Deck 2: Markets, Demand and Supply

Question 1

If both the supply and demand curves shift to the right, it can be concluded that there will be:

A) a decrease in the equilibrium quantity sold
B) a decrease in the equilibrium price
C) an increase in the equilibrium quantity sold
D) an increase in the equilibrium price

Answer 1

C

Question 2

When an increase in the price of good A causes an increase in demand for good B, the goods are:

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

Answer 2

D

Question 3

In coastal holiday areas the price of petrol typically increases over the weekend. As a result we are likely to see _ of/for petrol on Thursday.

A) quantity demanded; rise
B) demand; fall
C) quantity demanded; fall
D) demand; rise

Answer 3

D

Question 4

Assuming all else is held constant, which of the following statements is correct?

A) If a supply curve moves to the left this will lead to a shortage.
B) If a demand curve moves to the right this will lead to a surplus.
C) If a supply curve moves to the left the new equilibrium price will be higher.
D) If a demand curve moves to the left the new equilibrium price will be higher.

Question 5

The market clearing price is where:

A) the plans of buyers and sellers are balanced
B) the market is in equilibrium
C) the quantity demanded of a good is exactly equal to the quantity supplied
D) all of the above answers are correct

Question 6

Suppose the quantity demanded of Pepsi has decreased. This is most likely to be because:

A) Pepsi's advertising is not as effective as it used to be
B) consumers of Pepsi have less income
C) the price of Pepsi has increased
D) the price of Coca Cola has increased

Question 7

Which one of the following correctly describes how price adjustments eliminate a surplus?

A) As the price rises, the quantity demanded will increase while the quantity supplied decreases.
B) As the price falls, the quantity demanded will decrease while the quantity supplied increases.
C) As the price falls, the quantity demanded will increase while the quantity supplied decreases.
D) As the price rises, the quantity demanded will decrease while the quantity supplied increases.

Question 8

If automobile retailers expect the price of new cars will increase in three months as the economy recovers from recession, then in the present we can predict:

A) the supply of new cars for sale will decrease
B) the quantity supplied of new cars for sale will decrease
C) the supply of new cars for sale will increase
D) the quantity supplied of new cars for sale will increase

Question 9

Which of the following explains why too much choice can be a bad thing?

A) Consumers are irrational and so will make inefficient choices.
B) Consumers are encouraged to buy too much which can lead to growing levels of debt.
C) Too much choice can hinder decision making and reduce utility.
D) Firms have to produce too many products and this reduces the quality of them.

Question 10

When the price of a good falls and customers tend to buy it instead of other goods, this is called the effect.

A) substitution
B) diminishing marginal utility
C) income
D) ceteris paribus

Question 11

If the supply curve shifts to the right, and all else remains the same, there will be:

A) an increase in equilibrium price
B) a decrease in equilibrium quantity
C) a decrease in both equilibrium price and quantity
D) a decrease in equilibrium price

Question 12

An increase in supply is represented by:

A) a move down the given supply curve
B) a leftward shift of the supply curve
C) a move up the given supply curve
D) a rightward shift of the supply curve

Question 13

Suppose another cyclone once again destroys the Australian banana crop, while at the same time medical evidence suggests eating bananas prevents weight gain. We would expect the price of bananas to and the quantity of bananas to _.

A) increase; increase or decrease
B) increase; decrease
C) increase; increase
D) decrease; increase or decrease

Question 14

In which of the following situations will the demand curve for a good shift to the right?

A) a reduction in the production tax imposed by the government on the good
B) an increase in the supply of a substitute good
C) an increase in the supply of a complementary good
D) the government fixing a price below the equilibrium price

Question 15

Australian farmers have decided that the merino sheep can be used to produce both meat and wool. The meat and wool from the merino sheep are therefore best described as:

A) complements in consumption
B) substitutes in production
C) substitutes in consumption
D) goods in joint supply

Question 16

Which of the following is NOT an advantage of a free- market economy?

A) The profit incentive encourages efficiency in production.
B) The economy can respond quickly to changes in demand.
C) Competition can keep prices down.
D) There may be little competition between firms.

Question 17

During the economic downturn in 2008, the demand for steak decreased and the demand for sausages increased. This suggests sausages are a/n good and steak is a good.

A) normal; complement
B) inferior; complement
C) normal; inferior
D) inferior; normal

Question 18

Which of the following would cause a shift in the supply curve of a good to the left?

A) a reduction in the price of an input used in the production process
B) a rise in labour productivity in the industry
C) a fall in the price of the good
D) a rise in the price of intermediate goods used in the production of the good

Question 19

The demand curve for oranges may shift to the right if:

A) the price of oranges decreases
B) the price of apples decreases
C) consumer income levels increase
D) the price of oranges increases

Question 20

Which of the following is an advantage of a free- market economy?

A) The economy can respond quickly to changes in demand.
B) The distribution of income may be very unequal.
C) There may be little competition between firms.
D) A small number of large firms may control some industries.

