Deck 2: Market Forces: Demand and Supply

Question 1

Suppose the demand for good X is given by Q^d_x = 10 + a_xP_x + a_yP_y + a_MM. If a_y is positive, then:

A) goods y and x are complements.
B) goods y and x are inferior goods.
C) goods y and x are normal goods.
D) goods y and x are substitutes.

Answer 1

D

Question 2

The economic principle that producers are willing to produce more output when price is high is depicted by the:

A) upward slope of the supply curve.
B) extreme steepness of the supply curve.
C) downward slope of the supply curve.
D) interaction of the supply and demand curves.

Answer 2

A

Question 3

Persuasive advertising influences demand by:

A) providing information about the availability of a product.
B) offering reduced prices for the product.
C) altering the underlying tastes of consumers.
D) none of the statements are correct.

Answer 3

C

Question 4

Suppose the demand for good X is given by Q^d_x = 10 + a_xP_x + a_yP_y + a_MM. If a_M is negative, then good y is:

A) a normal good.
B) an inferior good.
C) a complement.
D) a substitute.

Question 5

The buyer side of the market is known as the:

A) income side.
B) demand side.
C) supply side.
D) seller side.

Question 6

The curve which summarizes the total quantity producers are willing and able to produce at differing prices is the:

A) market demand curve.
B) consumer surplus curve.
C) average cost curve.
D) market supply curve.

Question 7

The law of supply states that, holding all else constant, as the price of a good falls:

A) quantity demanded rises.
B) quantity supplied falls.
C) quantity supplied rises.
D) quantity demanded falls.

Question 8

A change in income will not lead to:

A) a movement along the demand curve.
B) a leftward shift of the demand curve.
C) a rightward shift of the demand curve.
D) all of the statements associated with the question are correct.

Question 9

An increase in the price of steak will probably lead to:

A) an increase in demand for chicken.
B) an increase in demand for steak.
C) no change in the demand for steak or chicken.
D) an increase in the supply for chicken.

Question 10

Other things held constant, the greater the price of a good

A) the lower the demand.
B) the higher the demand.
C) the greater the consumer surplus.
D) the lower the consumer surplus.

Question 11

Which of the following can explain an increase in the demand for housing in retirement communities?

A) A drop in real estate prices.
B) An increase in the population of the elderly.
C) A drop in the average age of retirees.
D) Mandatory government legislation.

Question 12

Which of the following pairs of goods are probably complements?

A) Televisions and roller skates.
B) Frozen yogurt and ice cream.
C) Steak and chicken.
D) Hamburgers and ketchup.

Question 13

Graphically, a decrease in advertising will cause the demand curve to:

A) become steeper.
B) shift rightward.
C) become flatter.
D) shift leftward.

Question 14

Suppose the demand for good X is given by Q^d_x = 10 + a_xP_x + a_yP_y + a_MM. From the law of demand we know that a_x will be:

A) less than zero.
B) greater than zero.
C) zero.
D) none of the statements associated with this question are correct.

Question 15

Which of the following is probably not a normal good?

A) designer dresses.
B) lobster.
C) macaroni and cheese.
D) expensive automobiles.

Question 16

The law of demand states that, holding all else constant:

A) as price falls, demand will fall also.
B) as price rises, demand will also rise.
C) price has no effect on quantity demanded.
D) as price falls, quantity demanded rises.

Question 17

For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve to:

A) become flatter.
B) shift to the left.
C) shift to the right.
D) become parallel to the price axis.

Question 18

Changes in the price of a good lead to:

A) changes in the quantity supplied of the good.
B) changes in supply.
C) changes in demand.
D) no effects in quantity supplied or demanded.

Question 19

In a competitive market, the market demand is Q^d = 60 - 6P and the market supply is Q^s = 4P. A price ceiling of $3 will result in a

A) shortage of 30 units.
B) shortage of 15 units.
C) surplus of 30 units.
D) surplus of 12 units.

Question 20

The demand function recognizes that the quantity of a good consumed depends on:

A) the prices of other goods only.
B) price and supply shifters.
C) demand shifters and price.
D) demand shifters only.

Question 21

Suppose market demand and supply are given by Q^d = 100 - 2P and Q^S = 5 + 3P. If a price ceiling of $15 is imposed, what will be the resulting full economic price?

A) $19.
B) $21.
C) $6.
D) $25.

