Deck 2: Supply and Demand

Question 1

Suppose the demand function for cable TV service is given by Q_CTV = 15 - 0.25 × P_CTV + 0.0005 × M + 0.3 × P_STV,Q_CTV is the quantity of cable TV demanded (thousands of households),P_CTV is the price of cable TV,M is income and P_STV is the price of satellite TV service.Suppose consumers' income is $50,000 and the price of satellite TV service is $90.How many households would demand cable TV if it were free?

A) No households
B) 15,000 households
C) 67,000 households
D) Every household would demand cable TV if it were free.

Answer 1

67,000 households

Question 2

Refer to Figure 2.1.A movement from point a to point c is most likely caused by:

A) a decrease in the price of the good.
B) an increase in consumers' incomes, assuming the good is normal.
C) a decrease in the price of a complementary good.
D) an increase in the price of the good.

Answer 2

a decrease in the price of the good.

Question 3

Suppose the demand function for cable TV service is given by Q_CTV = 15 - 0.25 × P_CTV + 0.0005 × M + 0.3 × P_STV,where Q_CTV is the quantity of cable TV demanded (thousands of households),P_CTV is the price of cable TV,M is income and P_STV is the price of satellite TV service.We can see that:

A) cable TV service is an inferior good.
B) cable TV service is a normal good.
C) cable TV service and satellite TV service are complements.
D) cable TV service and satellite TV service are unrelated to one another.

Answer 3

cable TV service is a normal good.

Question 4

Suppose the demand function for cable TV service is given by Q_CTV = 15 - 0.25 × P_CTV + 0.0005 × M + 0.3 × P_STV,where Q_CTV is the quantity of cable TV demanded (thousands of households),P_CTV is the price of cable TV,M is income and P_STV is the price of satellite TV service.If consumers' income is $50,000 and the price of satellite TV service is $90,then which of the following gives the demand curve for cable TV?

A) Q_CTV = 17 - 0.25 × P_CTV
B) Q_CTV = 67 - 0.25 × P_CTV
C) Q_CTV = 15 - 0.25 × P_CTV + 0.0005 × M + 0.3 × P_STV
D) Q_CTV = 13 - 0.25 × P_CTV

Question 5

The effect of an increase in the price of gasoline on the demand for sport utility vehicles would be shown by a:

A) rightward shift of the demand curve for sport utility vehicles.
B) leftward shift of the demand curve for sport utility vehicles.
C) movement up and to the left along the demand curve for sport utility vehicles.
D) movement down and to the right along the demand curve for sport utility vehicles.

Question 6

Refer to Figure 2.1.A movement from point a to point b is most likely caused by:

A) a decrease in the price of the good.
B) an increase in consumers' incomes, assuming the good is normal.
C) an increase in the price of a complementary good.
D) a decrease in consumers' incomes, assuming the good is normal.

Question 7

Suppose the demand function for cable TV service is given by Q_CTV = 15 - 0.25 × P_CTV + 0.0005 × M + 0.3 × P_STV,Q_CTV is the quantity of cable TV demanded (thousands of households),P_CTV is the price of cable TV,M is income and P_STV is the price of satellite TV service.Suppose consumers' income is $50,000 and the price of satellite TV service is $90.At what price would the demand for cable TV services be equal to 55,000 households?

A) $67
B) $48
C) $12
D) There is not enough information to answer the question.

Question 8

Suppose the demand function for cable TV service is given by Q_CTV = 15 - 0.25 × P_CTV + 0.0005 × M + 0.3 × P_STV,Q_CTV is the quantity of cable TV demanded (thousands of households),P_CTV is the price of cable TV,M is income and P_STV is the price of satellite TV service.All else equal,a $10 increase in the price of satellite TV will cause the quantity of cable TV demanded to:

A) decrease by 3,000 households.
B) increase by 3,000 households.
C) decrease by 5,000 households.
D) increase by 5,000 households.