Question 21

A firm produces 2 products: goods A and B. If the profitability of producing good B decreases, which of the following will occur?

A) a rightward shift of the supply cure for good A
B) a movement down along the supply curve for good A
C) a movement up along the supply curve for good A
D) a leftward shift of the supply curve for good A

Question 22

What are sunk costs?

A) costs that have already been incurred and cannot be recovered
B) costs that increase over time
C) costs that increase as the quantity of units produced rises
D) costs that fall as more units are produced

Question 23

What will happen to the price and quantity sold of iPhones if consumers' incomes rise and technological change reduces the cost of producing mobile phones?

A) Price and quantity sold will fall.
B) Price will fall, but it is not possible to say what will happen to quantity sold.
C) Price and quantity sold will rise.
D) Quantity sold will rise, but it is not possible to say what will happen to price.

Question 24

The price of mobile phones rises. Assuming all other factors remain constant, the supply curve for mobile phones will:

A) shift to the left
B) not shift at all
C) shift outwards to the right
D) it is not possible to determine without information on production costs

Question 25

Which of the following factors will have an impact on commodity prices?

A) income
B) alternative land uses
C) speculation
D) all of the above

Question 26

Suppose the preferences of foreign students change, decreasing demand for higher education in Australia, and at the same time the 'brain drain' continues, with more Australian academics moving overseas. We could predict that the price of higher education for overseas students will and the quantity will .

A) increase or decrease; increase
B) decrease; increase
C) increase; decrease
D) increase or decrease; decrease

Question 27

When a decrease in the price of good A causes an increase in demand for good B, the goods are:

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

Question 28

Which assumption does behavioural economics relax?

A) Consumers are risk averse.
B) Firms aim to maximise profits.
C) Consumers like choice.
D) Consumers are rational.

Question 29

Which of the following correctly describes how price adjustments eliminate a shortage?

A) As the price rises, the quantity demanded will decrease while the quantity supplied will increase.
B) As the price falls, the quantity demanded will decrease while the quantity supplied will increase.
C) As the price rises, the quantity demanded will increase while the quantity supplied will decrease.
D) As the price falls, the quantity demanded will increase while the quantity supplied will increase.

Question 30

Which of the following factors that influence your decision about which motorbike to buy refer to the idea of relativity?

A) the price of alternative motorbikes
B) the price of the motorbike
C) the cost of running that motorbike
D) the motorbike your best friend owns

Question 31

Suppose that it is observed that the price of a commodity rises and that the quantity sold falls. From this we can deduce:

A) that the demand curve has shifted to the right, but we cannot deduce whether or not the supply curve has shifted
B) that the supply curve has shifted to the right, but we cannot deduce whether or not the demand curve has shifted
C) that the supply curve has shifted to the left, but we cannot deduce whether or not the demand curve has shifted
D) that the demand curve has shifted to the left, but we cannot deduce whether or not the supply curve has shifted

Question 32

When the price of a good falls and customers tend to buy more of it, and more of other goods, economists call this the effect.

A) ceteris paribus
B) substitution
C) diminishing marginal utility
D) income

Question 33

Consider the supply curve of organically grown wheat. What will be the effect of a government subsidy granted to farmers using organic methods?

A) leftward shift
B) movement up along
C) rightward shift
D) movement down along

Question 34

If the demand for rice increases after an increase in the price of noodles, rice would be classified as:

A) a substitute for noodles
B) a complement to noodles
C) a superior good
D) an inferior good

Question 35

If both the supply and demand curves shift to the left, it can be concluded that there will be:

A) a decrease in the equilibrium price
B) a decrease in the equilibrium quantity sold
C) an increase in the equilibrium quantity sold
D) an increase in the equilibrium price

Question 36

What do we mean by bounded rationality?

A) Consumers are inherently irrational and this limits their ability to make effective decisions.
B) The ability for a consumer to be rational is bounded by the situation in which the consumer finds himself.
C) Consumers are prevented from acting rationally, as they use past experiences to inform their decisions.
D) Consumers are limited by time in decision making so consumers cannot always be rational.

Question 37

A market is in equilibrium. What will happen to the equilibrium price and quantity following an increase in income and a fall in the costs of production?

A) a fall in equilibrium price and a fall in equilibrium quantity
B) a rise in equilibrium price but a fall in equilibrium quantity
C) a rise in equilibrium quantity, but an unknown effect on price
D) a rise in equilibrium price and a rise in equilibrium quantity

Question 38

In a mixed economy, the government may intervene to:

A) adjust relative incomes through the use of taxation and welfare payments
B) increase levels of competition
C) promote economic growth through the use of taxation and expenditure policies
D) all of the above answers are correct

Question 39

The negative relationship between the price of a good and the quantity demanded is known as:

A) the law of quantity supplied
B) the law of supply
C) the law of demand
D) the law of quantity demanded

Question 40

Which of the following occurs along an upward- sloping supply curve?

