Download PRACTICE QUIZ 1

PRACTICE QUIZ 1
1. To celebrate its 50th anniversary, a gasoline station sells gasoline at the price it
charged on its first day of operation: $0.10 per gallon. As you drive by the gasoline
station, you notice that there is a long line of people waiting to buy gasoline. What
types of people would you expect to join the line?
2. “The cost of a masters degree in engineering equals the tuition plus the cost of
books.” True or false? Explain.
3. Suppose a nation picks 1,000 young adults at random to serve in the army. What
information do you need to determine the cost of using these people in the army?
Explain the logic behind the economist’s quip that “There is no such thing as a free
lunch.”
4. In March of 1996, many news reports predicted that the price of coffee was about to
rise sharply, possibly by as much as 20%, within a short period of time. The reason
for the expected increase was a poor coffee crop in much of South and Central
America and labor problems in Brazil and Columbia that had driven up wages.
A What would be the effect on the coffee market?Support your answer with a
supply/demand graph.
B What would happen in the market for tea? For donuts and other goods commonly
consumed with coffee?
5. Complete the statement with "increase" or "decrease": When a price increases, the
law of demand suggests that the quantity demanded will _________, while the law of
supply suggests that the quantity supplied will __________.
6. List the variables that are held fixed in drawing a market demand curve.
7. List the variables that are held fixed in drawing a market supply curve.
8. Complete the statement: The market equilibrium is shown by the intersection of the
___________ curve and the ______________ curve.
9. Complete the statement with “less” or “greater”: Excess demand occurs when the
price is _________ than the equilibrium price; excess supply occurs when the price is
_________ than the equilibrium price.
10. Complete the statement with "supply" or "demand": A maximum price below the
equilibrium price causes excess ________, while a minimum price above the
equilibrium price causes excess _________.
11. Which of the following items go together?
A. Change in demand
B. Change in quantity demanded
C. Change in price
D. Movement along the demand curve
E. Shifting the demand curve
F. Change in income
12. What's wrong with the following statement? “Demand increased because the demand
curve shifted.”
13. Complete the statement with “right” or “left”: An increase in the price of cassette
tapes will shift the demand curve for CDs to the __________; an increase in the price
of CD players will shift the demand curve for CDs to the_____________.
14. From the variables, quantity of pencils, number of potential consumers, price of
pencils, price of pens, consumer income, circle the change as we move along the
market demand curve for pencils, and cross out those that are assumed to be fixed.
15. Which of the following items go together?
A. Change in quantity supplied
B. Change in production cost
C. Change in supply
D. Shifting the supply curve
E. Change in price
F. Movement along the supply curve
16. True or false, and explain: An increase in the wage of computer workers will shift
the supply curve for computers to the left.
17. From the variables, quantity of housing, number of potential consumers, price of
wood, price of houses, consumer income, circle those that change as we move along
the market supply curve for housing, and cross out those that are assumed to be fixed.
18. Complete the statement with "supply" or "demand": If the price and quantity change
in the same direction, ____________ is changing; if the price and quantity change in
opposite directions, __________ is changing.
19. Suppose a freeze in Florida wipes out 20% of the orange crop. How will this affect
the equilibrium price of Florida oranges? Defend your answer with a graph.
20. Suppose that between 1997 and 1999, the equilibrium price and the equilibrium
quantity of VCR both decrease. Draw a supply and demand diagram that explains
these changes.