Question 9

A product's ________ shows how much sellers of a product want to sell at each possible price,holding all other factors fixed.

A) supply function
B) supply curve
C) production function
D) total product curve

Question 10

An increase in the price of a good is shown by a:

A) movement up and to the left along the supply curve.
B) movement down and to the right along the supply curve.
C) movement up and to the right along the supply curve.
D) movement down and to the left along the supply curve.

Question 11

Two products are complements if:

A) a decrease in the price of one causes buyers to demand less of the other.
B) an increase in the price of one causes buyers to demand more of the other.
C) a decrease in the price of one causes buyers to demand more of the other.
D) individuals consume the goods together.

Question 12

If an increase in the price of one good causes buyers to demand less of another good,then the two goods are:

A) normal goods.
B) inferior goods.
C) substitutes.
D) complements.

Question 13

A product's ________ describes the amount of the product that is demanded for each possible combination of its price and other factors.

A) demand curve
B) price-consumption curve
C) utility function
D) demand function

Question 14

Two products are substitutes if:

A) an increase in the price of one causes buyers to demand less of the other.
B) an increase in the price of one causes buyers to demand more of the other.
C) a decrease in the price of one causes buyers to demand more of the other.
D) individuals consume the goods together.

Question 15

An increase in the price of milk would be shown by a:

A) rightward shift of the supply curve for milk.
B) movement up and to the right along the supply curve for milk.
C) leftward shift of the supply curve for milk.
D) movement down and to the left along the supply curve for milk.

Question 16

A change in demand of a good is shown by a:

A) movement along a demand curve.
B) shift of a demand curve.
C) movement along the demand function.
D) shift of the demand function.

Question 17

An increase in the price of a good is shown by a:

A) rightward shift of the demand curve.
B) leftward shift of the demand curve.
C) movement up and to the left along the demand curve.
D) movement down and to the right along the demand curve.

Question 18

The relationship that shows how much buyers of a product want to buy at each possible price,holding fixed all other factors is called:

A) a demand curve.
B) elasticity of demand.
C) demand function.
D) an indifference curve.

Question 19

Suppose the demand function for cable TV service is given by Q_CTV = 15 - 0.25 × P_CTV + 0.0005 × M + 0.3 × P_STV,where Q_CTV is the quantity of cable TV demanded (thousands of households),P_CTV is the price of cable TV,M is income and P_STV is the price of satellite TV service.We can see that:

A) cable TV and satellite TV are substitutes.
B) cable TV and satellite TV are complements.
C) satellite TV is a normal good.
D) satellite TV is an inferior good.

Question 20

If an increase in the price of one good causes buyers to demand more of another good,then the two goods are:

A) normal goods.
B) inferior goods.
C) substitutes.
D) complements.

Question 21

Refer to Figure 2.3.At a price of $13 per CD,there would be:

A) excess supply of 30 thousand CDs.
B) excess demand of 10 thousand CDs.
C) excess supply of 60 thousand CDs.
D) excess demand of 60 thousand CDs.

Question 22

Consider the relationship given by Q_Cars = 100 + 4 × P_Cars - 2 × P_Steel - 0.2 × P_Workers,where Q_Cars is the quantity of cars supplied (in thousands),P_Cars is the price of cars (in thousands of dollars),P_Steel is the price of steel,and P_Workers is the wage earned by autoworkers.If the price of steel is $10 per unit and the price of workers (the wage)is $20,at what price would there be 164,000 cars supplied?

A) $10,000
B) $16,000
C) $22,000
D) $41,000

Question 23

Consider the relationship given by Q_Cars = 100 + 4 × P_Cars - 2 × P_Steel - 0.2 × P_Workers,where Q_Cars is the quantity of cars supplied (in thousands),P_Cars is the price of cars (in thousands of dollars),P_Steel is the price of steel,and P_Workers is the wage earned by autoworkers.If the price of steel is $10 per unit and the price of workers (the wage)is $20,what is the supply curve for cars?

