Deck 3: Demand, Supply, and Market Equilibrium

Question 1

One reason that the quantity demanded of a good increases when its price falls is that the

A) price decline shifts the supply curve to the left.
B) lower price shifts the demand curve to the left.
C) lower price shifts the demand curve to the right.
D) lower price increases the real incomes of buyers, enabling them to buy more.

Answer 1

lower price increases the real incomes of buyers, enabling them to buy more.

Question 2

Markets, viewed from the perspective of the supply and demand model,

A) assume many buyers and many sellers of a standardized product.
B) assume market power so that buyers and sellers bargain with one another.
C) do not exist in the real-world economy.
D) are approximated by markets in which a single seller determines price.

Answer 2

assume many buyers and many sellers of a standardized product.

Question 3

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes

A) an inferior good.
B) the rationing function of prices.
C) the substitution effect.
D) the income effect.

Answer 3

the income effect.

Question 4

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived, he discovered that hamburgers were on sale for $1 each, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by

A) the substitution effect.
B) the income effect.
C) the price effect.
D) a rightward shift in the demand curve for hamburgers.

Question 5

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the

A) cost effect.
B) inflationary effect.
C) income effect.
D) substitution effect.

Question 6

A recent study found that an increase in the federal tax on beer (which would increase the price of beer) would reduce the demand for marijuana. Based on this information we can conclude that

A) beer and marijuana are substitute goods.
B) beer and marijuana are complementary goods.
C) beer is an inferior good.
D) marijuana is an inferior good.

Question 7

Economists use the term "demand" to refer to

A) a particular price-quantity combination on a stable demand curve.
B) the total amount spent on a particular commodity over a fixed time period.
C) an upsloping line on a graph that relates consumer purchases and product price.
D) a schedule of various combinations of market prices and amounts/quantities demanded.

Question 8

The relationship between quantity supplied and price is , and the relationship between quantity demanded and price is .

A) direct; inverse
B) inverse; direct
C) inverse; inverse
D) direct; direct

Question 9

The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is

A) price.
B) expectations.
C) preferences.
D) incomes.

Question 10

A demand curve

A) shows the relationship between price and quantity supplied.
B) indicates the quantity demanded at each price in a series of prices.
C) graphs as an upsloping line.
D) shows the relationship between income and spending.

Question 11

(Advanced analysis) The equation for the demand curve in the below diagram

A) is P = 70 - Q.
B) is P = 35 - 2Q.
C) is P = 35 - .5Q.
D) cannot be determined from the information given.

Question 12

An increase in the price of a product will reduce the amount of it purchased because

A) the higher price will signal to consumers that the good is of low quality.
B) the higher price means that real incomes have risen.
C) consumers will substitute other products for the one whose price has risen.
D) consumers substitute relatively high-priced for relatively low-priced products.

Question 13

According to the concept of diminishing marginal utility, consumers will purchase more of a good when the price falls because

A) substitutes are relatively more expensive.
B) consumers' real income has increased.
C) the marginal benefit of additional units of the good now outweigh the marginal cost.
D) the good is now perceived as having higher quality.

Question 14

The law of demand states that, other things equal,

A) price and quantity demanded are inversely related.
B) the larger the number of buyers in a market, the lower will be product price.
C) price and quantity demanded are directly related.
D) consumers will buy more of a product at high prices than at low prices.

Question 15

The demand curve shows the relationship between

A) money income and quantity demanded.
B) price and production costs.
C) price and quantity demanded.
D) consumer tastes and quantity demanded.

Question 16

A market

A) reflects upsloping demand and downsloping supply curves.
B) entails the exchange of goods, but not services.
C) is an institution that brings together buyers and sellers.
D) always requires face-to-face contact between buyer and seller.

Question 17

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes

A) an inferior good.
B) the rationing function of prices.
C) the substitution effect.
D) the income effect.

Question 18

Graphically, the market demand curve is

A) steeper than any individual demand curve that is part of it.
B) greater than the sum of the individual demand curves.
C) the horizontal sum of individual demand curves.
D) the vertical sum of individual demand curves.

Question 19

Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand?

A) diminishing marginal utility
B) the rationing function of prices
C) the substitution effect
D) the income effect

Question 20

When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?

