Deck 3: Where Prices Come From: the Interaction of Demand and Supply

Question 1

The income effect of a price change refers to the impact of a change in

A) income on the price of a good.
B) demand when income changes.
C) the quantity demanded when income changes.
D) the price of a good on a consumer's purchasing power.

Answer 1

the price of a good on a consumer's purchasing power.

Question 2

If an increase in income leads to a decrease in the demand for popcorn,then popcorn is

A) an inferior good.
B) a neutral good.
C) a necessity.
D) a normal good.

Answer 2

an inferior good.

Question 3

A change in all of the following variables will change the market demand for a product except

A) the price of the product.
B) population and demographics.
C) income.
D) tastes.

Answer 3

the price of the product.

Question 4

Holding everything else constant,an increase in the price of MP3 players will result in

A) a decrease in the quantity of MP3 players supplied.
B) a decrease in the demand for MP3 players.
C) an increase in the supply of MP3 players.
D) a decrease in the quantity of MP3 players demanded.

Question 5

If the Apple iPad and the Samsung Galaxy Tab are considered substitutes,then,other things equal,an increase in the price of the iPad will

A) decrease the demand for the iPad.
B) increase the demand for the Galaxy Tab.
C) increase the quantity demanded for the Galaxy Tab.
D) increase the quantity demanded for the iPad.

Question 6

If,in response to an increase in the price of chocolate,the quantity demanded of chocolate decreases economists would describe this as

A) a decrease in demand.
B) a decrease in quantity demanded.
C) a change in consumer income.
D) a decrease in consumers' taste for chocolate.

Question 7

The ________ effect refers to the change in quantity demanded for a good that results from the effect of a change in the good's price on consumer's purchasing power.

A) ceteris paribus
B) population
C) substitution
D) income

Question 8

Which of the following will shift the demand curve for a good?

A) a change in the technology used to produce the good
B) an increase in the price of the good
C) a decrease in the price of a complementary good
D) a decrease in the price of the good

Question 9

The law of demand implies,holding everything else constant,that

A) as the price of bagels increases, the quantity of bagels demanded will decrease.
B) as the price of bagels increases, the demand for bagels will decrease.
C) as the price of bagels increases, the quantity of bagels demanded will increase.
D) as the price of bagels increases, the demand for bagels will increase.

Question 10

Table 3-1

Refer to Table 3-1.The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia)and the rest of the market.At a price of $5,the quantity demanded in the market would be

A) 51 lbs.
B) 63 lbs.
C) 76 lbs
D) 146 lbs.

Question 11

If the price of grapefruit rises,the substitution effect due to the price change will cause

A) a decrease in the demand for grapefruit.
B) a decrease in the demand for oranges, a substitute for grapefruit.
C) a decrease in the quantity demanded of grapefruit.
D) a decrease in the quantity supplied of grapefruit.

Question 12

Table 3-1

Refer to Table 3-1.The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia)and the rest of the market.If the price of loose-leaf tea rises from $3 to $4,the market quantity demanded would

A) decrease by 32 lbs.
B) increase by 64 lbs.
C) increase by 32 lbs.
D) decrease by 64 lbs.

Question 13

A movement along the demand curve for toothpaste would be caused by

A) a change in the price of toothbrushes.
B) a change in consumer income.
C) a change in the price of toothpaste.
D) a change in population.

Question 14

What is the difference between an "increase in demand" and an "increase in quantity demanded"?

A) There is no difference between the two terms; they both refer to a shift of the demand curve.
B) An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.
C) There is no difference between the two terms; they both refer to a movement downward along a given demand curve.
D) An "increase in demand" is represented by a movement along a given demand curve, while an "increase in quantity demanded" is represented by a rightward shift of the demand curve.

Question 15

By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis,economists assume that the most important determinant of the demand for a good is the ________ of the good.

