Deck 4: Demand, Supply, and Markets

Question 1

Which statement describes how consumer demand differs from consumer wants?  

A) Demand is only for necessities, but wants are for luxuries. 
B) Demand is only for luxuries, but wants are for necessities. 
C) Demand takes into account the ability to pay, but wants do NOT take this into account. 
D) Demand takes into account benefits received, but wants do NOT take this into account.

Answer 1

 Demand takes into account the ability to pay, but wants do NOT take this into account. 

Question 2

What is the income effect of a decrease in the price of potatoes (an inferior good)?  

A) a decrease in the demand for potatoes 
B) a decrease in the quantity demanded of potatoes 
C) an increase in the demand for potatoes 
D) an increase in the quantity demanded of potatoes

Answer 2

 a decrease in the quantity demanded of potatoes 

Question 3

What does the income effect refer to?  

A) the effect of a change in income on the price of a good 
B) the effect of a change in the general price level caused by a change in the price of another good 
C) the effect of a change in the price of a good on real income 
D) the effect of a change in the price of a substitute for the good under consideration

Answer 3

 the effect of a change in the price of a good on real income 

Question 4

What is the income effect of a decrease in the price of legal services (a normal good)?  

A) a decrease in the demand for legal services 
B) a decrease in the quantity demanded of legal services 
C) an increase in the demand for legal services 
D) an increase in the quantity demanded of legal services

Question 5

Suppose there are only two goods, apples and oranges.What, if anything, will happen if the price of each good increases by 15 percent?  

A) The consumer will substitute apples for oranges. 
B) The consumer will substitute oranges for apples. 
C) There is no substitution effect because relative prices have remained constant. 
D) The consumer will substitute apples for pears

Question 6

A demand curve shows how quantity demanded changes as price changes.What do these changes imply?  

A) that only a change in price can shift a demand curve 
B) that everything else that affects demand is assumed to be constant 
C) that quantity demanded is unrelated to price 
D) that economists are concerned only with money

Question 7

What does the law of demand say will happen when the price of a good falls, other things constant?  

A) the smaller the demand for that good 
B) the larger the demand for that good 
C) the smaller the quantity demanded of that good 
D) the larger the quantity demanded of that good

Question 8

According to the law of demand, what will occur as the price of a good rises?  

A) Buyers will purchase less, hoping that the price of the good will fall in the future. 
B) Buyers will purchase less, in part because their real income has fallen. 
C) Buyers will purchase more, in part because the price of a substitute good has risen. 
D) Buyers will purchase more, in part because the good has higher status when the price is high.

Question 9

How is the demand for a product defined?  

A) as the amount that buyers purchase in the market 
B) as the amount that buyers are willing to purchase at a given price 
C) as the amount that sellers are willing to sell at a particular price 
D) as the amount that buyers are willing and able to purchase at alternative prices

Question 10

What does the law of demand state about the relationship between price and quantity?  

A) There is a positive relationship between price and quantity demanded. 
B) Price is the only factor that influences the quantity that people are willing and able to buy. 
C) Price and quantity demanded are inversely related. 
D) The demand curve shifts whenever the price of a good changes.

Question 11

What type of demand curve illustrates the law of demand?  

A) the horizontal curve 
B) the vertical curve 
C) the upward sloping curve 
D) the downward sloping curve

Question 12

For which of the following would the income effect of a price change be greatest?  

A) ballpoint pens 
B) air travel to Australia 
C) chewing gum 
D) haircuts

Question 13

What is the income effect of an increase in the price of backpacks (a normal good)?  

A) a decrease in the demand for backpacks 
B) a decrease in the quantity demanded of backpacks 
C) an increase in the demand for backpacks 
D) an increase in the quantity demanded of backpacks

Question 14

Suppose you drink more tea because the price of coffee has increased.Which of the following best explains your behaviour?  

A) the supply effect 
B) the complementary effect 
C) the substitution effect 
D) the income effect

Question 15

If pretzels are a normal good, what does the income effect of a price change in pretzels mean?  

A) As income increases, the quantity demanded increases along the demand curve for pretzels. 
B) As income increases, the demand curve for pretzels shifts rightward. 
C) As income increases, the demand curve for pretzels shifts leftward. 
D) As the price of pretzels increases, the real income of individuals who demand pretzels decreases, so the quantity demanded of pretzels decreases.

Question 16

Which statement best explains the substitution effect of a price change?  

