Deck 3: Demand, Supply, and Market Equilibrium

Question 1

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.

Answer 1

the marginal benefit of additional units of the good now outweigh the marginal cost.

Question 2

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.

Answer 2

the income effect.

Question 3

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

Answer 3

diminishing marginal utility

Question 4

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 5

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.

Question 6

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 7

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 8

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 9

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 10

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 quantities demanded.

Question 11

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

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

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 13

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.

Question 14

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 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

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 17

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 18

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.

Question 19

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 20

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 21

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 22

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 23

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

A) smartwatches
B) ocean cruises
C) used clothing
D) steak

Question 24

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 25

In 2018, the price of oil increased, which in turn contributed to a rise in the price of natural gas. 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 26

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 27

Running shoes and staplers are

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

Question 28

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 29

Which of the following statements is correct?

A) An increase in the price of C will decrease the demand for complementary product D.
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) A decline in the price of X will increase the demand for substitute product Y.

Question 30

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 31

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 32

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 33

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 34

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 35

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 36

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 37

Blu-ray players and Blu-ray discs are

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

Question 38

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 39

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 40

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 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 41

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 42

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 43

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 44

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 45

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 46

An increase in the price of product A will

A) reduce the demand for resources used in the production of A.
B) increase the demand for complementary product C.
C) increase the demand for substitute product B.
D) reduce the demand for substitute product B.

Question 47

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 48

Digital cameras and memory cards are

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

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

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 51

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 52

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 53

Refer to the diagram. A decrease in quantity demanded is depicted by a

A) move from point x to point y.
B) shift from D1 to D2.
C) shift from D2 to D1.
D) move from point y to point x.

Question 54

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 U.S. Food and Drug Administration.
D) not accurately defined by any of these statements.

Question 55

"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, "The price of corn rises and falls in response to changes in supply and demand."
C) In the first statement, "In the corn market, demand often exceeds supply and supply sometimes exceeds demand."
D) In both statements.

Question 56

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 its consumption varies directly with income.

Question 57

Refer to the diagram. A decrease in demand is depicted by a

A) move from point x to point y.
B) shift from D1 to D2.
C) shift from D2 to D1.
D) move from point y to point x.

Question 58

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 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

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 61

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.

Question 62

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 choices are correct.

Question 63

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 64

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 65

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 66

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 67

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 68

If producers obtain higher prices than before to produce given levels 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 69

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 70

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

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

Question 71

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 72

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 73

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 74

Refer to the diagram. An increase in quantity supplied is depicted by a

A) move from point y to point x.
B) shift from S1 to S2.
C) shift from S2 to S1.
D) move from point x to point y.

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

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 77

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 78

Refer to the diagram. A decrease in supply is depicted by a

A) move from point x to point y.
B) Shift from S1 to S2.
C) shift from S2 to S1.
D) move from point y to point x.

Question 79

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 80

Assume product A is an input in the production of product B. In turn, product B is a complement to product C. We can expect a decrease in the price of A to

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