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Section 2 Practice Test
1. Raclette is a popular wintertime dish in Switzerland. It is essentially melted Raclette cheese over boiled new
potatoes. If the price of this cheese decreased, we would expect:
a. an increase in demand for the cheese.
b. an increase in demand for new potatoes.
c. there to be no effect on the demand for either the cheese or the new potatoes.
d. an increase in demand both for the cheese and for the new potatoes.
e. a decrease in the demand for new potatoes
2. If goods A and B are substitutes, a decrease in the price of good B will:
a. increase the demand for good A.
b. increase the demand for good B.
c. decrease the demand for good A.
d. increase the demand for good B and decrease the demand for good A.
e. increase the quantity of good B demanded and increase the demand for good A.
Figure 5-1: Demand for Coconuts
3. (Figure 5-1: Demand for Coconuts) If coconuts are considered a normal good and the overall income level of
consumers is falling, then the movement that would take place in the model could be:
a. A to C.
b. B to A.
c. C to A.
d. E to B.
e. A to B.
4. The law of demand is illustrated when:
a. an increase in tuition encourages more students to enroll in college because the quality of
education has risen.
b. an increase in the purchases of personal computers results from lower prices.
c. higher oil prices causes oil companies to drill for new sources of oil.
d. higher incomes cause more people to adopt golf as a sport.
e. lower soybean prices cause farmers to plant fewer soybeans.
5.Economists use the term equilibrium to describe:
a. when individuals are equal.
b. when no individual would be better off taking a different action.
c. when no individual has an incentive to change his or her behavior.
d. when no individual would be better off taking a different action and when no individual
has an incentive to change his or her behavior.
e. when individuals earn the same income.
6. A technological advance in the production of automobiles will:
a. increase the demand for automobiles.
b. increase the supply of automobiles.
c. decrease the demand for automobiles.
d. decrease the supply of automobiles.
e. have no effect on the demand or supply of automobiles.
Figure 6-1: Supply of Coconuts
7. (Figure 6-1: Supply of Coconuts) If the prices of inputs (e.g., labor, fertilizer, and fuel) used to produce and
transport coconuts are decreasing, then the movement in the model could be:
a. A to B.
b. B to A.
c. C to A.
d. E to B.
e. B to E
8. A shift to the left of a supply curve is caused by:
a. an increase in the number of sellers.
b. a technological improvement.
c. an increase in the cost of an input.
d. an increase in the number of buyers.
e. a decrease in consumer income if the product is a normal good.
9. Assume that corn is an input in the production of beef but not in the production of pork. Further, beef and pork are
substitutes. A decrease in the price of corn will:
a. increase the supply of beef and increase the demand for pork.
b. decrease the supply of beef and increase the demand for pork.
c. decrease the supply of beef and decrease the demand for pork.
d. increase the supply of beef and decrease the demand for pork.
e. decrease the supply of beef and have no impact on the demand for pork.
Figure 7-1: Demand and Supply of Gasoline
10. (Figure 7-1: Demand and Supply of Gasoline) When the supply curve shifted from S1 to S2, the new intersection of
supply and demand has a price of ________ and quantity of 400. This could have resulted from ________.
a. $1.50; an increase in consumers' income if gasoline is a normal good
b. $1.50; an increase in refining technology
c. $2.00; an increase in the number of buyers
d. $2.00; an increase in consumers' income
e. $1.50; an increase in the price of crude oil
Figure 7-2: Demand and Supply of Wheat
11. (Figure 7-2: Demand and Supply of Wheat) If there were an increase in demand of 2,000 bushels at each price, the
equilibrium price and quantity would be ________ and ________ units, respectively.
a. $5; 5,000
b. $6; 7,000
c. $7; 7,000
d. $8; 8,000
e. $6; 8,000
Figure 7-3: Supply and Demand in the Orange Juice Market
12. (Figure 7-3: Supply and Demand in the Orange Juice Market) A reputable scientist asserts in a major scientific
publication that drinking orange juice will increase your life span. We can expect the new equilibrium point in the
orange juice market to be at:
a. A.
b. B.
c. D.
d. E.
e. C.
13. A binding price ceiling is designed to:
a. keep prices high.
b. increase the quality of the good.
c. prevent shortages.
d. increase efficiency.
e. keep prices low.
Scenario 8-1: Market for Apartments
Rent (per apartment per
month)
$1,400
1,300
1,200
1,100
1,000
900
800
700
600
Quantity Demanded (millions
of apartments)
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
2.4
Quantity Supplied (millions of
apartments)
2.4
2.3
2.2
2.1
2.0
1.9
1.8
1.7
1.6
14. (Scenario 8-1: Market for Apartments) This figure represents a competitive market for apartments. If a
government price ceiling at $700 is now imposed on this market (in the name of fairness), then an inefficiency will
result in the form of a:
a. surplus of 0.6 million apartments.
b. shortage of 0.6 million apartments.
c. surplus of 0.2 million apartments.
d. shortage of 0.2 million apartments.
e. shortage of 2.3 million apartments.
Figure 8-1: Rent Controls
15. (Figure 8-1: Rent Controls) Without rent controls, the equilibrium rent is ________ .
a. Rent4
b. Rent1
c. Rent2
d. Rent3
e. Rent0
Figure 8-2: Price Control
16. (Figure 8-2: Price Control) In the graph, an effective price ceiling would be the price indicated at ________ and a
________ would exist as the difference between ________.
a. point b; surplus; points f and e
b. point b; shortage; points f and e
c. point d; shortage; points i and h
d. point d; surplus; points e and h
e. point d; shortage; points g and h
17. When the government imposes a limit on sales of a good or service by a quota, it usually issues a license that gives
the owner the right to sell a given quantity of the good. The market price of the license is equal to:
a. the demand price of the good.
b. the wedge that represents the difference between the demand price and the supply price.
c. the quota rent.
d. the quota rent plus the wedge that represents the difference between the demand price and
the supply price.
e. the market equilibrium price.
18. The difference between the demand price and the supply price at the quota limit is:
a. the quota rent.
b. the rent received by landlords who own rent-controlled apartments.
c. the opportunity cost of using or buying a good, subject to an import quota.
d. usually large enough to cause a surplus.
e. the tax revenue collected by the government.
Figure 9-2: Shrimp Market
19. (Figure 9-2: Shrimp Market) If the government imposes a quota limiting sales of shrimp to 1,000 pounds, the
quota rent per pound is:
a. $15.
b. $10.
c. $5.
d. $0.
e. $2.50
Figure 9-4: Market for Hotel Rooms
20. (Figure 9-4: Market for Hotel Rooms) The local government limits the number of hotel rooms rented each night
to 150. The resulting quota rent per room is equal to:
a. $130.
b. $100.
c. $110.
d. $30.
e. $0.