A) It is caused by a change in relative prices. 
B) It affects the consumer's ability, rather than willingness, to purchase a good. 
C) It assumes that the consumer substitutes more expensive goods for cheaper ones when income increases. 
D) It may cause the consumer to buy less of the good when its price falls.

Question 17

What does the substitution effect of a change in the price of bananas refer to?  

A) how price of a substitute affects the demand for bananas 
B) how price of bananas affects the ability to buy them 
C) how relative price of bananas changes demand for them 
D) how relative price of bananas changes the quantity demanded of bananas

Question 18

What are movements along a demand curve called?  

A) changes in demand 
B) changes in opportunity costs 
C) changes in quantity demanded 
D) changes in the substitution effect

Question 19

Suppose apartment rents increase.What impact will the income effect of the increase have on renters?  

A) It will have a greater impact than the income effect of an increase in the price of chewing gum. 
B) It will have no impact on the demand curve for apartments, because everything except price is assumed constant. 
C) It will have less of an impact than the income effect of an increase in the price of chewing gum. 
D) It will be almost negligible, because housing is a necessity.

Question 20

What does the law of demand assume will occur if the price of a good increases?  

A) that people will recognize that the good's price may be even higher in the future, so they buy now rather than later 
B) that consumers tend to shift their purchases to relatively cheaper substitutes 
C) that people will buy less of the good in the hope that it will be cheaper in the future 
D) that the consumer's money income increases, and he or she is less able to buy all goods including the good whose price has increased

Question 21

Exhibit 4-1

Refer to Exhibit 4-1.The exhibit shows a demand curve for dog ownership.Suppose the local government passes an anti-dog-litter law that raises the personal cost of owning a dog from C to C'.What will happen to the quantity of dogs demanded?  

A) It will drop to zero. 
B) It will stay the same. 
C) It will decrease. 
D) It will increase.

Question 22

Which of the following will NOT shift the demand curve for movie tickets?  

A) a change in the cost of babysitting services 
B) a change in the price of movie tickets 
C) a change in the quality of television programs 
D) a change in the income of movie-goers

Question 23

Which statement best describes what happens when there is a change in quantity demanded?  

A) A change in quantity demanded is shown by a shift in a given demand curve. 
B) The demand curve shifts whenever the quantity demanded of a substitute good changes. 
C) A change in the price of a good, other things constant, will lead to a change in quantity demanded. 
D) The lower the price of a product, other things constant, the lower the quantity demanded.

Question 24

Suppose demand for personal computers increases as a result of an increase in income.Then what type of good is a personal computer?  

A) a normal good 
B) an inferior good 
C) a complementary good 
D) a substitute good

Question 25

Suppose there are three consumers in the market for chocolate bars: Don, John, and Ron.At a price of $2 per bar, the quantities demanded by each are 3, 2, and 1, respectively.At a price of $1.50 per bar, the quantities demanded by each are 4, 5, and 3, respectively.Which of the following reflects what will happen in this market?  

A) The market demand curve for chocolate bars will NOT obey the law of demand. 
B) The price decrease will cause the quantity demanded in this market to increase by 6. 
C) The price decrease will cause John's demand curve to shift the most. 
D) The price decrease will cause the quantity demanded to decrease by 6.

Question 26

Which of the following is most likely to be a normal good?  

A) used furniture 
B) macaroni-and-cheese dinners 
C) tickets to major league baseball games 
D) bus rides

Question 27

Which term refers to the sum of the individual demands of all consumers in the market?  

A) consumer value 
B) market demand 
C) market supply 
D) quantity demanded

Question 28

What will occur if the price of gasoline (a normal good) decreases, other things constant?  

A) The demand for gasoline will increase. 
B) The demand for gasoline will decrease. 
C) The quantity demanded of gasoline will increase. 
D) The quantity demanded of gasoline will decrease.

Question 29

What kind of a slope does a demand curve usually have?  

A) a negative slope, because price and quantity demanded are inversely related 
B) a negative slope, because as price rises demand falls 
C) a positive slope, because price and quantity demanded are positively related 
D) a positive slope, because price and quantity demanded are inversely related

Question 30

What will occur if the price of a haircut (a normal good) increases, other things constant?  

A) The demand for haircuts will increase. 
B) The demand for haircuts will decrease. 
C) The quantity demanded of haircuts will decrease. 
D) The quantity demanded of haircuts will increase.

Question 31

Suppose the price of personal computers decreases.What change in the demand curve would represent the effect of this decrease, other things constant?  

