Deck 2: Supply and Demand

Question 1

An increase in the price of computer chips causes a decrease in the total revenue of computer chip manufacturers. The price elasticity of demand for computer chips is:

A) positive and elastic.
B) inelastic.
C) elastic.
D) positive and inelastic.

Answer 1

C

Question 2

The price of baseball tickets increased by 5%, leading to a 3% decrease in the number of tickets sold. Given this specific situation, total expenditures on baseball tickets:

A) fell.
B) stayed the same.
C) increased.
D) could have increased, decreased, or stayed the same depending on the price elasticity of demand.

Answer 2

C

Question 3

(Figure: Price Elasticity of Demand II) Which of the following statements is TRUE regarding the figure? ​
​
I) The price elasticity of demand is
)
II) The demand curve is perfectly inelastic.
III) An increase in price has no effect on quantity demanded.

A) I and III
B) I, II, and III
C) II and III
D) II

Answer 3

C

Question 4

The supply curve of rubber balls is given by Q = 100P - 10. Which of the following is the equation for the inverse supply curve?

A) P = 10 + 100Q
B) P = 0.1 + 0.01Q
C) P = 100 + 10Q
D) P = 0.1 + 0.1Q

Question 5

Suppose that the demand curve for a new product can be expressed as Q^D = 900 - 3P. At what price is total expenditure maximized?

A) $900
B) $450
C) $300
D) $150

Question 6

Suppose that the market demand curve for sunflowers is a function of the price of sunflowers, the price of roses, and income. If the partial derivative of quantity demanded of sunflowers with respect to the price of roses is negative, sunflowers and roses are:

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

Question 7

Genetically modified soybean seed is an example of a new technology that has increased productivity. As a result, this new technology _____ production costs and _____ the supply of soybeans.

A) raised; increased
B) lowered; decreased
C) lowered; increased
D) raised; decreased

Question 8

The Internet has made learning to play a musical instrument easier than ever, with thousands of websites offering free music lessons. What happens in the market for musical instruments as a result of the availability of these free lessons?

A) The supply curve increases, pushing down the price.
B) The demand curve shifts out, pushing up the price.
C) The demand curve shifts out, which in turn causes the supply curve to increase. The overall effect on price is ambiguous.
D) The price of musical instruments falls, causing an increase in the quantity demanded.

Question 9

Suppose that the demand for a product is given by Q = 25 - 0.25P. If the product's price is $128 per unit, how many units will consumers be willing to buy?

A) 25
B) 0
C) 7
D) 412

Question 10

(Figure: The Market for Asparagus II) An excess supply of 3,000 pounds occurs at a price of:

A) $2.
B) $5.
C) $6.
D) $8.

Question 11

Suppose that the inverse demand curve for energy drinks can be expressed as . The price elasticity of demand at a quantity of 25 is:

A) -0.5.
B) 0.5.
C) -2.
D) 2.

Question 12

(Figure: Total Expenditures) As the price of the product rises from $0 to $40, what happens to total expenditures?

A) Total expenditures increase, reaching a maximum at a price of $40.
B) Total expenditures remain unchanged.
C) Total expenditures decrease, reaching a minimum at a price of $40.
D) Total expenditures first increase and then decrease, as price approaches the midpoint of the demand curve.

Question 13

Suppose a fall in consumer income drives down the demand for lobster while a record harvest increases supply. How would these changes affect the equilibrium price and quantity of lobsters?

A) Both equilibrium price and equilibrium quantity would decrease.
B) The equilibrium price would fall, but the effect on the equilibrium quantity cannot be predicted.
C) The equilibrium price would fall and the equilibrium quantity would increase.
D) The equilibrium quantity would increase, but the effect on price cannot be predicted.

Question 14

(Figure: Market Shifts) Suppose that the demand curve in both markets shifts out by the same distance. The change in price will be larger in _____, and the change in quantity will be larger in _____.

A) market A; market A
B) market A; market B
C) market B; market A
D) market B; market B

Question 15

The income elasticity of demand for dental services is 2.40, and the income elasticity of demand for nursing homes is 0.90. Based on these estimates, dental services are a(n) _____ and nursing home care is a(n) _____.