A) Q_Cars = 124 + 4 × P_Cars
B) Q_Cars = 100 + 4 × P_Cars - 2 × P_Steel - .2 × P_Workers
C) Q_Cars = 100 + 4 × P_Cars
D) Q_Cars = 76 + 4 × P_Car

Question 24

Which economist is credited with originating the use of supply and demand analysis?

A) Vernon Smith
B) Adam Smith
C) Alfred Marshall
D) John Maynard Keynes

Question 25

Which economist won the Nobel Prize for using experiments to test the model of supply and demand?

A) Vernon Smith
B) Adam Smith
C) Alfred Marshall
D) Steven Levitt

Question 26

Consider the relationship given by Q_Cars = 100 + 4 × P_Cars - 2 × P_Steel - 0.2 × P_Workers,where Q_Cars is the quantity of cars supplied (in thousands),P_Cars is the price of cars (in thousands of dollars),P_Steel is the price of steel,and P_Workers is the wage earned by autoworkers.What would be the impact of a $15 increase in the price of steel?

A) The quantity of cars supplied would decrease by 30,000 cars.
B) The quantity of cars supplied would increase by 30,000 cars.
C) The quantity of cars supplied would decrease by 7,500 cars.
D) The quantity of cars supplied would increase by 7,500 cars.

Question 27

Oil is an input used to produce gasoline.An increase in the price of oil would be represented by:

A) a leftward shift of the supply curve for gasoline.
B) a rightward shift of the supply curve for gasoline.
C) a movement up and to the right along the supply curve for gasoline.
D) a movement down and to the left along the supply curve for gasoline.

Question 28

Which of the following would result from an increase in the supply of a good?

A) Both equilibrium price and quantity would rise.
B) Both equilibrium price and quantity would fall.
C) Equilibrium price would rise, and equilibrium quantity would fall.
D) Equilibrium quantity would rise, and equilibrium price would fall.

Question 29

An improvement in the technology used to produce cell phones would be shown by a:

A) rightward shift of the supply curve for cell phones.
B) leftward shift of the supply curve for cell phones.
C) rightward shift of the demand curve for cell phones.
D) leftward shift of the demand curve for cell phones.

Question 30

A change in the quantity supplied of a good is represented as a:

A) movement along a supply curve.
B) shift of a supply curve.
C) movement along the supply function.
D) shift of the supply function.

Question 31

Which of the following is a factor that affects both the supply of and demand for a good?

A) Technology
B) Price of inputs
C) Consumers' income
D) Government regulations

Question 32

Consider the relationship given by Q_Cars = 100 + 4 × P_Cars - 2 × P_Steel - 0.2 × P_Workers,where Q_Cars is the quantity of cars supplied (in thousands),P_Cars is the price of cars (in thousands of dollars),P_Steel is the price of steel,and P_Workers is the wage earned by autoworkers.If the price of steel is $10 per unit and the price of workers (the wage)is $20,how many cars will be supplied if the price of cars is $20,000?

A) 96,000
B) 156,000
C) 204,000
D) 960,000

Question 33

Which of the following would result from an increase in the demand for a good?

A) Both equilibrium price and quantity would rise.
B) Both equilibrium price and quantity would fall.
C) Equilibrium price would rise, and equilibrium quantity would fall.
D) Equilibrium quantity would rise, and equilibrium price would fall.

Question 34

Which of the following best describes the process that occurs when the price of a good is below equilibrium?

A) The excess demand for the good provides an incentive for buyers to offer a higher price. These higher prices encourage sellers to supply more of the good.
B) The excess supply of the good provides an incentive for buyers to offer a higher price. These higher prices encourage sellers to supply more of the good.
C) The excess demand for the good provides an incentive for buyers to offer a lower price. These lower prices encourage sellers to supply less of the good.
D) The excess supply for the good provides an incentive for buyers to offer a lower price. These lower prices encourage sellers to supply less of the good.

Question 35

Refer to Figure 2.2.Which diagram represents the effect of a lower gasoline price on the supply of gasoline?