A) the substitution effect
B) the income effect
C) an increase in the demand for Nike soccer balls
D) the price effect

Question 21

In 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are

A) complementary goods, and the higher price for oil increased the demand for natural gas.
B) substitute goods, and the higher price for oil increased the demand for natural gas.
C) complementary goods, and the higher price for oil decreased the supply of natural gas.
D) substitute goods, and the higher price for oil decreased the supply of natural gas.

Question 22

College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are

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

Question 23

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that

A) there are many goods that are substitutes for bicycles.
B) there are many goods that are complementary to bicycles.
C) there are few goods that are substitutes for bicycles.
D) bicycles are normal goods.

Question 24

Running shoes and staplers are

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

Question 25

If the demand curve for product B shifts to the right as the price of product A declines, then

A) both A and B are inferior goods.
B) A is a superior good and B is an inferior good.
C) A is an inferior good and B is a superior good.
D) A and B are complementary goods.

Question 26

If Z is an inferior good, an increase in money income will shift the

A) supply curve for Z to the left.
B) supply curve for Z to the right.
C) demand curve for Z to the left.
D) demand curve for Z to the right.

Question 27

Assume the demand curve for product X shifts to the right. This might be caused by

A) a decline in income if X is an inferior good.
B) a decline in the price of Z if X and Z are substitute goods.
C) a change in consumer tastes that is unfavorable to X.
D) an increase in the price of Y if X and Y are complementary goods.

Question 28

Which of the following would not shift the demand curve for beef?

A) a widely publicized study that indicates beef consumption increases one's cholesterol
B) a reduction in the price of cattle feed
C) an effective advertising campaign by pork producers
D) a change in the incomes of beef consumers

Question 29

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by

A) an increase in the cost of making donuts.
B) an increase in the price of coffee.
C) consumers expecting donut prices to fall.
D) a change in buyer tastes.

Question 30

Which of the following will cause the demand curve for product A to shift to the left?

A) population growth that causes an expansion in the number of persons consuming A
B) an increase in money income if A is a normal good
C) a decrease in the price of complementary product C
D) an increase in money income if A is an inferior good

Question 31

The demand for most products varies directly with changes in consumer incomes. Such products are known as

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

Question 32

Blu-ray players and Blu-ray discs are

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

Question 33

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

A) gold watches
B) ocean cruises
C) used clothing
D) steak

Question 34

Which of the following statements is correct?

A) An increase in the price of C will decrease the demand for complementary product
B) A decrease in income will decrease the demand for an inferior good.
C) An increase in income will reduce the demand for a normal good.
D)
D) A decline in the price of X will increase the demand for substitute product Y.

Question 35

Other things equal, which of the following might shift the demand curve for gasoline to the left?

A) the discovery of vast new oil reserves in Montana
B) the development of a low-cost electric automobile
C) an increase in the price of train and air transportation
D) a large decline in the price of automobiles

Question 36

Which of the following will not cause the demand for product K to change?

A) a change in the price of close-substitute product J
B) an increase in incomes of buyers of product K
C) a change in the price of product K
D) a change in consumer tastes for product K

Question 37

If the price of product L increases, the demand curve for close-substitute product J will

A) shift downward toward the horizontal axis.
B) shift to the left.
C) shift to the right.
D) remain unchanged.

Question 38

A shift to the right in the demand curve for product A can be most reasonably explained by saying that

A) consumer incomes have declined, and consumers now want to buy less of A at each possible price.
B) the price of A has increased and, as a result, consumers want to purchase less of it.
C) consumer preferences have changed in favor of A so that they now want to buy more at each possible price.
D) the price of A has declined and, as a result, consumers want to purchase more of it.

Question 39

If X is a normal good, a rise in money income will shift the

A) supply curve for X to the left.
B) supply curve for X to the right.
C) demand curve for X to the left.
D) demand curve for X to the right.

Question 40

If two goods are complements,

A) they are consumed independently.
B) an increase in the price of one will increase the demand for the other.
C) a decrease in the price of one will increase the demand for the other.
D) they are necessarily inferior goods.

Question 41

If products A and B are complements and the price of B decreases, the

A) demand curves for both A and B will shift to the left.
B) amount of B purchased will increase, but the demand curve for A will not shift.
C) demand for A will increase and the quantity of B demanded will increase.
D) demand for A will decline and the demand for B will increase.

