price of a good and the quantity buyers are willing to purchase in a defined time
period, ceteris paribus.
a. a direct
b. no
c. an inverse
d. an independent
ANS
a. Incorrect. A direct relationship means that, as price increases, the quantity demanded
increases. This is not true for demand.
b. Incorrect. No relationship means that price has no effect on quantity demanded. This is
not true for demand.
c. Correct. An inverse relationship means that, as price increases, the quantity demanded
decreases. This is true for demand.
d. Incorrect. This means zero relationship between variables.
17. A curve that is derived by summing horizontally individual demand curves is called
a. aggregate supply.
b. market supply.
c. aggregate demand.
d. market demand.
ANS
a. Incorrect. This is a macroeconomic concept.
b. Incorrect. This is a curve that is derived by summing horizontally individual supply
curves.
c. Incorrect. This is a macroeconomic concept.
d. Correct. This is the method used to create a market demand curve.
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18. A leftward shift in the demand curve is called a(an)
a. decrease in demand.
b. decrease in output.
c. increase in demand.
d. increase in income.
ANS
a. Correct. Both phrases explain the same situation.
b. Incorrect. It is a decrease in demand.
c. Incorrect. It is a decrease in demand.
d. Incorrect. It is a decrease in demand.
19. Under the law of demand, any increase in price will cause ____________ in quantity
demanded.
a. a decrease
b. an increase
c. no change
d. constant change
ANS
a. Correct. The inverse relationship of the law of demand will cause a decrease in
quantity demanded.
b. Incorrect. An increase in quantity demanded would mean that the law of demand is a
direct relationship. It is an inverse relationship.
c. Incorrect. No change means that price has no effect on quantity demanded. This is not
true for demand.
d. Incorrect. This means that price has a fixed effect on quantity demanded. This is not
true for demand.
20. The law of supply is the principle that there is ___________ relationship between the
price of a good and the quantity sellers are willing to offer for sale in a defined time
period, ceteris paribus.
a. an inverse
b. a direct
c. no
d. an independent
ANS
a. Incorrect. An inverse relationship means that, as price increases, the quantity supplied
decreases. This is not true for supply.
b. Correct. A direct relationship means that, as price increases, the quantity supplied
increases. This is true for supply.
c. Incorrect. No relationship means that price has no effect on quantity supplied. This is
not true for supply.
d. Incorrect. This means that price has a fixed effect on quantity demanded. This is not
true for demand.
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Exhibit 14 Demand and Supply Data for Video games
Price
$75
70
65
60
55
50
45
40
Quantity Demanded
of Video Games
400
450
500
550
600
650
700
750
Quantity Supplied
of Video Games
900
850
800
750
700
650
600
550
21. Exhibit 14 presents supply and demand data for the video game market. If the price of
video games was currently $70, there would be an ____________ of ______________
video games in this market.
a. excess demand; 450
b. excess demand; 500
c. excess supply; 400
d. excess supply; 850
e. excess demand; 400
ANS
a. Incorrect. Only at $70, quantity supplied (850) exceeds quantity demanded (450) by
400.
b. Incorrect. Only at $70, quantity supplied (850) exceeds quantity demanded (450) by
400.
c. Correct. Only at $70, quantity supplied (850) exceeds quantity demanded (450) by 400.
d. Incorrect. Only at $70, quantity supplied (850) exceeds quantity demanded (450) by
400.
e. Incorrect. Only at $70, quantity supplied (850) exceeds quantity demanded (450) by
400.
22. In Exhibit 14, if the price of video games was currently $45, there would be an
____________ of ______________ video games in this market.
a. excess demand; 700
b. excess demand; 500
c. excess supply; 100
d. excess supply; 600
e. excess demand; 100
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ANS
a. Incorrect. Only at $45, quantity demaned (700) exceeds quantity supplied (600) by
100.
b. Incorrect. Only at $45, quantity demaned (700) exceeds quantity supplied (600) by
100.
c. Incorrect. Only at $45, quantity demaned (700) exceeds quantity supplied (600) by
100.
d. Incorrect. Only at $45, quantity demaned (700) exceeds quantity supplied (600) by
100.
e.Correct. Only at $45, quantity demaned (700) exceeds quantity supplied (600) by 100.
23. In Exhibit 14, at any market price of video games above $50, a(an) ______________
would result, causing price to __________.
a. excess demand; rise
b. excess supply; rise
c. excess demand; fall
d. excess supply; fall
e. shortage; rise
ANS
a. Incorrect. An excess quantity supplied causes sellers to reduce the price downward
along the supply curve.
b. Incorrect. An excess quantity supplied causes sellers to reduce the price downward
along the supply curve.
c. Incorrect. An excess quantity supplied causes sellers to reduce the price downward
along the supply curve.
d. Correct. An excess quantity supplied causes sellers to reduce the price downward
along the supply curve.
e. Incorrect. An excess quantity supplied causes sellers to reduce the price downward
along the supply curve.
24. In exhibit 14, at any market price of video games below $50, a (an)
____________would result, causing price to _________.
a. excess demand; rise
b. excess supply; rise
c. excess demand; fall
d. excess supply; fall
e. surplus; rise
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ANS
a. Correct. An excess quantity demanded causes sellers to raise the price upward along
the supply curve.
b. Incorrect. An excess quantity demanded causes sellers to raise the price upward along
the supply curve.
c. Incorrect. An excess quantity demanded causes sellers to raise the price upward along
the supply curve.
d. Incorrect. An excess quantity demanded causes sellers to raise the price upward along
the supply curve.
e. Incorrect. An excess quantity demanded causes sellers to raise the price upward along
the supply curve.
25. In Exhibit 14, if there is a shortage of video games of 200 units, the current price of
video games must be
a. $60.
b. $55.
c. $50.
d. $45.
e. $40.
ANS
a. Incorrect. Only at $40, quantity demanded (750) exceeds quantity supplied (550) by
200.
b. Incorrect. Only at $40, quantity demanded (750) exceeds quantity supplied (550) by
200.
c. Incorrect. Only at $40, quantity demanded (750) exceeds quantity supplied (550) by
200.
d. Incorrect. Only at $40, quantity demanded (750) exceeds quantity supplied (550) by
200.
e. Correct. Only at $40, quantity demanded (750) exceeds quantity supplied (550) by 200.
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