A) A
B) B
C) C
D) D

Question 36

A product's ______ describes the amount of the product that is supplied for each possible combination of its price and other factors.

A) production function
B) supply curve
C) supply function
D) production possibilities curve

Question 37

Excess supply is:

A) the result of a price that is above equilibrium, causing the quantity demanded to exceed the quantity supplied.
B) the result of a price that is below equilibrium, causing the quantity demanded to exceed the quantity supplied.
C) the result of a price that is above equilibrium, causing the quantity supplied to exceed the quantity demanded.
D) the result of a price that is below equilibrium, causing the quantity supplied to exceed the quantity demanded.

Question 38

Suppose that the demand for movies is given by Q^d = 30 - 2 × P_Movies and the supply is given by Q^s = 2 + 2 × P_Movies.What is the equilibrium price and quantity of movies?

A) P_Movies = $7, Q = 30
B) P_Movies = $2, Q = 30
C) P_Movies = $4, Q = 28
D) P_Movies = $7, Q = 16

Question 39

Refer to Figure 2.2.Which diagram best represents the effect of lower fertilizer prices on the market for corn?

A) A
B) B
C) C
D) D

Question 40

Refer to Figure 2.3.At a price of $10 per CD,there would be:

A) excess supply of 70 thousand CDs.
B) excess demand of 50 thousand CDs.
C) excess supply of 50 thousand CDs.
D) excess demand of 70 thousand CDs.

Question 41

Refer to Figure 2.4.The elasticity of demand at point a is given by:

A) the slope of line cd times (P1/Q1).
B) the slope of line ab times (Q1/P1).
C) the inverse of the slope of line cd times (P1/Q1).
D) the inverse of the slope of line ab times (Q1/P1).

Question 42

The ______ the demand curve,the _____ responsive is the amount demanded to price.

A) steeper; less
B) steeper; more
C) flatter; less
D) higher; less

Question 43

Suppose a good has a demand curve given by Q = 20 - 8 × P.What is the price elasticity of demand if the price is $2?

A) -4
B) -1/16
C) 1/2
D) -1/2

Question 44

Demand is said to be elastic when:

A) the percentage change in the amount demanded is smaller than the percentage change in price.
B) the demand curve is relatively flat.
C) the elasticity of demand is less than -1.
D) the elasticity of demand is greater than -1.

Question 45

Supply curves tend to be _____ in the ______.

A) steeper; long run
B) flatter; long run
C) flatter; short run
D) negatively-sloped; short run and in the long run

Question 46

Which of the following statements about elasticity measures is true?

A) Elasticities are always positive values.
B) Values that are close to zero indicate greater responsiveness.
C) Values that are further from zero indicate greater responsiveness.
D) Values that are further from zero indicate less elasticity.

Question 47

For a linear demand curve,demand is ____ elastic at _____ prices.

A) more; higher
B) less; higher
C) more; lower
D) constantly; all

Question 48

According to Table 2.1,which presents hypothetical data on price elasticity of demand,which of the following is true about lamb?

A) Each 2.7% change in the price of lamb causes a 1% change in the quantity demanded of lamb.
B) The demand for lamb is inelastic.
C) Each 1% change in the price of lamb causes a 2.7% change in the quantity demanded of lamb.
D) Lamb is a normal good.

Question 49

Isoelastic demand means that:

A) the elasticity of demand is equal to -1.
B) demand is completely unresponsive to price.
C) the elasticity is demand is infinite.
D) the demand function has the same elasticity at every price.

Question 50

What can cause the price of a good to rise?

A) An increase in demand or a decrease in supply
B) An increase in demand or an increase in supply
C) A decrease in demand or an increase in supply
D) A decrease in demand or a decrease in supply

Question 51

Which of the following is the formula for the elasticity of Y with respect to X?