A) luxury good; normal good
B) normal good; inferior good
C) inferior good; luxury good
D) normal good; luxury good

Question 16

Suppose that the demand and supply curves for a good are given by Q^D = 1,000/P and Q^S = 10P. What is happening in the market at a price of $2?

A) There is an excess demand of 480 units.
B) There is an excess demand of 150 units.
C) There is an excess supply of 480 units.
D) There is an excess supply of 150 units.

Question 17

(Figure: Market for Rubber Balls) According to the figure, what is the equation for the normal supply curve?

A) Q = 100P - 10
B) Q = 100P + 10
C) Q = 10P - 1
D) Q = 0.1P + 10

Question 18

Suppose that the market demand curve for cauliflower is a function of the price of cauliflower, the price of broccoli, and income. If the partial derivative of quantity demanded of cauliflower with respect to income is positive,:

A) neither cauliflower nor broccoli is a normal good.
B) cauliflower and broccoli are both normal goods.
C) broccoli is a normal good.
D) cauliflower is a normal good.

Question 19

The inverse supply equation for clay pots is P = 0.5Q ^S + 1; the inverse demand equation is P = -2Q^D + 15. Quantity is in thousands of units. What is the equilibrium quantity?

A) 3,800
B) 1,000
C) 5,600
D) 7,500

Question 20

If the price of crude oil increases and the number of people who own cars falls:

A) the equilibrium price of gasoline will increase and equilibrium quantity of gasoline will decrease.
B) the equilibrium price of gasoline will decrease and equilibrium quantity of gasoline will be uncertain.
C) the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will decrease.
D) the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will increase.

Question 21

In the market for good X, demand is Q^D = 6,000 - 0.8P and supply is Q^S = 0.4P - 300. Which of the following is the inverse demand equation?

A) P = 6,000 - 0.8Q
B) P = 300 - 0.4Q
C) P = 7,500 - 1.25Q
D) P = 750 - 2.5Q

Question 22

Which of the following statements is TRUE?

A) A demand curve shows the relationship between a product's price and the number of units consumers want to buy at each price, assuming there are no changes in other factors affecting demand.
B) A demand curve shows the relationship between consumer income and the quantity purchased of a product.
C) A demand curve shows the relationship among consumer income, price of a product, quantity supplied, and the number of units of that product consumers want to buy.
D) A demand curve is drawn with the assumption that demand equals supply.

Question 23

(Figure: Demand Shifts II) Using the figure, which factor could cause the demand curve to shift out from D₁ to D₂?

A) an increase in the price of a complement good
B) a decrease in the number of consumers
C) a decrease in the price of a complement good
D) an decrease in the price of the good

Question 24

The inverse supply equation for clay pots is P = 0.5Q ^S + 1; the inverse demand equation is P = -2Q^D + 15. Quantity is in thousands of units. What is the normal demand equation?

A) Q = 2P - 15
B) Q = 7.5 - 2P
C) Q = 15 - 2P
D) Q = 7.5 - 0.5P

Question 25

In the standard model, we expect the partial derivative of quantity supplied with respect to input price to be:

A) positive.
B) negative.
C) either positive or negative.
D) Cannot make a clear determination with the given information.

Question 26

The supply curve of rubber balls is given by Q = 100P - 10. What happens to the quantity supplied of rubber balls if the price of rubber balls increases by $1?

A) increases by 100
B) decreases by 100
C) increases by 10
D) decreases by 10

Question 27

If a 5% increase in income increases quantity demanded by 4%, the income elasticity of demand is:

A) 1.25.
B) 0.80.
C) 2.0.
D) 0.02.

Question 28

(Figure: Markets and Goods) Assuming the good is a normal good, which of the following statements is TRUE? I. The price of a substitute good decreased.
II) The price of a complement good increased.
III) The income of consumers increased.
IV) The number of buyers in the market increased.