A) a leftward shift of the demand curve 
B) a movement leftward along the demand curve 
C) a rightward shift of the demand curve 
D) a movement rightward along the demand curve

Question 32

The explanation for the law of demand begins with what key economic concept?  

A) a small number of wants satisfied by scarce resources 
B) finite wants satisfied by infinite resources 
C) unlimited wants confronting scarce resources 
D) unlimited wants matching up with unlimited resources

Question 33

Which of the following characterizes the demand curve for spinach as it relates to the quantity demanded of spinach?  

A) It shows the quantity demanded only at the equilibrium price of spinach. 
B) It shows the quantity demanded at each possible price of spinach. 
C) It shows the quantity demanded as income increases. 
D) It shows the quantity demanded as income decreases.

Question 34

If we say that demand has increased, what change regarding the demand curve has taken place?  

A) a leftward movement along the demand curve 
B) a rightward movement along the demand curve 
C) a leftward shift of the demand curve 
D) a rightward shift of the demand curve

Question 35

Suppose that studies show that the demand curve for peas has shifted.Which explanation would be rejected first?  

A) The demand for peas has changed. 
B) Consumers' tastes have changed. 
C) The income of consumers has changed. 
D) The price of peas has changed.

Question 36

Which statement corresponds to the characteristics of a demand curve?  

A) Since most college students want a Mercedes sports coupe, their demand for it is high. 
B) If price increases, the demand curve shifts to the right. 
C) The demand curve for bacon will NOT shift when the price of bacon changes. 
D) If a supply curve shifts, thereby changing the price, the demand curve will shift as well.

Question 37

What is the income effect of an increase in the price of Kraft Dinner (an inferior good)?  

A) a decrease in the demand for Kraft Dinner 
B) a decrease in the quantity demanded of Kraft Dinner 
C) an increase in the demand for Kraft Dinner 
D) an increase in the quantity demanded of Kraft Dinner

Question 38

Suppose that the incomes of buyers in a particular market for a normal good increases, and suppose there is also a reduction in input prices.What would be expected to occur in this market?  

A) The equilibrium price would increase, but the impact on the amount sold would be ambiguous. 
B) The equilibrium price would decrease, but the impact on the amount sold would be ambiguous. 
C) The equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. 
D) The equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.

Question 39

What change does the demand curve undergo when demand for a good decreases?  

A) There is a movement down along the demand curve. 
B) There is a movement up along the demand curve. 
C) The demand curve shifts to the right. 
D) The demand curve shifts to the left.

Question 40

Which of the following is most likely to be an inferior good?  

A) new furniture 
B) restaurant meals 
C) a subscription to The Globe and Mail 
D) bologna sandwiches

Question 41

Which of the following might cause the demand for ice cream, a normal good, to increase?  

A) an increase in the price of ice cream 
B) an increase in the price of sherbet 
C) a decrease in the number of people who eat ice cream 
D) a decrease in consumer income

Question 42

In the case of a normal good, what will occur with an increase in consumers' incomes?  

A) The demand curve will shift inward. 
B) The supply curve will shift inward. 
C) The supply curve will shift outward. 
D) The demand curve will shift outward.

Question 43

Which of the following will cause the demand curve for a normal good to shift to the right?  

A) a decrease in income 
B) an increase in the price of a complementary good 
C) a decrease in the price of the good 
D) an increase in the price of a substitute good

Question 44

Suppose butter is a substitute good for margarine.And suppose the price of butter increases.Which of the following is most likely to occur?  

A) a rightward shift of the demand curve for margarine 
B) a leftward shift of the demand curve for margarine 
C) an increase in the quantity of margarine demanded 
D) a decrease in the quantity of margarine demanded

Question 45

What trend demonstrates that two goods are substitutes?  

A) A decrease in the demand for one leads to a decrease in the supply of the other. 
B) An increase in the demand for one leads to a decrease in the supply of the other. 
C) An increase in the price of one leads to an increase in the demand for the other. 
D) A decrease in the price of one leads to an increase in the demand for the other.

Question 46

Which pair of goods are substitutes?  

A) coffee and cream 
B) money and biscuits 
C) tortillas and salsa 
D) hiking boots and athletic shoes

Question 47

Which pair is the best example of complements?  

A) milk and cheese 
B) coffee and tea 
C) hiking boots and athletic shoes 
D) digital imaging and photographic film processing

Question 48

Assume that black beans and rice are staples in the diet of one particular family.How would you know if these goods are substitutes?  