A) quantity; price; quantity
B) price; quantity; quantity
C) price; quantity; price
D) quantity; price; price

Question 16

The market for tablet computers has grown rapidly over the past few years,due in part to the overwhelming success of the Apple iPad.Following the successful launch of the iPad in 2010,companies such as Toshiba,Samsung,Dell,and Amazon have all introduced products to compete with the iPad.The tablet computers introduced to compete with the iPad would be considered

A) complements to the iPad.
B) substitutes for the iPad.
C) inferior goods compared to the iPad.
D) normal goods compared to the iPad.

Question 17

The demand by all the consumers of a given good or service is the ________ for the good or service.

A) market demand
B) quantity demanded
C) law of demand
D) scheduled demand

Question 18

If an increase in income leads to in an increase in the demand for peanut butter,then peanut butter is

A) a neutral good.
B) a normal good.
C) a necessity.
D) a complement.

Question 19

If a demand curve shifts to the right,then

A) demand has increased.
B) quantity demanded has increased.
C) demand has decreased.
D) quantity demanded has decreased.

Question 20

When the price of a good falls,consumers buy a larger quantity because of the ________ effect and the ________ effect.

A) substitution; income
B) normal; inferior
C) substitute; complement;
D) supply; demand

Question 21

Suppose that when the price of hamburgers decreases,the Ruiz family increases their purchases of ketchup.To the Ruiz family,

A) hamburgers and ketchup are complements.
B) hamburgers and ketchup and substitutes.
C) hamburgers and ketchup are normal goods.
D) hamburgers are normal goods and hot dogs are inferior goods.

Question 22

Figure 3-1

Refer to Figure 3-1.A decrease in the price of the product would be represented by a movement from

A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.

Question 23

In January,buyers of gold expect that the price of gold will rise in February.What happens in the gold market in January,holding all else constant?

A) The supply curve shifts to the right.
B) The demand curve shifts to the left.
C) The demand curve shifts to the right.
D) The quantity demanded increases.

Question 24

The Internet has created a new category in the book selling market,namely,the "barely used" book.How does the availability of barely used books affect the market for new books?

A) The demand curve for new books shifts to the right.
B) The demand curve for new books shifts to the left.
C) The supply curve for new books shifts to the right.
D) The supply curve for new books shifts to the left.

Question 25

Figure 3-1

Refer to Figure 3-1.An increase in population would be represented by a movement from

A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.

Question 26

Tom Searchinger,a senior attorney at the Environmental Defense Fund,observed that generous farm subsidies have encouraged farmers to produce more corn and more wheat.How does this affect the market for fertilizer?

A) The supply of fertilizer increases.
B) The supply of fertilizer decreases
C) The demand for fertilizer increases.
D) The demand for fertilizer decreases.

Question 27

During the recession of 2007-2009,despite falling income levels,the fast-food chain Subway experienced increased sales.The increase in demand for Subway sandwiches despite the decline in income indicates that Subway sandwiches are considered

A) normal goods.
B) inferior goods.
C) complementary goods.
D) substitute goods.

Question 28

Suppose that when the price of raspberries increases,Lonnie increases his purchases of papayas.To Lonnie,

A) raspberries and papayas are complements.
B) raspberries and papayas are inferior goods.
C) raspberries and papayas are normal goods.
D) raspberries and papayas are substitutes.

Question 29

Studies have shown links between calcium consumption and a reduction in osteoporosis.How does this affect the market for calcium?

A) The calcium supply curve shifts to the right because of a change in tastes in favor of calcium.
B) The calcium demand curve shifts to the right because of a change in tastes in favor of calcium.
C) The calcium demand curve shifts to the left because this new information will increase the price of calcium.
D) The calcium supply curve shifts to the left because this new information will increase the price of calcium.

Question 30

Figure 3-1

Refer to Figure 3-1.A decrease in taste or preference would be represented by a movement from

A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.

Question 31

Technological advancements have led to lower prices and an increase in the sale of digital cameras.How does this affect the digital photo printing paper market?