Question 42

By an "increase in demand," economists mean that

A) product price has fallen, so consumers move down to a new point on the demand curve.
B) the quantity demanded at each price in a set of prices is greater.
C) the quantity demanded at each price in a set of prices is smaller.
D) a leftward shift of the demand curve has occurred.

Question 43

"In the corn market, demand often exceeds supply and supply sometimes exceeds demand." "The price of corn rises and falls in response to changes in supply and demand." In which of these two statements are the terms demand and supply being used correctly?

A) In neither statement.
B) In the second statement.
C) In the first statement.
D) In both statements.

Question 44

A normal good is one

A) whose amount demanded will increase as its price decreases.
B) whose amount demanded will increase as its price increases.
C) whose demand curve will shift leftward as incomes rise.
D) for which the consumption varies directly with income.

Question 45

An inferior good is

A) one whose demand curve will shift rightward as incomes rise.
B) one whose price and quantity demanded vary directly.
C) one that has not been approved by the Federal Food and Drug Administration.
D) not accurately defined by any of these statements.

Question 46

If the demand for steak (a normal good) shifts to the left, the most likely reason is that

A) consumer incomes have fallen.
B) cattle production has declined.
C) the price of steak has risen.
D) the price of cattle feed has gone up.

Question 47

The term "quantity demanded"

A) refers to the entire series of prices and quantities that comprise the demand schedule.
B) refers to a situation in which the income and substitution effects do not apply.
C) refers to the amount of a product that will be purchased at some specific price.
D) means the same thing as demand.

Question 48

An increase in the quantity demanded means that

A) given supply, the price of the product can be expected to decline.
B) price has declined and consumers therefore want to purchase more of the product.
C) the demand curve has shifted to the right.
D) the demand curve has shifted to the left.

Question 49

If products C and D are close substitutes, an increase in the price of C will

A) tend to cause the price of D to fall.
B) shift the demand curve for C to the left and the demand curve for D to the right.
C) shift the demand curve for D to the right.
D) shift the demand curves of both products to the right.

Question 50

If consumer incomes increase, the demand for product X

A) will necessarily remain unchanged.
B) may shift either to the right or left.
C) will necessarily shift to the right.
D) will necessarily shift to the left.

Question 51

Which of the following would most likely increase the demand for gasoline?

A) the expectation by consumers that gasoline prices will be higher in the future
B) the expectation by consumers that gasoline prices will be lower in the future
C) a widespread shift in car ownership from SUVs to hybrid sedans
D) a decrease in the price of public transportation

Question 52

Suppose an excise tax is imposed on product X. We expect this tax to

A) increase the demand for complementary good Y and decrease the demand for substitute product Z.
B) decrease the demand for complementary good Y and increase the demand for substitute product Z.
C) increase the demands for both complementary good Y and substitute product Z.
D) decrease the demands for both complementary good Y and substitute product Z.

Question 53

Digital cameras and memory cards are

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

Question 54

Assume that the demand curve for product C is downsloping. If the price of C falls from $2.00 to $1.75,

A) a smaller quantity of C will be demanded.
B) a larger quantity of C will be demanded.
C) the demand for C will increase.
D) the demand for C will decrease.

Question 55

Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to

A) reduce the demand for tacos and increase the demand for soda.
B) reduce the demand for soda and increase the demand for tacos.
C) increase the demand for both soda and tacos.
D) reduce the demand for both soda and tacos.

Question 56

In constructing a demand curve for product X,

A) consumer preferences are allowed to vary.
B) the prices of other goods are assumed constant.
C) money incomes are allowed to vary.
D) the supply curve of product X is assumed constant.

Question 57

A decrease in the demand for recreational fishing boats might be caused by an increase in the

A) income of sports fishers.
B) price of outboard motors.
C) size and number of fish available.
D) price of sailing boats.

Question 58

When an economist says that the demand for a product has increased, this means that

A) consumers are now willing to purchase more of this product at each possible price.
B) the product has become particularly scarce for some reason.
C) product price has fallen and, as a consequence, consumers are buying a larger quantity of the product.
D) the demand curve has shifted to the left.

Question 59

A decrease in the price of digital cameras will

A) cause the demand curve for memory cards to become vertical.
B) shift the demand curve for memory cards to the right.
C) shift the demand curve for memory cards to the left.
D) not affect the demand for memory cards.

Question 60

An increase in product price will cause

A) quantity demanded to decrease.
B) quantity supplied to decrease.
C) quantity demanded to increase.
D) the supply curve to shift to the left.