A) E = (percent change in Y)/( percent change in X)
B) E = (percent change in X)/(percent change in Y)
C) E = (change in Y)/(change in X)
D) E = (change in X)/(change in Y)

Question 52

Without more information,the supply and demand model cannot predict the effect on price of:

A) a simultaneous decrease in quantity demanded and increase in quantity supplied.
B) a simultaneous decrease in demand and increase in supply.
C) a simultaneous increase in demand and increase in supply.
D) a simultaneous increase in demand and decrease in supply.

Question 53

Suppose there is a decrease in both the demand for and supply of a good.What happens to equilibrium price and quantity?

A) Equilibrium quantity increases, but the effect on equilibrium price is ambiguous.
B) Equilibrium quantity decreases, but the effect on equilibrium price is ambiguous.
C) Equilibrium price increases, but the effect on equilibrium quantity is ambiguous.
D) Equilibrium price decreases, but the effect on equilibrium quantity is ambiguous.

Question 54

According to Table 2.1,which presents hypothetical data on price elasticity of demand,which good's demand is most sensitive to changes in price?

A) Car Repair
B) Bread
C) Electricity
D) Lamb

Question 55

According to basic supply and demand analysis,when hurricane Katrina caused oil prices to rise,what happened to the equilibrium price and quantity of sport utility vehicles?

A) Equilibrium price and quantity both increased.
B) Equilibrium price and quantity both decreased.
C) Equilibrium price increased, and equilibrium quantity decreased.
D) Equilibrium price decreased, and equilibrium quantity increased.

Question 56

Suppose there is an increase in the supply of a good.Which of the following statements is true?

A) The closer the demand curve is to being vertical, the larger the decrease in equilibrium price, and the smaller the increase in equilibrium quantity.
B) The closer the demand curve is to being horizontal, the larger the decrease in equilibrium price, and the smaller the increase in equilibrium quantity.
C) The closer the demand curve is to being vertical, the smaller the decrease in equilibrium price, and the larger the increase in equilibrium quantity.
D) The closer the demand curve is to being vertical, the larger the increase in equilibrium price, and the smaller the decrease in equilibrium quantity.

Question 57

Demand is said to be perfectly inelastic when:

A) the demand curve is horizontal.
B) the elasticity of demand is infinite.
C) the elasticity of demand is zero.
D) consumers are highly responsive to change in the price of a good.

Question 58

If the demand for a good increases at the same time the supply of the good decreases,what happens to equilibrium price and quantity?

A) Equilibrium quantity increases, but the effect on equilibrium price is ambiguous.
B) Equilibrium quantity decreases, but the effect on equilibrium price is ambiguous.
C) Equilibrium price increases, but the effect on equilibrium quantity is ambiguous.
D) Equilibrium price decreases, but the effect on equilibrium quantity is ambiguous.

Question 59

What can cause the equilibrium quantity of a good to fall?

A) An increase in demand or an increase in supply
B) A decrease in demand or a decrease in supply
C) An increase in demand or a decrease in supply
D) A decrease in demand or an increase in supply

Question 60

According to Table 2.1,which presents hypothetical data on price elasticity of demand,which of the following would be true if the price of all four goods were to increase by 3%?

A) The quantity of car repairs demanded would decrease by a smaller percentage than would the quantity of bread demanded.
B) The quantity of car repairs demanded would increase by a smaller percentage than would the quantity of lamb demanded.
C) The quantity of electricity demanded would decrease by a smaller percentage than would the quantity of lamb demanded.
D) The quantity of electricity demanded would increase by a smaller percentage than would the quantity of bread demanded.

Question 61

According to the text,which of the following statements is true?

A) The price elasticity of Honda Accords exceeds the price elasticity of demand for BMWs.
B) The price elasticity of BMWs exceeds the price elasticity of demand for Honda Accords.
C) The cross-price elasticity of demand for Hondas and BMWs is relatively large.
D) The income elasticity of demand for BMWs is negative.