A) The demand curve for digital photo printing paper shifts to the right.
B) The demand curve for digital photo printing paper shifts to the left.
C) The supply curve for digital photo printing paper shifts to the right.
D) The supply curve for digital photo printing paper shifts to the left.

Question 32

Buyers rush to purchase stocks in California vineyards following a forecast of a 30 percent decline in this year's grape harvest.What happens in the California wine market as a result of this announcement?

A) The demand curve for California wine shifts to the left in anticipation of higher prices in the future.
B) The demand curve for California wine shifts to the right in anticipation of higher prices in the future.
C) The supply curve for California wine shifts to the right in anticipation of higher prices in the future.
D) The supply curve for California wine shifts to the left in anticipation of lower quantities in the future.

Question 33

Which of the following is expected to occur as the baby-boom generation ages?

A) The demand for baby clothes should increase.
B) The demand for prescription drugs should decrease.
C) The demand for medical services should increase.
D) The demand for larger houses should increase.

Question 34

During the recession of 2007-2009

A) casual dining restaurants like Olive Garden and Red Lobster experienced increased demand and fast-food restaurants like McDonald's and Subway experienced decreased demand.
B) casual dining restaurants like Olive Garden and Red Lobster experienced decreased demand and fast-food restaurants like McDonald's and Subway experienced increased demand.
C) both casual dining restaurants like Olive Garden and Red Lobster and fast-food restaurants like McDonald's and Subway experienced increased demand.
D) both casual dining restaurants like Olive Garden and Red Lobster and fast-food restaurants like McDonald's and Subway experienced decreased demand.

Question 35

Elvira decreased her consumption of bananas when the price of peanut butter increased.For Elvira,peanut butter and bananas are

A) substitutes in consumption.
B) both inferior goods.
C) complements in consumption.
D) both luxury goods.

Question 36

If the price of automobiles was to increase,then

A) the demand for gasoline would decrease.
B) the demand for gasoline would increase.
C) the supply of gasoline would increase.
D) the quantity demanded of gasoline would decrease.

Question 37

Technological advances have resulted in lower prices for digital cameras.What is the impact of this on the market for traditional (non-digital)cameras?

A) The demand curve for traditional cameras shifts to the right.
B) The supply curve for traditional cameras shifts to the right.
C) The demand curve for traditional cameras shifts to the left.
D) The supply curve for traditional cameras shifts to the left.

Question 38

In June,buyers of titanium expect that the price of titanium will fall in July.What happens in the titanium market in June,holding everything else constant?

A) The demand curve shifts to the right.
B) The quantity demanded increases.
C) The quantity demanded decreases
D) The demand curve shifts to the left.

Question 39

Figure 3-1

Refer to Figure 3-1.If the product represented is an inferior good,an increase in income would be represented by a movement from

A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.

Question 40

How does the increasing use of MP3 players affect the market for compact discs?

A) The demand curve for compact discs shifts to the right.
B) The supply curve for compact discs shifts to the left.
C) The supply curve for compact discs shifts to the right.
D) The demand curve for compact discs shifts to the left.

Question 41

What is the ceteris paribus condition?

Question 42

In the United States during the recession of 2007-2009,

A) the total number of jobs declined, but jobs in health care increased.
B) jobs in health care declined at a faster rate than overall jobs in the economy.
C) demand for medical services declined, which resulted in a decline in available jobs in the medical field.
D) despite the large decrease in demand for medical services, the number of jobs in health care remained virtually unchanged.

Question 43

For each of the following pairs of products state which are complements,which are substitutes,and which are unrelated.
a.Digital camera and memory stick
b.7Up and Mountain Dew
c.Swimsuits and flip-flops
d.Tylenol and cat food
e.Photocopier and paper

Question 44

Explain the difference between a normal good and an inferior good.