A) If the price of black beans rises and the consumption of rice remains the same, they would be substitutes. 
B) If the price of black beans rises and the consumption of rice increases, they would be substitutes. 
C) If the price of black beans rises and the consumption of rice decreases, they would be substitutes. 
D) If the price of black beans rises and the consumption of both goods remains the same, they would be substitutes.

Question 49

Which of the following could cause a decrease in the demand for peanut butter?  

A) an increase in the supply of peanut butter 
B) an increase in the price of peanut butter 
C) A doubling of the price of bread 
D) a drought in Georgia that destroys 30 percent of the peanut crop

Question 50

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

A) an increase in the price of the good 
B) a decrease in the price of the good 
C) a decrease in the price of a complementary good 
D) an expectation of a future price decline

Question 51

Sugar and honey are viewed as substitutes for each other in many cooking applications.Suppose the price of sugar rises.What would we expect the outcome to be for honey?  

A) The demand for honey will increase. 
B) The demand for honey will decrease. 
C) The quantity demanded of honey will decrease. 
D) The quantity demanded of honey will increase.

Question 52

Suppose good B is a complement to good A.What will a rise in the price of good B do to good A?  

A) It will increase the quantity demanded of A. 
B) It will decrease the demand for A. 
C) It will increase the demand for A. 
D) It will decrease the quantity demanded of A.

Question 53

New cars are normal goods.Suppose consumer incomes fall, and public transportation becomes cheaper and more comfortable.All things being equal, what will happen to the equilibrium price of new cars?  

A) It would rise. 
B) It would fall. 
C) It would stay the same. 
D) It could either rise or fall.

Question 54

Suppose the price of potato chips increases.Other things constant, what will happen to the demand for potato-chip dip?  

A) It will increase because the goods are substitutes. 
B) It will decrease because the goods are substitutes. 
C) It will decrease because the goods are complements. 
D) It will increase because the goods are complements.

Question 55

Jennifer learns that the price of purchasing songs from iTunes will be going up 10 percent next week.She usually downloads three songs per week.What will happen to Jennifer's demand for songs this week?  

A) It will NOT change because only quantity demanded changes when price changes. 
B) It will decrease because the price will be higher next week. 
C) It will increase because the price will be higher next week. 
D) It will NOT change because only demand changes when the price increases.

Question 56

Which of the following may cause the demand curve for gasoline to shift leftward?  

A) a decrease in the price of gasoline 
B) an increase in the price of gasoline 
C) a leftward shift of the supply of gasoline 
D) a decrease in the price of bicycles

Question 57

Suppose the price of vanilla ice cream decreases.All things being equal, what will likely happen to the demand for chocolate ice cream?  

A) It will likely increase. 
B) It will likely decrease. 
C) It will likely not change. 
D) It could either increase or decrease.

Question 58

Which of the following could cause an increase in the demand for peanut butter?  

A) a decrease in consumer income 
B) a increase in the supply of peanut butter 
C) a decrease in the price of bread 
D) a drought in Georgia that destroys 30 percent of the peanut crop

Question 59

Which pair is comprised of unrelated goods?  

A) hot dogs and mustard 
B) Coke and Pepsi 
C) jewellery and bus tickets 
D) fish and chips

Question 60

Suppose good B is a complement to good A.What will a decrease in the price of good B do to good A?  

A) It will increase the quantity demanded of A. 
B) It will decrease the demand for A. 
C) It will increase the demand for A. 
D) It will decrease the quantity demanded of A.

Question 61

Why will larger quantities of any good be supplied at higher prices?  

A) because consumers will be more satisfied 
B) because higher prices attract resources from other uses 
C) because people are naturally lazy and have to be bribed to give up their leisure 
D) because price and quantity supplied are inversely related

Question 62

What is the definition of supply?  

A) the amount of a good that producers want to sell at a particular price 
B) the amount of a good that producers are willing and able to sell at each possible price, other things constant 
C) the amount of a good that producers are willing to sell at each possible price, other things constant 
D) the amount of a good that producers are willing and able to buy at each possible price, other things constant

Question 63

Which of the following would NOT shift the demand curve for pork?  

A) an increase in the price of beef 
B) an increase in the price of pork 
C) an increase in the incomes of pork consumers 
D) a widespread advertising campaign for pork

Question 64

Why are producers willing and able to offer greater quantities for sale at higher prices?  