A) III only
B) II and IV
C) I, II, III, and IV
D) I and II

Question 29

One assumption of the supply and demand model is that:

A) several large sellers can raise prices by restricting output.
B) buyers with bargaining power are able to receive quantity discounts.
C) all of the goods in the market sell for the same price.
D) larger firms sell their products at lower prices than smaller firms.

Question 30

According to the Application in Chapter 2, many video game makers in the early 1980s went out of business because:

A) a large increase in the supply of games lowered the price of video games so much that it made them unprofitable.
B) a large decrease in the supply of games raised the price of video games so much that consumers stopped buying them.
C) a large decrease in consumer demand lowered the price of video games so much that it made them unprofitable.
D) a large increase in consumer demand raised the price of video games to the point that they were no longer affordable.

Question 31

Suppose that the inverse demand curve for a well-known sports car can be expressed as , where price is in dollars and quantity is in numbers of cars. What is true about the demand for these sports cars at a quantity of 200?

A) Demand is inelastic because the absolute value is greater than 0 and less than 1.
B) Demand is inelastic because the absolute value is greater than 1.
C) Demand is elastic because the absolute value is greater than 0 and less than 1.
D) Demand is elastic because the absolute value is greater than 1.

Question 32

If the inverse demand curve for a good is given by P = 100 - 4Q, the price elasticity of demand is elastic at a price of _____ and inelastic at a price of _____.

A) $40; $60
B) $60; $50
C) $55; $35
D) $35; $30

Question 33

Electric guitars and amplifiers are complement goods, and electric guitars and acoustic guitars are substitute goods. An increase in the price of amplifiers _____ the number of electric guitars consumers want to buy, while an increase in the price of acoustic guitars _____ the number of electric guitars consumers want to buy.

A) increases; decreases
B) decreases; increases
C) decreases; decreases
D) increases; increases

Question 34

(Figure: Price Elasticity of Demand I) What is the price elasticity of demand at point A?

A) -2.6
B) -1.54
C) -0.7
D) -3.2

Question 35

(Figure: Market for Asparagus II) At what price does the quantity demanded by consumers equal the quantity supplied by producers?

A) $5
B) $4
C) $1
D) $3

Question 36

Suppose that the market demand and supply curves for granola bars are represented by the equations:
Q^D = 7,000 - 120P
Q^S = -50 + 20P
Where Q^D is the quantity demanded, Q^S is the quantity supplied, and P is the price. Which of the following is true for these market demand and supply curves?

A) The law of supply holds because the derivative of the demand with respect to price is -120.
B) The law of supply holds because the derivative of the demand with respect to price is 20.
C) The law of supply does not hold because the derivative of the demand with respect to price is -120.
D) The law of supply does not hold because the derivative of the demand with respect to price is 20.

Question 37

(Figure: Market for Rubber Balls) According to the figure, what is the equation for the inverse supply curve?

A) P = 0.01Q + 0.10
B) P = Q + 0.10
C) P = 10Q + 100
D) P = 0.1Q + 1

Question 38

Suppose the demand for fabric softener can be described as Q^D = 800 - P - P_D, where Q^D is the quantity of fabric softener demanded, P is the price of fabric softener, and P_D is the price of laundry detergent. Suppose that the price of detergent is initially 10 but increases to 15. The new equation for the demand of fabric softener is:

A) 785 - P, and demand has shifted to the left.
B) 785 - P, and demand has shifted to the right.
C) 815 - P, and demand has shifted to the left.
D) 815 - P, and demand has shifted to the right.

Question 39

The market for cod liver oil pills is characterized by the demand and supply equations: Q^D = 100 - 4P and Q^S = -20 + 2P, where P is the price per bottle and Q is the quantity of bottles. If consumers want to purchase 60 more bottles at any given price, what is the new equilibrium quantity?

A) 10
B) 20
C) 30
D) 40

Question 40

The normal supply curve is Q = 12P - 20. Which of the following is the inverse supply curve?

A) P = 20 + 12Q
B) P = 8 + Q
C) P = 1.67 + 0.083Q
D) P = 0.6 + 1.67Q

Question 41

Which of the following will not cause demand for apples to increase or decrease?