Question 62

Recall that a linear demand curve has the form Q = A - BP,where P is price and A and B are positive numbers.Suppose that when price is $5 the amount demanded is 100 and the elasticity of demand is -2.What are the values of A and B?

Question 63

Suppose that an increase in oil prices causes the supply curve of gasoline to shift.Using a graph,illustrate the resulting changes in equilibrium price and quantity in both the short run and the long run.

Question 64

If a firm knows that the demand for its product is inelastic,it could generate more revenue by:

A) lowering the price, because the resulting change in sales would be relatively large.
B) raising the price, because the resulting change in sales would be relatively large.
C) lowering the price, because the resulting change in sales would be relatively small.
D) raising the price, because the resulting change in sales would be relatively small.

Question 65

Along a straight-line demand curve:

A) both the slope and the price elasticity are constant.
B) the slope is constant but the price elasticity is not.
C) the slope is not constant, but the price elasticity is.
D) neither the slope nor the price elasticity is constant.

Question 66

Refer to Table 2.2,which presents hypothetical data on cross-price elasticity of demand estimates.Which goods are the best substitutes?

A) Coke and Pepsi
B) Hard Liquor and Beer
C) Beef and Chicken
D) Cheese and Butter

Question 67

Suppose bad weather destroys a significant portion of the nations' corn crop.Will total expenditures on corn increase or decrease? Illustrate your answer with a graph.

Question 68

In general,supply curves with an elasticity of supply between 0 and 1 are referred to as:

A) inelastic.
B) elastic.
C) perfectly elastic.
D) perfectly inelastic.

Question 69

Suppose that when the price of hot dogs is $2 per package,there is a demand for 10,000 bags of hot dog buns.When the price of hot dogs is $3 per package,the demand for hot dog buns falls to 8,000 bags.What is the cross-price elasticity of demand for hot dogs and hot dog buns?

A) -0.4
B) -0.25
C) 4
D) 0.25

Question 70

Suppose the demand function for the Toyota Camry is given by Q_d = 500 - 12P_C + 10P_H - 5P_G + 0.0001M,where P_C is the price of the Toyota Camry (in thousands),P_H is the price of the Honda Accord (in thousands),P_G is the price of gas (per gallon)and M is income.Further,suppose the supply curve for the Toyota Camry is given by Qs = 20P_C - 55.
a.What is the demand curve for the Toyota Camry if the price of the Accord is $25,000,gas is $2 per gallon and income is $50,000?
b.What is the equilibrium price and quantity in the market for Toyota Camrys?
c.Is demand elastic or inelastic at the equilibrium price?
d.What is the cross price elasticity of demand between Camrys and Accords at equilibrium?
e.What is the income elasticity of demand for Camrys at equilibrium?

Question 71

Why are total expenditures on a good maximized at the point on the demand curve where the price elasticity of demand equals -1? Explain your answer using the appropriate algebra.

Question 72

An inferior good is characterized by:

A) a positive income elasticity of demand.
B) a negative income elasticity of demand.
C) a negative price elasticity of demand.
D) a positive price elasticity of demand.

Question 73

When the demand curve shifts,the ____ elastic the supply curve at the initial equilibrium price,the _____ the change in equilibrium price and the ______ the change in equilibrium quantity.

A) more; larger; smaller
B) less; larger; smaller
C) more; larger; larger
D) less; smaller; larger

Question 74

Using a graph,explain how an increase in technology will affect the equilibrium price and quantity of DVD players.Again using a graph,explain what happens in the market for video cassette recorders.

Question 75

Complements are characterized by:

A) negative cross-price elasticity of demand.
B) positive cross-price elasticity of demand.
C) cross-price elasticity of demand equal to zero.
D) cross price elasticity of demand equal to -1.

Question 76

What is the difference between a change in demand and a change in the quantity demanded of a good? Illustrate you answer using carefully labeled graphs.

Question 77

Total expenditures on a company's product will be largest when it is priced such that the elasticity of demand:

A) equals -1.
B) is greater than -1.
C) is less than -1.
D) equals 0.