Download E02 Economics Supply and Demand Exam

E02 Economics Supply and Demand Exam
Demand, Supply and Equilibrium P and Q
Name: __________________
Multiple Choice
1. If bologna is an inferior good, which of the following must be true?
(A) The demand curve for bologna is vertical.
(B) The demand curve for bologna is horizontal.
(C) An increase in the price of bologna will decrease the supply of bologna.
(D) An increase in consumer income will decrease the demand for bologna.
(E) A decrease in consumer income will decrease the supply of bologna.
2. Which of the following events will cause the demand curve for hamburgers (a
normal good) to shift to the right?
(A) An increase in the price of pizza, a substitute for hamburgers.
(B) An increase in the price of French fries, a complement to hamburgers
(C) An increase in the price of hamburgers
(D) A decrease in the price of hamburgers
(E) A decrease in the cost of producing hamburgers
3. Improvement in technology used to produce a certain good leads to
(A) an increase in demand for the good
(B) an increase in the supply of the good
(C) an increase in the price of the good
(D) a shortage of the good
(E) a surplus of the good
4. A leftward shift in the supply curve of corn would result from
(A) a decrease in the price of corn
(B) a decrease in the price of farm machinery
(C) an increase in the demand for corn bread
(D) an increase in the labor costs of producing corn
(E) an increase in consumers’ incomes.
5. Which of the following situations best illustrates the law of demand?
(A) As real incomes of the United States citizens have decreased over the past
year, the demand for housing has also decreased.
(B) Recent decreases in the price of imported wine have led to an increase in the
consumption of domestic wine.
(C) In the past several months, as the price of compact disc players has
decreased, the quantity of compact disc players sold has increased.
(D) The increase in the price of quality health foods has increased the revenues of
firms producing these goods.
(E) As the demand for computers has increased, the number of workers in the
computer industry has increased.
Short Response
In a recent year, the price of wheat fell. For each of the following, identify a possible
change in market conditions that would cause the price of wheat to fall and the quantity
of wheat to change in the indicated manner. Draw a supply and demand graph showing a
decrease in prices with the stated impact on quantity.
6. The quantity of wheat decreasing.
7. The quantity of wheat increasing.
8. The quantity of wheat staying the same.
9. The Supply Curve is upward-sloping because:
(a) As the price increases, so do costs.
(b) As the price increases, consumers demand less.
(c) As the price increases, suppliers can earn higher levels of profit or justify
(d) higher marginal costs to produce more.
(e) None of the Above
10. Part of the reason that Michael Jordan earns millions of dollars each year while
school teachers may earn $30,000 is because
a. The supply of superstar basketball players is very low, while the supply of
competent teachers is much larger.
b. Demand for Michael Jordan's talents is very high since he can generate so
much revenue for a firm.
c. Consumers enjoy basketball to the point that they are willing to spend lots
of money and time attending games and watching commercials.
d. All of the Above
11. When college students leave town for the summer, the demand for meals at the
local restaurants declines. This results in
a. a decrease in equilibrium price and an increase in quantity
b. an increase in equilibrium price and quantity.
c. a decrease in equilibrium price and quantity.
d. an increase in equilibrium price, and a decrease in quantity.
e. None of the Above
12. All the following shift the demand curve for automobiles to the right except:
a. the local factory gives a big raise to its employees.
b. a brand new automobile dealership opens in town.
c. the price of gasoline falls.
d. None of the Above
13. If the cost of computer components falls, then the immediate short term
consequence is
a. the demand curve for computers shifts to the right.
b. the demand curve for computers shifts to the left.
c. the supply curve for computers shifts to the right.
d. the supply curve for computers shifts to the left.
14. What happens in the market for airline travel when the price of traveling by rail
decreases?
a. The demand curve shifts left.
b. The demand curve shifts right.
c. The supply curve shifts left.
d. The supply curve shifts right.
e. We move along the supply curve.
15. When a price ceiling is imposed above the equilibrium price,
a. a shortage results.
b. a surplus results.
c. the equilibrium outcome prevails.
d. there is not enough information to determine the outcome.
16. If the demand curve shifts to the right, then we move up and to the right along our
supply curve.
True
False
17. If the cost of making bicycles falls, the price goes down, causing the demand
curve to shift to the right.
True
False
18. A major news source reports an outbreak of salmonella (a bacteria harmful to
humans) affects the peanut butter snacks industry. Explain and use a supply and
demand graph to illustrate the immediate impact on price and quantity of this
news.
19. In the past, the cost of Private University is $45,000 per year and the cost of State
University is $17,000 per year. Both universities have a fixed number of seats
available for the coming school year. Both schools have excellent academic
reputations. A major recession occurs. Assume that both universities have tuition
costs that are influenced by the number of applications they receive. Explain and
use a supply and demand graph to illustrate the impact of the recession on price
and quantity for Private University.