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Chapter 3 Supply and Demand: Theory
1. What is one of the factors that helps to determine the demand for pizza?
a. technology
b. producers’ taxes
c. resources prices
d. prices of hamburgers and other closely related goods
ANS:
a. Incorrect. Technology is a determinant of supply.
b. Incorrect. Taxes levied on the producer are a determinant of supply.
c. Incorrect. Resource price is a determinant of supply.
d. Correct.
2. A decrease in supply (ceteris paribus) causes
a. increases in both price and output.
b. an increase in price and a decrease in output.
c. a decrease in both price and output.
d. either an increase or a decrease in price and a decrease in output.
ANS:
a. Incorrect. Price will rise, but output will fall.
b. Correct.
c. Incorrect. Price will rise, but output will fall
d. Incorrect. Price will definitely rise.
3. If the demand for steak rises as steak consumers’ income rises, then steak is
a. an inferior good.
b. a normal good.
c. a substitute good.
d. a complementary good.
ANS:
a. Incorrect. When income and demand are directly related, the good is a normal good.
b. Correct.
c. Incorrect. Substitutes are determined by a change in the price of a related good, not a
change in income.
d. Incorrect. Complements are determined by a change in the price of a related good, not
a change in income.
4. A change in which of the following will cause a shift in the demand for good X?
a. a rise in resource prices
b. a reduction in the price of good X
c. a rise in consumers’ income
d. none of the above
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
ANS:
a. Incorrect. Resource prices are a determinant of supply.
b. Incorrect. A price change will not change demand, it will only change the quantity
demanded of the product.
c. Correct.
d. Incorrect. Answer C is the correct answer
5. The law of diminishing marginal utility
a. states that, in the context of a given time period, the additional utility obtained as a
result of consuming additional units of some good will decline.
b. states that total utility will decline as more of a good is consumed within a given time
period.
c. explains why supply curves slope upward to the right.
d. None of the above.
ANS:
a. Correct.
b. Incorrect. The law of diminishing marginal utility states that marginal, not total, utility
will decline as more units are consumed.
c. Incorrect. The law of diminishing marginal utility explains why demand curves slope
downward to the right.
d. Incorrect. The correct answer is A
6. Which of the following is (are) consistent with the law of demand?
a. As the price of a good rises, the quantity demanded of the good falls ceteris paribus.
b. As the price of a good falls, the quantity demanded of the good falls, ceteris paribus.
c. As the price of a good rises, the quantity demanded of the good rises, ceteris paribus.
d. Both (b) and (c) above.
ANS:
a. Correct.
b. Incorrect. The law of demand states that ceteris paribus, as the price of a good rises,
the quantity demanded will fall, and as the price of a good falls, the quantity demanded
will rise
c. Incorrect. The law of demand states that ceteris paribus, as the price of a good rises, the
quantity demanded will fall, and as the price of a good falls, the quantity demanded will
rise.
d. Incorrect. Only answer A is correct
7. Suppose that market conditions change so that 800 pairs of jogging shoes are now
demanded at a price of $80, up from 400 pairs of jogging shoes previously demanded .
Which of the following is (are) true?
a. market supply has decreased
b. market demand has increased
c. the market demand curve has shifted to the left
d. Both (b) and (c) above.
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
ANS:
a. Incorrect. An increase in quantity demanded at the same price indicates an increase in
market demand.
b. Correct.
c. Incorrect. An increase in quantity demanded at the same price indicates an increase in
market demand.
d. Incorrect. Only answer B is correct
8. Which of the following is an example of a price ceiling?
a. the federal minimum wage
b. guaranteed minimum prices for dairy farmers
c. guaranteed minimum prices for wheat farmers
d. municipal laws that set a maximum rental price, a policy known as “rent control”
ANS:
a. Incorrect. The minimum wage is an example of a price floor.
b. Incorrect. A guaranteed minimum price is an example of a price floor.
c. Incorrect. The guaranteed minimum price is an example of a price floor
d. Correct.
9. If goods A and B are substitute goods and the price of good A increases, we would
expect to see
a. the quantity demanded of A to fall and the demand curve for B to shift leftward toward
the origin.
b. a decrease in the quantity demanded of A and a rightward shift of B’s demand curve.
c. the quantity demanded of A remains constant and the demand curve for B shifts
rightward..
d. the demand curve for both A and B shift leftward.
ANS:
a. Incorrect. An increase in the price of A causes an increase in the demand for B, so B’s
demand curve would shift rightward.
b. Correct.
c. Incorrect. The quantity demanded of A falls and the demand for B increases
d. Incorrect. The demand curve for good A does not move since a change in the price of
A causes a movement along good A’s demand curve.
10. Assuming that peanut butter and jelly are complementary goods, an increase in the
price of peanut butter will cause, other things constant,
a. a decrease in the demand for peanut butter.
b. a decrease in the demand for jelly.
c. an increase in the demand for jelly.
d. no change in the demand for jelly, but the quantity demanded of peanut butter will fall.
.
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
ANS:
a. Incorrect. This will cause a decrease in the quantity demanded of peanut butter.
b. Correct.
c. Incorrect. The demand for jelly will decrease.
d. Incorrect. The quantity demanded of peanut butter will fall and the demand for jelly
will decrease.
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.