A) a reduction in the price of apples
B) a reduction in the price of a complement for apples
C) an increase in income
D) a decrease in the number of consumers in the market

Question 42

Given the information in the associated graph, determine the equation for the normal demand.

A) Q = 12 - 2P
B) Q = 12 - 6P
C) Q = 6 - 2P
D) Q = 12 - 0.5P

Question 43

The market for matsutake mushrooms is characterized by the following demand and supply equations: Q^D = 100 - P and Q^S = -50 + 2P, where Q is measured in pounds and P is measured in price per pound. If a new fertilizer increases the quantity supplied by 30 pounds at every price, the equilibrium price changes from ______ to _____.

A) $50; $70
B) $100; $30
C) $150; $110
D) $50; $40

Question 44

Suppose that the demand for a product is given by Q = 25 - 0.25P. When graphing the inverse demand, the vertical intercept is ____ and the horizontal intercept is ____.

A) $25; 125
B) $5; 0
C) $100; 25
D) $125; 0

Question 45

Which of the following statements is TRUE?
I) As more sellers enter a market, the supply of the product will increase.
II) If input prices increase, the supply of the product will be unaffected because firms pass the higher costs of production to consumers in the form of higher prices.
III) Firms respond to higher prices for their product by offering a larger quantity for sale.

A) I and II
B) II and III
C) I, II, and III
D) I and III

Question 46

In the supply and demand model, we assume that there are _____ buyers and _____ sellers in the market.

A) many; many
B) several; several
C) many; several
D) several; many

Question 47

In the market for good X, demand is Q^D = 6,000 - 0.8P and supply is Q^S = 0.4P - 300. Which of the following is the inverse supply equation?

A) P = 6,000 + 0.8Q
B) P = 300 + 0.4Q
C) P = 7,500 + 1.25Q
D) P = 750 + 2.5Q

Question 48

Suppose that the inverse demand curve for a well-known sports car can be expressed as , where price is in dollars and quantity is in numbers of cars. What is true about the demand for these sports cars at a quantity of 100?

A) Demand is inelastic because the absolute value is greater than 0 and less than 1.
B) Demand is inelastic because the absolute value is greater than 1.
C) Demand is elastic because the absolute value is greater than 0 and less than 1.
D) Demand is elastic because the absolute value is greater than 1.

Question 49

Suppose that the inverse demand curve for a well-known sports car can be expressed as , where price is in dollars and quantity is in numbers of cars. What is the price elasticity of demand at a quantity of 200?

A) -0.125
B) -0.375
C) -1.25
D) -3.75

Question 50

(Figure: The Market for Asparagus II) At a price of $2, there is an excess:

A) supply of 4,000 pounds.
B) supply of 3,000 pounds.
C) demand of 3,000 pounds.
D) demand of 1,000 pounds.

Question 51

Suppose that the demand for a product is given by Q = 25 - 0.25P. The inverse demand is:

A) P = 100 - 4Q
B) P = 25 - 4Q
C) P = 25 - 0.25Q
D) P = 100 + 4Q

Question 52

A key assumption of the supply and demand model is that:

A) each firm's good is unique and cannot be duplicated by other firms in the market.
B) firms will continue to raise prices until profits become positive.
C) each firm in the market produces an identical good.
D) each firm produces at a level of output at which price exceeds marginal cost.

Question 53

Suppose that the cross-price elasticity of demand for movie popcorn with respect to movie tickets is -0.75. If the price of movie tickets rises by 4%, the quantity demanded of movie popcorn will:

A) fall by 18.75%.
B) fall by 5.33%.
C) rise by 3%.
D) fall by 3%.

Question 54

Suppose that the extended market demand curve for maple syrup can be expressed as , where P_p is the price of pancake batter and I is income. Which of the following is true for this extended market demand?

A) Maple syrup is a normal good because the partial derivative of the extended market demand with respect to income is negative.
B) Maple syrup is a normal good because the partial derivative of the extended market demand with respect to income is positive.
C) Maple syrup is an inferior good because the partial derivative of the extended market demand with respect to income is negative.
D) Maple syrup is an inferior good because the partial derivative of the extended market demand with respect to income is positive.