Question 45

A supply schedule

A) is a table that shows the relationship between the price of a product and the quantity of the product supplied.
B) is a curve that shows the relationship between the price of a product and the quantity of the product supplied.
C) is the relationship between the supply of a good and the cost of producing the good.
D) is a table that shows the relationship between the price of a product and the quantity of the product that producers and consumers are willing to exchange.

Question 46

Chips and salsa are complements.If the price of salsa decreases,the demand for chips will increase.

Question 47

Figure 3-2

Refer to Figure 3-2.An increase in price of inputs would be represented by a movement from

A) A to B.
B) B to A.
C) S1 to S2.
D) S2 to S1.

Question 48

If consumers believe the price of iPads will decrease in the future,this will cause the demand for iPads to decrease now.

Question 49

In October,market analysts predict that the price of platinum will fall in November.What happens in the platinum market in October,holding everything else constant?

A) The supply curve shifts to the right.
B) The supply curve shifts to the left.
C) The quantity demanded and the quantity supplied of platinum increase.
D) The demand curve shifts to the right.

Question 50

Last year,the Pottery Palace supplied 8,000 ceramic pots at $40 each.This year,the company supplied the same quantity of ceramic pots at $55 each.Based on this evidence,The Pottery Palace has experienced

A) a decrease in supply.
B) an increase in supply.
C) an increase in the quantity supplied.
D) a decrease in the quantity supplied.

Question 51

A normal good is a good for which the demanded increases as income decreases,holding everything else constant.

Question 52

The income effect explains why there is an inverse relationship between the price of a product and the quantity of the product demanded.

Question 53

When deciding on which new products to develop,a firm must devote people,time,and money to designing a new product.Because any firm has only limited resources,it

A) should wait until its competitors develop a similar product before deciding on devoting resources to its own product development.
B) is not able to develop more than one new product at a time.
C) must be certain that the product it chooses to develop will be successful or it will not be able to stay in business.
D) faces a trade-off, because resources used to develop one product will not be available to develop another product.

Question 54

If,in the market for oranges,the supply has increased then

A) the supply curve for oranges has shifted to the right.
B) the supply curve for oranges has shifted to the left.
C) there has been a movement upwards along the supply curve for oranges.
D) there has been a movement downwards along the supply curve for oranges.

Question 55

The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in purchasing power as a result of the price change.

Question 56

One would speak of a change in the quantity of a good supplied,rather than a change in supply,if

A) supplier expectations about future prices change.
B) the price of the good changes.
C) the cost of producing the good changes.
D) prices of substitutes in production change.

Question 57

Which of the following would cause a decrease in the supply of milk?

A) an increase in the price of cookies (assuming that milk and cookies are complements)
B) a decrease in the price of milk
C) an increase the price of a product that producers sell instead of milk
D) an increase in the number of firms that produce milk

Question 58

What are the two effects that explain the Law of Demand? Briefly explain each effect.

Question 59

What is the difference between an "increase in supply" and an "increase in quantity supplied"?

A) There is no difference between the two terms; they both refer to a shift of the supply curve.
B) There is no difference between the two terms; they both refer to a movement along a given supply curve.
C) An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" means at any given price supply has increased.
D) An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.

Question 60

If in the market for peaches,the supply curve has shifted to the left,

A) the supply of peaches has increased.
B) the supply of peaches has decreased.
C) the quantity of peaches supplied has increased.
D) the quantity of peaches supplied has decreased.

Question 61

An increase in the number of firms in a market will cause the quantity of a good supplied to increase.

Question 62

If a firm expects that the price of its product will be higher in the future than it is today

A) the firm will go out of business.
B) the firm has an incentive to increase supply now and decrease supply in the future.
C) the firm has an incentive to decrease quantity supplied now and increase quantity supplied in the future.
D) the firm has an incentive to decrease supply now and increase supply in the future.

Question 63

If a firm has an incentive to increase supply now and decrease supply in the future,the firm expects that the

A) price of its product will be lower in the future than it is today.
B) price of its product will be higher in the future than it is today.
C) price of inputs will be lower in the future than they are today.
D) demand for the product will be lower in the future than it is today.