Question 22

The maximum legal price that can be charged in a market is:

A) a price floor.
B) an ad valorem tax.
C) the market equilibrium price.
D) a price ceiling.

Question 23

An inferior good is a good

A) that has low quality.
B) that consumers purchase less of when their incomes are higher.
C) that consumers purchase more when their incomes are higher.
D) of high quality.

Question 24

Demand shifters do not include

A) the price of the good.
B) the consumer's income.
C) the level of advertising.
D) the price of the other goods.

Question 25

Suppose that supply increases and demand decreases. What effect will this have on price and quantity?

A) Price will increase and quantity may rise or fall.
B) Price will decrease and quantity will increase.
C) Price will decrease and quantity will decrease.
D) None of the statements associated with this question are correct.

Question 26

Suppose market demand and supply are given by Q^d = 100 - 2P and Q^S = 5 + 3P. If the government sets a price floor of $30 and agrees to purchase all surplus at $30 per unit, the total cost to the government will be:

A) $1,650.
B) $1,375.
C) $900.
D) $1,125.

Question 27

Suppose good X is a normal good. Then a decrease in income would lead to

A) an outward shift of the demand curve.
B) an inward shift of the demand curve.
C) no shift of the demand curve.
D) a movement along the demand curve.

Question 28

The minimum legal price that can be charged in a market is:

A) a price floor.
B) a price ceiling.
C) non-pecuniary price.
D) full economic price.

Question 29

Suppose both supply and demand decrease. What effect will this have on price?

A) It will fall.
B) It will rise.
C) It may rise or fall.
D) It will remain the same.

Question 30

An ad valorem tax causes the supply curve to:

A) shift to the right.
B) become flatter.
C) become steeper.
D) shift to the left.

Question 31

If a shortage exists in a market, the natural tendency is for:

A) demand to increase.
B) price to increase.
C) quantity supplied to decrease.
D) no change in the market.

Question 32

Suppose market demand and supply are given by Q^d = 100 - 2P and Q^S = 5 + 3P. The equilibrium price is:

A) $15.
B) $19.
C) $17.
D) $20.

Question 33

If steak is a normal good, what do you suppose would happen to price and quantity during an economic recession?

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

Question 34

Technological advances will cause the supply curve to:

A) shift to the left.
B) shift to the right.
C) become flatter.
D) become steeper.

Question 35

The law of demand states that if the price of a good falls and all other things remain the same, the

A) quantity demanded of the good falls.
B) quantity demanded of the good rises.
C) demand of the good rises.
D) all of the statements associated with this question are correct.

Question 36

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

A) Steak.
B) Airline travel.
C) Bologna.
D) A house.

Question 37

Changes in the price of other goods lead to

A) a change in quantity demanded.
B) a change in demand.
C) no change in the demand curve.
D) a movement along the demand curve.

Question 38

Suppose you produce wooden desks, and government legislation protecting the spotted owl has made it more expensive for you to purchase wood. What do you expect to happen to the equilibrium price and quantity of wooden desks?

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

Question 39

Good X is a normal good if an increase in income leads to

A) an increase in the supply for good X.
B) an increase in the demand for good X.
C) a decrease in the demand for good X.
D) a decrease in the supply for good X.

Question 40

Suppose market demand and supply are given by Q^d = 100 - 2P and Q^S = 5 + 3P. If a price ceiling of $15 is imposed,

A) there will be a surplus of 40 units.
B) there will be neither a surplus or shortage.
C) there will be a shortage of 40 units.
D) there will be a shortage of 20 units.

Question 41

Good Y is a complement to good X if an increase in the price of good Y leads to

A) an increase in the demand for good X.
B) an increase in the supply for good X.
C) a decrease in the demand for good X.
D) a decrease in the supply for good X.

Question 42

Good X is a normal good and its demand is given by Q_x^d = α₀ + α_XP_X + α_YP_Y + α_MM + α_HH. Then we know that

A) α_H > 0.
B) α_X > 0.
C) α_Y > 0.
D) α_M > 0.

Question 43

The market supply curve indicates the total quantity all producers in a competitive market would produce at each price,

A) holding only input price fixed.
B) allowing input price to vary.
C) holding all supply shifters fixed.
D) allowing all supply shifters to vary.

Question 44

Advertising provides consumers with information about the underlying existence or quality of a product. These types of advertising messages are called

A) persuasive advertising.
B) informative advertising.
C) green advertising.
D) influential advertising.