A) because they have the incentive to pay the increasing opportunity cost of resources to attract them from alternative uses 
B) because they will decrease their profits by expanding production at higher prices 
C) because lower prices attract new firms, which have higher costs of production 
D) because they hire superior quality, higher-priced resources as production expands

Question 65

Which statement best characterizes the relationship between price and quantity supplied?  

A) There is an inverse relationship. 
B) More is supplied at lower prices. 
C) Producers work harder and sell more when the price decreases. 
D) There is a direct relationship.

Question 66

Why so supply curves typically slope upward?  

A) because opportunity cost of production increases as quantity supplied increases 
B) because supply increases as opportunity cost decreases 
C) because price increases as supply decreases 
D) because quantity supplied is unrelated to price

Question 67

As the baby boom ended, fewer families had young children.As a consequence, what was the outcome for preschool services?  

A) The demand curve for preschool services shifted outward. 
B) The demand curve for preschool services shifted inward. 
C) The supply curve for preschool services shifted outward. 
D) The supply curve for preschool services shifted inward.

Question 68

What does the market supply curve of a particular product indicate?  

A) the total quantities that are actually sold during a given time period 
B) the total quantities that buyers are willing to purchase at alternative prices 
C) the total quantities that sellers are willing and able to offer at alternative prices 
D) the total quantities that sellers are willing to offer for sale

Question 69

Which of the following could shift the demand for a good to the right?  

A) a decrease in income, if the good is a normal good 
B) an increase in the price of a complementary good 
C) a decrease in the good's price, if the good is normal 
D) an expectation of a future price increase

Question 70

Which of the following is NOT a reason why supply curves generally slope upward?  

A) because producers are willing to offer more of a good at higher prices 
B) because a higher price attracts resources from less-valued uses 
C) because producers must be compensated for the rising opportunity cost of additional output 
D) because the price of a good usually must fall to induce an increase in quantity supplied

Question 71

Which of the following best represents a perfectly inelastic supply curve?  

A) red Corvettes 
B) yogurt 
C) diamond rings 
D) the original Mona Lisa painting

Question 72

Which event is likely to reduce the demand for on-campus student housing?  

A) a rise in rents for off-campus housing 
B) more students enrolling at the university 
C) a growing trend where it is less fashionable to live on campus 
D) a rise in dorm fees

Question 73

Which statement explains the relationship between price and the quantity supplied?  

A) When expanding output, firms will incur greater total costs. 
B) As the price of a commodity falls, producers will find it more profitable to use higher-priced inputs in their production process. 
C) As a result of rising production costs, firms can increase profits by expanding output only if the price of output increases. 
D) To expand output, firms must hire more resources, which are always of poorer quality.

Question 74

What do most economists believe about tastes and preferences of consumers?  

A) that tastes are the major influence on consumers' income expectations 
B) that tastes vary with changes in the number of consumers 
C) that tastes have an important impact on demand 
D) that tastes are not important in determining demand

Question 75

What is the basic reason that supply curves slope upward?  

A) because demand curves slope downward 
B) because production is characterized by increasing costs 
C) because profits decline as product prices rise 
D) because greater output can only result from improved technology

Question 76

Which of the following would NOT cause the demand curve for peaches to shift?  

A) an increase in the price of apricots 
B) a decrease in the price of nectarines 
C) an increase in the price of peaches 
D) a change in preferences for peaches

Question 77

Which statement best characterizes an increase in quantity supplied of a given good?  

A) It is represented by a rightward shift in the supply curve. 
B) It could result from a technological improvement. 
C) It is caused by an increase in the price of the good. 
D) The price of an alternative good has increased.

Question 78

Suppose the wearing of fur hats becomes more fashionable.What would be expected regarding the price and quantity of fur hats?  

A) Price and quantity will both decrease. 
B) Price will increase and quantity will decrease. 
C) Price will decrease and quantity will increase. 
D) Price and quantity will both increase.

Question 79

Exhibit 4-3

Refer to the exhibit.What would cause a shift from demand curve D to demand curve D'?  

A) a decrease in the price of the product under consideration 
B) a significant decrease in population because of emigration 
C) an increase in consumer income 
D) a decrease in the number of producers of the product

Question 80

Which of the following would be most likely to increase the demand for downtown parking in a large city?  

A) improved bus service to the downtown area 
B) lower downtown parking fees 
C) more downtown parking lots 
D) more freeways leading to the downtown area