Deck 2: Supply and Demand3

Question 1

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

Answer 1

Leftward shift of the demand curve for sport utility vehicles

Question 2

Suppose the demand function for cable TV service is given by Q_CTV = 15 - 0.25xP_CTV + 0.0005xM + 0.3xP_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 2

Cable TV service is a normal good

Question 3

Suppose the demand function for cable TV service is given by Q_CTV = 15 - 0.25xP_CTV + 0.0005xM + 0.3xP_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 the demand curve for cable TV would be given by

A) Q_CTV = 17 - 0.25xP_CTV
B) Q_CTV = 67 - 0.25xP_CTV
C) Q_CTV = 15 - 0.25xP_CTV + 0.0005xM + 0.3xP_STV
D) Q_CTV = 13 - 0.25xP_CTV

Answer 3

Q_CTV = 67 - 0.25xP_CTV

Question 4

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 5

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 6

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 7

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 8

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 9

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 10

An increase 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 11

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 12

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

Question 13

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 14

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 15

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 16

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 17

Suppose the demand function for cable TV service is given by Q_CTV = 15 - 0.25xP_CTV + 0.0005xM + 0.3xP_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 55,000 households?

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

Question 18

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 19

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 20

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 21

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 22

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 20 thousand CDs

Question 23

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 24

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 25

Consider the relationship given by Q_Cars = 100 + 4xP_Cars - 2xP_Steel - 2xP_Workers,where is the quantity of cars (in thousands),is the price of cars and P 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 = 140 + 4xP_Cars
B) Q_Cars = 100 + 4xP_Cars - 2xP_Steel -.2xP_Workers
C) Q_Cars = 100 + 4xP_Cars
D) Q_Cars = 40 + 4xP_Cars

Question 26

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 27

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 28

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 29

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 30

If the demand for a good increases a 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 change "a" to "and at"

Question 31

Suppose that the demand for movies is given by Q^d = 30 - 2xP_Movies and the supply is given by Q^s = 2 + 2xP_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 32

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 33

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 34

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 35

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 36

Supply curves tend to be _____ in the ______.

A) Flatter; long run
B) Steeper; long run
C) Negatively-sloped in the short run
D) Negatively-sloped in the long run

Question 37

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 38

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 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

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 41

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) 0.25
B) -0.25
C) -0.4
D) 2000

Question 42

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

A) More; higher
B) Less; higher
C) More; lower
D) Highly; lower

Question 43

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 44

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 45

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 46

Total expenditures on a company's product will be largest when the elasticity of demand

A) Equals -1
B) Is greater than -1
C) Is less than -1
D) Equals 0

Question 47

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 48

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 49

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 50

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 responsiveness

Question 51

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 price elasticity of demand that is less than zero

Question 52

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 53

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

A) -4
B) -8
C) 1/2
D) -1/2

Question 54

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

A) The slope of line ab
B) The slope of line cd
C) The slope of line cd times (P1/Q1)
D) The slope of line ab times (Q1/P1)

Question 55

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

A) E = (% Change in Y)/(% Change in X)
B) E = (% Change in X)/(% Change in Y)
C) E = (Change in Y)/(Change in X)
D) E = (Change in X)/(Change in Y)

Question 56

Demand is said to be elastic when

A) The percentage change in the amount demanded is smaller that 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 57

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 58

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 59

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 60

According to Table 2.1,which presents hypothetical data on price elasticity of demand,which good has the steepest demand curve?

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

Question 61

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 62

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 at equilibrium?
e.What is the income elasticity of demand for Camrys at equilibrium?

Question 63

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 64

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 65

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 66

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 67

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 68

In econometrics,the variables whose values we are trying to explain are called

A) Explanatory variables
B) Dependent variables
C) Independent variables
D) Control variables