Question 45

Advertising can influence demand by altering tastes of consumers. This type of advertising is known as

A) persuasive advertising.
B) informative advertising.
C) strategic advertising.
D) influential advertising.

Question 46

Suppose the demand for X is given by Q_x^d = 100 - 2P_X + 4P_Y + 10M + 2A, where P_X represents the price of good X, P_Y is the price of good Y, M is income and A is the amount of advertising on good X. If advertising on good X increases by $10,000, then the demand for X will

A) decrease by $20,000.
B) decrease by $100,000.
C) increase by $100,000.
D) increase by $20,000.

Question 47

Which of the following statements is incorrect?

A) As the population rises, the market demand curve shifts to the right.
B) As a greater fraction of the population becomes elderly, the demand for medical services will tend to increase.
C) Changes in the composition of the population affect the demand for a product.
D) None of the statements associated with this question are incorrect.

Question 48

Suppose the demand for X is given by Q_x^d = 100 - 2P_X + 4P_Y + 10M + 2A, where P_X represents the price of good X, P_Y is the price of good Y, M is income and A is the amount of advertising on good X. Based on this information, we know that good Y is

A) a substitute for good X.
B) a complement for good X.
C) an inferior good.
D) a normal good.

Question 49

Which of the following is a linear demand function?

A) Q_x^d = α₀ + α_XP_X + α_YP_Y + α_MM + α_HH.
B) Q_x^d = αP_X^αX P_Y^αY M^αM H^αH.
C) Q_x^d = α₀ + α_XP_X² + α_YP_Y² + α_MM² + α_MH².
D) Q_x^d = α + α_X log P_X + α_Y log P_Y + α_M log M + α_M log H.

Question 50

Suppose that good X is a substitute for good Y. Then an increase in the price of good Y leads to

A) an increase in the demand of good X.
B) a decrease in the demand of good X.
C) a decrease in the supply of good X.
D) an increase in the supply of good X.

Question 51

Firms advertise in order to cause the demand for their products to

A) shift to the right.
B) shift to the left.
C) remain unchanged.
D) all of the statements associated with this question are correct.

Question 52

If consumers expect future prices to be higher

A) they substitute current purchases for future purchases of perishable products.
B) stockpiling will happen when products are durable in nature.
C) the position of the demand will not change.
D) the demand for automobiles today will not change.

Question 53

Suppose X and Y are complements and demand for X is Q_x^d = α₀ + α_XP_X + α_YP_Y + α_MM + α_HH. Then we know

A) α_H > 0.
B) α_X > 0.
C) α_Y < 0.
D) α_M < 0.

Question 54

Suppose the demand for X is given by Q_x^d = 100 - 2P_X + 4P_Y + 10M + 2A, where P_X represents the price of good X, P_Y is the price of good Y, M is income and A is the amount of advertising on good X. Good X is

A) an inferior good.
B) a normal good.
C) a Giffen good.
D) a complement.

Question 55

Consumer surplus is

A) the value consumers get from a supplier.
B) the value consumers do not pay because of a discount by supplier.
C) the value consumers get from a good but do not pay for.
D) equal to the amount consumers pay for a good.

Question 56

Which of the following are least likely to be substitutes?

A) Chicken and beef.
B) Cars and trucks.
C) Automobile and housing.
D) Automobile and gasoline.

Question 57

If the price of good X becomes lower, then the level of consumer surplus becomes

A) lower.
B) higher.
C) unchanged.
D) lower in the short-run but higher in the long run.

Question 58

Suppose the demand for X is given by Q_x^d = 100 - 2P_X + 4P_Y + 10M + 2A, where P_X represents the price of good X, P_Y is the price of good Y, M is income and A is the amount of advertising on good X. Based on this information, we know that good X is a

A) substitute for good Y and a normal good.
B) complement for good Y and an inferior good.
C) complement for good Y and a normal good.
D) substitute for good Y and an inferior good.

Question 59

Which of the following are least likely to be complements?

A) Peanut butter and jelly.
B) Bread and butter.
C) Sports coats and dress slacks.
D) Cars and trucks.

Question 60

The demand function

A) describes how much of good X will be purchased at the alternative price of good X, given all the other variables being constant.
B) recognizes that the quantity of a good consumed depends on its price and demand shifters.
C) shows the relationship between the quantity demanded of X and variables other than its price.
D) does not include expectations.

Question 61

When quantity demanded exceeds quantity supplied

A) there exists a surplus of a good.
B) the price tends to fall.
C) the price is below the equilibrium price.
D) there is no excess demand.

