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Principles of Macroeconomics
Morgan Community College
Test #2
Name:
Please choose the best answer. Mark your answer by bolding the text.
Multiple Choice – 2 pts. Each (16 pts. Total)
1. Which of the following would most likely increase the demand for peanut butter?
a. a decrease in the price of bread, a good that is often used with peanut butter
b. a discovery that the average daily consumption of peanut butter decreases one's
life span by 15 years
c. crop failures that raise the price of peanuts
d. a decrease in the price of all substitute protein products
2. All other things unchanged, the demand curve of a good, say apples:
a. Shows that at higher prices, the demand for apples falls
b. Slopes upward and to the right, when price is on the vertical axis and quantity is
on the horizontal.
c. Shows the quantity of apples demanded at each specific price.
d. All of the above are shown by the demand curve for apples.
3. When you study the quantity supplied of a good and invoke the "all other things
unchanged" assumption, you assume all of the following things constant except the:
a. Expectations of the sellers.
b. Number of sellers on the market.
c. Level of production technology available to producers.
d. Price of the good itself.
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4. The number of persons wanting tickets to Super Bowl games is invariably greater than
the number of tickets (and seats) available. This is evidence that the price of the tickets
is
a. higher than the competitive equilibrium price.
b. equal to the competitive equilibrium price since the number of tickets bought
equals the number sold.
c. lower than the competitive equilibrium price.
d. higher than the competitive equilibrium price when the demand is inelastic but
lower when the demand is elastic.
5. "A reduction in gasoline prices caused the demand to increase. The lower prices led to
an increase in demand for large cars, causing their prices to rise." These statements
a. are essentially correct.
b. contain one error; the lower gasoline prices would cause a reduction in demand
for large cars, not an increase.
c. contain one error; the lower gasoline prices would increase the quantity of
gasoline demanded by consumers, not the demand for large cars.
d. contain two errors; the lower gasoline prices would cause the quantity of gasoline
demanded (rather than demand for large cars) to increase, and the lower
gasoline price would reduce (rather than increase) the demand for large cars.
6. A cold spell in Florida extensively reduced the orange crop, and, as a result, California
oranges commanded a higher price. Which of the following statements best explains the
situation?
a. The supply of Florida oranges fell, causing the supply of California oranges to
increase as well as their price.
b. The supply of Florida oranges fell, causing the supply of California oranges to
decrease and their price to increase.
c. The supply of Florida oranges fell, causing their price to increase and the
demand for California oranges to increase.
d. The demand for Florida oranges was reduced by the freeze, causing an increase
in the price of California oranges and a greater demand for them.
7. The price of chicken increases as the result of higher beef prices. This indicates that
a. chicken and beef are substitutes.
b. chicken and beef are complements.
c. the market demand for beef is inelastic.
d. the market demand for chicken is elastic.
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8. The invisible hand principle indicates that competitive markets can help promote the
efficient use of resources
a. only if buyers and sellers really care, personally, about economic efficiency.
b. even when each market participant cares only about getting a "bigger slice of the
pie" rather than about the overall efficiency of resource use.
c. even if business firms fail to produce goods efficiently.
d. if, and only if, businesses recognize their social obligation to keep costs low and
use resources wisely.
Short Answer (16 pts. Total)
Use the list below to answer questions #9 and 10.
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DVD player and DVD
Coke and Pepsi
Coffee and Tea
Mashed potatoes and gravy
Tea and Sugar
Hot dogs and baseball games
Hamburger and pork
Airline tickets and bus tickets
9. Using the list provided above, identify complementary goods. (4 pts.)
10. Using the list provided above, identify substitute goods (4 pts.)
11. Good and services can (and will) have different demand shifters. Name 3 things that are
likely to be demand shifters.(3 pts)
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12. A variable that can change the quantity of a good or service that is supplied at each
price is called a supply shifter. Name 3 things that are likely to be supply shifters. (3 pts)
13. Describe or give an example of the difference between movement along the demand
curve and a change in demand. (2 pts.)
Applying Concepts (20 pts. total)
For the diagrams below, place the circle icon [
] on the new equilibrium.(4 pts. Each)
14. In the diagram below (which represents the market for Mars Bars), the initial equilibrium
is at the intersection of S1 and D1. Circle the new equilibrium if there is an increase in
cocoa prices.
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16. In the diagram below (which represents the market for Mars Bars), the initial equilibrium
is at the intersection of S1 and D1. Circle the new equilibrium if there is a health scare
about the effect mars bars may have.
17. In the diagram below (which represents the market for Mars Bars), the initial equilibrium
is at the intersection of S1 and D1. Circle the new equilibrium if there is an increase in
productivity and at the same time a decrease in the price of snickers bars.
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For the following questions, review the example below and answer as I have shown in my
example. My answers are shown in orange. (4 pts. Each)
EXAMPLE: The supply and demand for text books are in equilibrium. The central warehouse
that stores millions of the country’s text books burns to the ground. Demonstrate what would
happen to the supply and demand curves for text book. State what would happen to the
equilibrium price and quantity.
Price: increase and Quantity decrease
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18. The supply and demand for kilts (those Scottish man-skirts) are in equilibrium. Global
warming makes kilts the new fad to wear. Demonstrate what would happen to the supply
and demand curves for kilts and state what would happen to the equilibrium price and
quantity.
19. The supply and demand for dorm rooms at MCC are in equilibrium. At semester, 4% of
those students living in the dorms are allowed to move off campus. At the same time, the
new dorm (aka The Crib) is opened which increases the number of available rooms by
10%. Assuming the dorm room price is allowed to fluctuate based on supply and
demand, demonstrate what would happen to the supply and demand curves for dorm
rooms and state what would happen to the equilibrium price and quantity.
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The following problems are based on a supply and demand model for pizza for college students.
I have provided a graph of the initial supply and demand model. This will be the starting point for
the following problems. Use the following table to complete Questions # 20 – 22. Use the classic
graph site to construct your graphs. http://nces.ed.gov/nceskids/graphing/classic/line_data.asp
(5 pts each)
Price
$7
8
9
10
11
12
Quantity demanded
40
35
30
25
20
15
Quantity supplied
20
25
30
35
40
45
The initial equilibrium price is $9 and the equilibrium quantity is 30,000 pizzas.
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20. Consider that the quantity demanded rises by 5 thousand pizzas per month. Draw the
initial supply and demand curves from the table above, then draw the new demand curve
showing the change. Identify the new equilibrium price and quantity. (Hint: your graph
should have a total of 3 curves).
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21. Now consider that the quantity supplied rises by 10 thousand pizzas per month. Draw
the initial supply and demand curves from the table above, then draw the new supply
curve showing the change. Identify the new equilibrium price and quantity.
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22. Suppose the quantity supplied falls, relative to the values in the table above, by 15
thousand pizzas per month at prices above $8. At a price of $8 or less per pizza, the
quantity supplied becomes 0. Draw the new supply curve and identify the new
equilibrium price and quantity.
Bonus (5 pts)
Steve Jobs passed away from pancreatic cancer at the young age of 56. He was most famous
for co-founding Apple at the age of 21 and becoming a millionaire by age 23. When he was fired
from Apple in 1986, he started which successful company?
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