Question 55

In the market for good X, demand is Q^D = 6,000 - 0.8P and supply is Q^S = 0.4P - 300. What is the equilibrium price?

A) $1,200
B) $1,800
C) $4,800
D) $5,250

Question 56

In market A, a 4% increase in price reduces quantity demanded by 2%. In market B, a 3% increase in price reduces quantity demanded by 4%. The price elasticity of demand in market A and market B are considered _____ and _____, respectively.

A) elastic; inelastic
B) inelastic; elastic
C) perfectly elastic; unit elastic
D) unit elastic; perfectly inelastic

Question 57

An increase in input prices causes:

A) the market supply to shift inward, driving the equilibrium price downward.
B) the market supply to shift outward, leading to a higher equilibrium price.
C) the market supply to shift inward, driving the equilibrium price higher.
D) the supply curve to decrease and the demand curve to decrease.

Question 58

The inverse supply equation for clay pots is P = 0.5Q ^S + 1; the inverse demand equation is P = -2Q^D + 15. Quantity is in thousands of units. What is the normal supply equation?

A) Q = 2P - 2
B) Q = P - 1
C) Q = P - 2
D) Q = 0.5P - 1

Question 59

Consumers are particularly price-responsive when:

A) it is difficult to substitute across suppliers and prices are high.
B) prices are low and they have little time to change their consumption patterns.
C) a product has many substitutes and they have a long time to adjust their consumption.
D) there are few substitute goods available for a product, and they have a short time horizon to adjust their consumption.

Question 60

(Market for Asparagus I) What could cause the supply curve in the market for asparagus to shift from S₁ to S₂?

A) an increase in the number of asparagus farmers
B) poor weather conditions that reduce the asparagus harvest
C) better fertilizers that lower the costs of production
D) a decrease in the price of asparagus

Question 61

On some days Gustav makes his own salad for lunch, preferring to use either iceberg or romaine lettuce, topped off with lots of fresh tomatoes. For Gustav, the cross-price elasticity of demand for iceberg lettuce with respect to romaine lettuce is _____, and the cross-price elasticity of demand for iceberg lettuce with respect to tomatoes is _____.

A) positive; negative
B) negative; positive
C) zero; positive
D) negative; zero

Question 62

Which of the following is not an assumption underlying the supply and demand model?

A) The focus is on supply and demand in a single market.
B) All goods sold in the market are identical.
C) Different firms sell their goods at different prices.
D) There are many producers and consumers in the market.

Question 63

Suppose that the demand and supply curves for a good are given by Q^D = 1,000/P and Q^S = 10P. What is happening in the market at a price of $20?

A) There is an excess demand of 480 units.
B) There is an excess demand of 150 units.
C) There is an excess supply of 480 units.
D) There is an excess supply of 150 units.

Question 64

In the market for oranges, we observe that the equilibrium price increased and the equilibrium quantity increased. What could have caused this change?

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

Question 65

If the supply curve is Q_S = 4P - 4, then the highest price at which no producer is willing to sell the good (i.e., the supply choke price) is:

A) 1.
B) 4.
C) 3.
D) 2.

Question 66

In the market for good X, demand is Q^D = 6,000 - 0.8P and supply is Q^S = 0.4P - 300. Suppose that an increase in consumer income makes consumers willing to pay $500 more per unit of good X. Also, a technological breakthrough in production makes firms willing to sell good X for $250 less per unit. What is the new equilibrium price?

A) $1,200
B) $2,000
C) $4,800
D) $5,500

Question 67

For an elastic demand function, the derivative of the revenue function with respect to price is:

A) positive.
B) negative.
C) zero.
D) infinite.

Question 68

The demand curve for a good is Q = 80 - 0.20P, where Q is the quantity demanded and P is the price per unit. This good's inverse demand curve is:

A) P = 80 - 0.20Q.
B) P = 40 - Q.
C) P = 5Q + 40.
D) P = 400 - 5Q.

Question 69

Which of the following factors influences demand?