A) the price of a good rises and its supply increases
B) the price of a good falls and its supply decreases
C) the price of a good rises and its quantity supplied increases
D) the price of a good rises and its quantity supplied decreases

Question 41

Which of the following is the most likely cause of a decrease in demand for cameras?

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

Question 42

Assume that the salinity problem in Australia becomes worse and a large proportion of land can no longer be used for agricultural purposes. The likely effect on the supply of wheat can be illustrated by:

A) a shift rightwards of the supply curve of wheat
B) a movement down along the supply curve of wheat
C) a shift leftwards of the supply curve of wheat
D) a movement up along the supply curve of wheat

Question 43

What might cause a demand curve to shift?

Question 44

If the price of beef increases:

A) the supply curve for cowhides will shift to the left
B) the supply curve for cowhides will shift to the right
C) the supply curve for beef will shift to the left
D) the supply curve for beef will shift to the right

Question 45

Match the correct answer to each statement.
Statement
a() If the drought in Australia continues:
b() If there is a technological improvement in the production of iPods:
c() As a result of bushfires in Victoria's dairy farming area:
Answer

Question 46

The 'law of demand' states that, other things being equal:

A) as prices rise, quantity demanded increases
B) as prices fall, demand decreases
C) as prices fall, quantity demanded increases
D) as prices rise, demand increases

Question 47

The law of supply describes:

A) the positive relationship between the price of a good and the quantity firms are willing to supply
B) the relationship between the non- price determinants of supply and the quantity of a good firms are willing to supply
C) the negative relationship between the price of a good and the quantity firms are willing to supply
D) the inverse relationship between the price of a good and the quantity firms are willing to supply

Question 48

What might cause a supply curve to shift?

Question 49

What do we mean by behavioural economics?

A) it looks at the decision ONLY about how society decides for whom to produce
B) it looks at the decision ONLY about how society decides what to produce
C) it looks at the decision ONLY about how society decides how to produce
D) it concerns all of the above

Question 50

Using the income and substitution effects, explain why an increase in the price of petrol leads to a decrease in the quantity of petrol demanded.

Question 51

Explain the impact of the war in Iraq on world oil prices.

Question 52

Demand for laptop computers has increased but the price has decreased. Is this a violation of the 'law of demand'?

Question 53

Which of the following would cause a shift in the supply curve of a good to the right?

A) a rise in the price of intermediate goods used in the production of the good
B) a fall in the price of the good
C) a fall in labour productivity in the industry
D) a reduction in the price of an input used in the production process

Question 54

Use the example of chocolate to explain the law of diminishing marginal utility.

Question 55

What are the main arguments for and against freer markets?

Question 56

Explain three ways in which consumers can be persuaded to change their behaviour and provide one example of each.

Question 57

If the price of DVD players rises, we would predict:

A) the demand for DVDs will increase
B) the demand for DVDs will decrease
C) the demand for DVD players will decrease
D) the demand for DVD players will increase

Question 58

Match the correct answer to each statement.
Statement
a() If the demand for mangos increases but the supply decreases:
b() If the demand for and supply of hybrid cars both increase:
c() If demand for CDs decreases and the supply increases:
Answer

Question 59

Match the correct answer to each statement.
Statement
a() Which product is a complement of butter?
b() Which product is a complement of coffee?
c() Which product is a substitute for butter?
Answer

Question 60

Explain the difference between changes in supply and changes in the quantity supplied.

Question 61

In a free market, competition can mean that no one firm has too much influence in a market.

Question 62

If there is a shortage in a market this will usually cause both demand and supply curves to shift upwards.

Question 63

In a free- market economy there is less bureaucracy.

Question 64

An increase in the price of petrol leaves people with less disposable income to buy petrol, hence there is a decrease in the quantity demanded of petrol.

Question 65

If a rise in the price of one good causes the sales of another good to fall they are complements.

Question 66

An increase in the price of oil could shift the supply curves of many products to the left.

Question 67

Using demand and supply analysis, show and discuss the likely effects on related markets of a reduction in logging of old growth forests.

Question 68

A successful advertising campaign for a product will shift its supply curve to the right.

Question 69

The price of complements is not a factor determining the quantity demanded of a product.

Question 70

Price changes of a product will always cause a movement along its demand curve, assuming all other factors remain constant.

Question 71

If the demand for a good declines as incomes rise, the good is likely to be an inferior good.

Question 72

If the price of a good rises, the quantity supplied will always fall.

Question 73

The equilibrium price is also known as the market clearing price.

Question 74

According to the principle of diminishing marginal utility, as more goods are consumed, total satisfaction falls.

Question 75

A free market economy is always in the interests of consumers.

Question 76

If a demand curve shifts to the left, and nothing else changes, this will cause a shortage in that market.

Question 77

The law of demand says that if price rises, quantity demanded will fall.

Question 78

Expectations refer to events that have not yet happened; therefore expectations cannot have any real effect on demand.

Question 79

Behavioural economics assumes that consumers are rational, whereas traditional economics relaxes this assumption.

Question 80

Consumers can be 'nudged' to change their eating habits.