Question 62

If firms expect prices to be higher in the future and the product is not perishable, then

A) the current supply curve shifts to the left.
B) the current supply curve shifts to the right.
C) producers produce more output to hold back for the future.
D) none of the statements associated with this question are correct.

Question 63

If demand increases, then the

A) demand curve shifts to the left.
B) demand curve shifts to the right.
C) equilibrium price goes down.
D) equilibrium quantity goes down.

Question 64

When an effective price ceiling is in place

A) every consumer is better off.
B) every consumer is worse off.
C) some consumers are better off and others are worse off.
D) on average the net change in consumer surplus is zero.

Question 65

A price ceiling is

A) the minimum legal price that can be charged in a market.
B) the maximum legal price that can be charged in a market.
C) above the initial equilibrium price.
D) equal to the initial equilibrium price.

Question 66

If an excise tax is imposed on a good, then the supply curve

A) shifts up by the amount of the demand elasticity.
B) does not change.
C) shifts down by the amount of the tax.
D) shifts up by the amount of the tax.

Question 67

If the price of an input rises, producers are willing to produce

A) more output at each given price.
B) less output at each given price.
C) the same output at each given price.
D) none of the statements associated with this question are correct.

Question 68

Under a price ceiling, the full economic price is

A) the dollar price paid to the firm.
B) the opportunity cost of not being able to buy a good when a consumer needs it.
C) lower than the free-market price.
D) higher than the free-market price.

Question 69

If supply increases, then the

A) supply curve shifts to the left.
B) equilibrium price goes down.
C) equilibrium quantity goes down.
D) demand curve shifts to the right.

Question 70

The supply function for good X is given by Q_x^s = 1,000 + P_X - 5P_Y - 2P_W, where P_X is the price of X, P_Y is the price of good Y and P_W is the price of input W. If the price of input W increases by $10, then the supply of good X

A) will increase by 10 units.
B) will increase by 20 units.
C) will decrease by 10 units.
D) none of the statements associated with this question are correct.

Question 71

Producer surplus is the

A) area above the supply curve but below the demand curve.
B) area above the supply curve but below the market price of the good.
C) minimum amount required by a producer for producing the good.
D) maximum amount a producer can collect from consumers.

Question 72

As additional firms enter an industry, the market supply curve

A) shifts to the right.
B) shifts to the left.
C) remains the same.
D) none of the statements associated with this question are correct.

Question 73

The minimum wage

A) is an example of a price floor.
B) leads to an increase in the number of people employed in unskilled jobs.
C) leads to a decrease in the number of people employed in skilled jobs.
D) causes an increase in social welfare.

Question 74

A floor price is

A) the minimum legal price that can be charged in a market.
B) the maximum legal price that can be charged in a market.
C) below the initial market equilibrium price.
D) equal to the initial market equilibrium price.

Question 75

Which of the following is not a supply shifter?

A) Level of technology.
B) Prices of inputs.
C) Average income level.
D) Weather.

Question 76

An excise tax shifts the supply curve

A) down by the amount of the tax.
B) up by the amount of the tax.
C) by rotating it counter-clockwise.
D) by rotating it clockwise.

Question 77

The supply function for good X is given by Q_x^s = 1,000 + P_X - 5P_Y - 2P_W, where P_X is the price of X, P_Y is the price of good Y and P_W is the price of input W. If P_X = 100, P_Y = 150, P_W = 50, then the supply curve is

A) Q_x^s = 550.
B) Q_x^s = 150 + P_x.
C) Q_x^s = 550 + P_x.
D) Q_x^s = 350 + P_x.

Question 78

Competitive market equilibrium

A) is determined by the intersection of the market demand and supply curves.
B) implies that quantity supplied is sufficiently larger than quantity demanded.
C) is determined by the intersection of the excess demand and excess supply curves.
D) implies that quantity demanded is sufficiently larger than quantity supplied.

Question 79

An ad valorem tax shifts the supply curve

A) down by the amount of the tax.
B) up by the amount of the tax.
C) by rotating it counter-clockwise.
D) by rotating it clockwise.

Question 80

The supply function

A) describes how much of good X will be produced at an alternative price of good X, given all the other variables being constant.
B) recognizes that the quantity of a good produced depends on its price and supply shifters.
C) shows the relationship between the quantity supplied of X and variables other than its price.
D) does not include technology.