A) prices of inputs
B) production technology
C) the number of producers
D) prices of complement goods

Question 70

(Figure: Demand Shift I) Which of the following events could have caused the demand curve to shift? I. The price of a substitute good decreased.
II) The price of a complement good increased.
III) The income of consumers increased.
IV) The number of buyers in the market increased.

A) I, II, III, and IV
B) III and IV
C) II, III, and IV
D) I and II

Question 71

Suppose that the supply of a good is given by Q = -50 + 5P, where Q is the quantity supplied and P is the price measured in dollars per unit. This equation indicates that the quantity supplied increases by _____ units for every dollar increase in price.

A) 5
B) 45
C) 50
D) 55

Question 72

The market for cod liver oil pills is characterized by the demand and supply equations: Q^D = 100 - 4P and Q^S = -20 + 2P, where P is the price per bottle and Q is the quantity of bottles. What is the equilibrium quantity?

A) 10
B) 20
C) 30
D) 40

Question 73

If a 10% increase in the price of pork reduces quantity demanded by 7%, the price elasticity of demand is:

A) -1.43.
B) -0.14.
C) -7.0.
D) -0.70.

Question 74

To test whether the law of supply holds using calculus, you should:

A) take the partial derivative of quantity supplied Q^S with respect to P and conclude that the law of supply holds if this derivative is positive at the market price.
B) take the partial derivative of quantity supplied Q^S with respect to P and conclude that the law of supply holds if this derivative is negative at the market price.
C) take the derivative of P with respect to quantity supplied Q^S and conclude that the law of supply holds if this derivative is positive at the market price.
D) take the derivative of P with respect to quantity supplied Q^S and conclude that the law of supply holds if this derivative is negative at the market price.

Question 75

Suppose that farmers can use their land to grow and sell soybeans and cotton. Cotton prices have risen. Farmers respond by producing _____ soybeans and _____ cotton.

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

Question 76

Suppose that the market demand and supply curves for granola bars are represented by the equations:
Q^D = 7,000 - 120P
Q^S = -50 + 20P
Where Q^D is the quantity demanded, Q^S is the quantity supplied, and P is the price. Which of the following is true for these market demand and supply curves?

A) The law of demand holds because the derivative of the demand with respect to price is -120.
B) The law of demand holds because the derivative of the demand with respect to price is 20.
C) The law of demand does not hold because the derivative of the demand with respect to price is -120.
D) The law of demand does not hold because the derivative of the demand with respect to price is 20.

Question 77

Suppose that the inverse demand curve for a well-known sports car can be expressed as , where price is in dollars and quantity is in numbers of cars. What is the price elasticity of demand at a quantity of 100?

A) -1
B) -2
C) 1
D) 2

Question 78

(Figure: Price and Quantity of Turkeys I) A salmonella (bacterial disease) outbreak would shift the demand curve for turkey from D₁ to _____, and a discovery that eating turkey reduces muscle fatigue in athletes would shift the demand curve for turkey from D₁ to _____.

A) D₂; D₃
B) D₃; D₂
C) D₃; D₃
D) D₂; D₂

Question 79

Suppose the demand for fabric softener can be described as Q^D = 1,000 - P +0.01I, where Q^D is the quantity of fabric softener demanded, P is the price of fabric softener, and I is income. Suppose that income is initially 1,000, but it falls to 800. The new equation for the demand for fabric softener is:

A) 800 - P + 0.01I, and demand has shifted to the left.
B) 800 - P + 0.01I, and demand has shifted to the right.
C) 1,080 - P, and demand has shifted to the left.
D) 1,080 - P, and demand has shifted to the right.

Question 80

Suppose that the equilibrium price of blackberries is $3 per pound, and the price of black raspberries (a substitute for blackberries) increases. What happens in the market for blackberries?

A) An excess supply of blackberries at $3 per pound leads to an increase in quantity demanded and a decrease in quantity supplied.
B) The demand curve for blackberries shifts to the right, resulting in an increase in both the equilibrium price and the quantity.
C) An excess demand of blackberries at $3 per pound results in a new equilibrium price that is less than $3 per pound.
D) The demand curve for blackberries decreases, reducing the equilibrium price and raising the equilibrium quantity.