Question 64

The supply curve for watches

A) shows the supply of watches consumers are willing and able to buy at any given price.
B) is downward sloping.
C) shows the relationship between the quantity of watches firms are willing and able to supply and the quantity of watches consumers are willing and able to purchase.
D) shows the relationship between the price of watches and the quantity of watches supplied.

Question 65

Figure 3-2

Refer to Figure 3-2.A decrease in the price of the product would be represented by a movement from

A) A to B.
B) B to A.
C) S1 to S2.
D) S2 to S1.

Question 66

From a supply perspective,what impact would an increase in the price of motorcycles have on the market for motorcycles?

Question 67

A change in supply is represented by a shift of the supply curve.

Question 68

What is the law of supply? What does this law imply about the shape of the supply curve?

Question 69

Ranchers can raise either cattle or sheep on their land.Which of the following would cause the supply of sheep to increase?

A) an increase in the price of sheep
B) a decrease in the price of cattle
C) an increase in the demand for cattle
D) an increase in the price of sheep feed

Question 70

Quantity supplied refers to the amount of a good or service that a firm is willing and able to supply at a given price.

Question 71

In October 2005,the U.S.Fish and Wildlife Service banned the importation of beluga caviar,the most prized of caviars,from the Caspian Sea.What happened in the market for caviar in the U.S.?

A) The supply curve shifted to the left.
B) The supply curve shifted to the right.
C) The demand curve shifted to the right.
D) The demand curve shifted to the left.

Question 72

A decrease in the price of GPS systems will result in

A) a smaller quantity of GPS systems supplied.
B) a larger quantity of GPS systems supplied.
C) a decrease in the demand for GPS systems.
D) an increase in the supply of GPS systems.

Question 73

Which of the following would shift the supply curve for MP3 players to the right?

A) an increase in the price of a substitute in production
B) an increase in consumer income (assuming that all MP3 players are normal goods)
C) a decrease in the number of firms that produce MP3 players
D) a decrease in the price of an input used to produce MP3 players

Question 74

The popularity of digital cameras has enticed large discount stores like Wal-Mart and Costco to offer digital photo printing services.How does this affect the digital photo printing market?

A) The demand curve for digital photo printing services shifts to the right.
B) The demand curve for digital photo printing services shifts to the left.
C) The supply curve for digital photo printing services shifts to the right.
D) The supply curve for digital photo printing services shifts to the left.

Question 75

Figure 3-2

Refer to Figure 3-2.An increase in the number of firms in the market would be represented by a movement from

A) A to B.
B) B to A.
C) S1 to S2.
D) S2 to S1.

Question 76

Indicate whether each of the following situations would shift the supply curve to the left,to the right,or not at all.
a.An increase in the number of firms in the market
b.An increase in the current price of the product
c.A decrease in productivity
d.An increase in the expected future price of a product
e.A decrease in the price of an input

Question 77

An increase in the quantity of a product supplied is caused by an increase in the price of the product.

Question 78

Figure 3-2

Refer to Figure 3-2.An increase in the price of substitutes in production would be represented by a movement from

A) A to B.
B) B to A.
C) S1 to S2.
D) S2 to S1.

Question 79

Which of the following is the correct way to describe equilibrium in a market?

A) At equilibrium, demand equals supply.
B) At equilibrium, quantity demanded equals quantity supplied.
C) At equilibrium, market forces no longer apply.
D) At equilibrium, scarcity is eliminated.

Question 80

Danielle Ocean pays for monthly pool maintenance for her home swimming pool.Last week the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals.How is the market for pool maintenance services affected by this?

A) There is an increase in the supply of pool maintenance services.
B) There is a decrease in the demand for pool maintenance services.
C) There is a decrease in the quantity of pool maintenance services supplied.
D) There is a decrease in the supply of pool maintenance services.