Question 61

Other things equal, if the price of a key resource used to produce product X falls, the

A) supply curve of product X will shift to the right.
B) demand curve of product X will shift to the right.
C) supply curve of product X will shift to the left.
D) supply curve of product X will not shift.

Question 62

Suppose product X is an input in the production of product Y. Product Y in turn is a substitute for product Z. An increase in the price of X can be expected to

A) decrease the demand for Z.
B) increase the demand for Z.
C) have no effect on the demand for Z.
D) decrease the supply of Z.

Question 63

A leftward shift of a product supply curve might be caused by

A) an improvement in the relevant technique of production.
B) a decline in the prices of needed inputs.
C) an increase in consumer incomes.
D) some firms leaving an industry.

Question 64

If producers must obtain higher prices than before to produce a given level of output, then the following has occurred.

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

Question 65

The location of the product supply curve depends on

A) production technology.
B) the number of buyers in the market.
C) the tastes of buyers.
D) the location of the demand curve.

Question 66

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates the

A) demand for oranges will necessarily rise.
B) equilibrium quantity of oranges will rise.
C) amount of oranges that will be available at various prices has declined.
D) price of oranges will fall.

Question 67

In which of the following statements are the terms "demand" and "quantity demanded" used correctly?

A) When the price of ice cream rose, the demand for both ice cream and ice cream toppings fell.
B) When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell.
C) When the price of ice cream rose, the demand for ice cream fell, and the quantity demanded of ice cream toppings fell.
D) None of these statements use the terms correctly.

Question 68

An improvement in production technology will

A) increase equilibrium price.
B) shift the supply curve to the left.
C) shift the supply curve to the right.
D) shift the demand curve to the left.

Question 69

A government subsidy to the producers of a product

A) reduces product supply.
B) increases product supply.
C) reduces product demand.
D) increases product demand.

Question 70

Increasing marginal cost of production explains

A) the law of demand.
B) the income effect.
C) why the supply curve is upsloping.
D) why the demand curve is downsloping.

Question 71

When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n)

A) increase in the demand for gasoline.
B) decrease in the demand for gasoline.
C) increase in the supply of gasoline.
D) decrease in the supply of gasoline.

Question 72

The supply curve shows the relationship between

A) price and quantity supplied.
B) production costs and the amount demanded.
C) total business revenues and quantity supplied.
D) physical inputs of resources and the resulting units of output.

Question 73

An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the

A) demand curve for cigarettes rightward.
B) demand curve for cigarettes leftward.
C) supply curve for cigarettes rightward.
D) supply curve for cigarettes leftward.

Question 74

In moving along a supply curve, which of the following is not held constant?

A) the number of firms producing this good
B) expectations about the future price of the product
C) techniques used in producing this product
D) the price of the product itself.

Question 75

The upward slope of the supply curve reflects the

A) principle of specialization in production.
B) law of supply.
C) fact that price and quantity supplied are inversely related.
D) law of diminishing marginal utility.

Question 76

The law of supply indicates that, other things equal,

A) producers will offer more of a product at high prices than at low prices.
B) the product supply curve is downsloping.
C) consumers will purchase less of a good at high prices than at low prices.
D) producers will offer more of a product at low prices than at high prices.

Question 77

(Advanced analysis) The equation for the supply curve in the below diagram is approximately

A) P = 4 + 0.3Q.
B) P = 4 + 2Q.
C) P = 4 + 0.5Q.
D) P = 4 - 3Q.

Question 78

A firm's supply curve is upsloping because

A) the expansion of production necessitates the use of qualitatively inferior inputs.
B) mass production economies are associated with larger levels of output.
C) consumers envision a positive relationship between price and quality.
D) beyond some point, the production costs of additional units of output will rise.

Question 79

In moving along a demand curve, which of the following is not held constant?

A) the price of the product itself.
B) price expectations
C) consumer incomes
D) prices of complementary goods

Question 80

Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread, and potatoes are a consumer substitute for bread, we would expect the price of wheat to

A) rise, the supply of bread to increase, and the demand for potatoes to increase.
B) rise, the supply of bread to decrease, and the demand for potatoes to increase.
C) rise, the supply of bread to decrease, and the demand for potatoes to decrease.
D) fall, the supply of bread to increase, and the demand for potatoes to increase.