Deck 3: Where Prices Come From: the Interaction of Demand and Supply

Question 1

If, in response to an increase in the price of chocolate, the quantity demanded of chocolate decreases economists would describe this as

A)a decrease in demand.
B)a decrease in quantity demanded.
C)a change in consumer income.
D)a decrease in consumers' taste for chocolate.

Answer 1

B

Question 2

Table 3.1
$\begin{array}{|c|c|c|c|c|}\hline \begin{array}{c}\text { Loose Leaf Tea } \\\text { Price per kg. } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Sunil's } \\\text { Quantity } \\\text { Demanded } \\\text { (kgs) }\end{array} & \begin{array}{c}\text { Mia's } \\\text { Quantity } \\\text { Demanded } \\\text { (kgs) }\end{array} & \begin{array}{c}\text { Rest of Market } \\\text { Quantity } \\\text { Demanded } \\\text { (kgs) }\end{array} & \begin{array}{c}\text { Market } \\\text { Quantity } \\\text { Demanded } \\\text { (kgs) }\end{array} \\\hline \$ 8 & 4 & 0 & 30 & \\\hline 6 & 7 & 2 & 40 & \\\hline 5 & 9 & 3 & 51 & \\\hline 4 & 12 & 5 & 64 & \\\hline 3 & 15 & 8 & 90 & \\\hline\end{array}$

-Refer to Table 3.1.The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia)and the rest of the market.If the price of loose-leaf tea rises from $3 to $4, the market quantity demanded would

A)decrease by 32 kgs.
B)increase by 64 kgs.
C)increase by 32 kgs.
D)decrease by 64 kgs.

Answer 2

decrease by 32 kgs.

Question 3

The law of demand implies, holding everything else constant, that

A)as the price of bagels increases, the quantity of bagels demanded will decrease.
B)as the price of bagels increases, the demand for bagels will decrease.
C)as the price of bagels increases, the quantity of bagels demanded will increase.
D)as the price of bagels increases, the demand for bagels will increase.

Answer 3

A

Question 4

By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis, economists assume that the most important determinant of the demand for a good is the ________ of the good.

A)quantity; price; quantity
B)price; quantity; quantity
C)price; quantity; price
D)quantity; price; price

Question 5

The ________ effect refers to the change in quantity demanded for a good that results from the effect of a change in the good's price on consumer's purchasing power.

A)ceteris paribus
B)population
C)substitution
D)income

Question 6

The demand by all the consumers of a given good or service is the ________ for the good or service.

A)market demand
B)quantity demanded
C)law of demand
D)scheduled demand

Question 7

Table 3.1
$\begin{array}{|c|c|c|c|c|}\hline \begin{array}{c}\text { Loose Leaf Tea } \\\text { Price per kg. } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Sunil's } \\\text { Quantity } \\\text { Demanded } \\\text { (kgs) }\end{array} & \begin{array}{c}\text { Mia's } \\\text { Quantity } \\\text { Demanded } \\\text { (kgs) }\end{array} & \begin{array}{c}\text { Rest of Market } \\\text { Quantity } \\\text { Demanded } \\\text { (kgs) }\end{array} & \begin{array}{c}\text { Market } \\\text { Quantity } \\\text { Demanded } \\\text { (kgs) }\end{array} \\\hline \$ 8 & 4 & 0 & 30 & \\\hline 6 & 7 & 2 & 40 & \\\hline 5 & 9 & 3 & 51 & \\\hline 4 & 12 & 5 & 64 & \\\hline 3 & 15 & 8 & 90 & \\\hline\end{array}$

-Refer to Table 3.1.The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia)and the rest of the market.At a price of $5, the quantity demanded in the market would be

A)51 kgs.
B)63 kgs.
C)76 kgs
D)146 kgs.

Question 8

If the price of grapefruit rises, the substitution effect due to the price change will cause

A)a decrease in the demand for grapefruit.
B)a decrease in the demand for oranges, a substitute for grapefruit.
C)a decrease in the quantity demanded of grapefruit.
D)a decrease in the quantity supplied of grapefruit.

Question 9

What is the difference between an "increase in demand" and an "increase in quantity demanded"?

A)There is no difference between the two terms; they both refer to a shift of the demand curve.
B)An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.
C)There is no difference between the two terms; they both refer to a movement downward along a given demand curve.
D)An "increase in demand" is represented by a movement along a given demand curve, while an "increase in quantity demanded" is represented by a rightward shift of the demand curve.

Question 10

If Red Bull and Beaver Buzz Energy are considered substitutes, then, other things equal, an increase in the price of the Red Bull will

A)decrease the demand for the Red Bull
B)increase the demand for the Beaver Buzz Energy.
C)increase the quantity demanded for Beaver Buzz Energy.
D)increase the quantity demanded for the Red Bull.

Question 11

If a demand curve shifts to the right, then

A)demand has increased.
B)quantity demanded has increased.
C)demand has decreased.
D)quantity demanded has decreased.

Question 12

A change in all of the following variables will change the market demand for a product except

A)the price of the product.
B)population and demographics.
C)income.
D)tastes.

Question 13

Which of the following will shift the demand curve for a good?

A)a change in the technology used to produce the good
B)an increase in the price of the good
C)a decrease in the price of a complementary good
D)a decrease in the price of the good

Question 14

A movement along the demand curve for toothpaste would be caused by

A)a change in the price of toothbrushes.
B)a change in consumer income.
C)a change in the price of toothpaste.
D)a change in population.

Question 15

Following the successful launch of Red Bull in the Canadian market in 2004, companies such as Coca Cola, Pepsi, and many others have introduced products to compete with Red Bull.The energy drinks introduced to compete with Red Bull would be considered

A)complements to Red Bull.
B)substitutes for Red Bull.
C)inferior goods compared to Red Bull.
D)normal goods compared to Red Bull.

Question 16

When the price of a normal good falls, consumers buy a larger quantity because of the ________ effect and the ________ effect.

A)substitution; income
B)normal; inferior
C)substitute; complement;
D)supply; demand

Question 17

The income effect of a price change refers to the impact of a change in

A)income on the price of a good.
B)demand when income changes.
C)the quantity demanded when income changes.
D)the price of a good on a consumer's purchasing power.

Question 18

If an increase in income leads to in an increase in the demand for peanut butter, then peanut butter is

A)a neutral good.
B)a normal good.
C)a necessity.
D)a complement.

Question 19

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is

A)an inferior good.
B)a neutral good.
C)a necessity.
D)a normal good.

Question 20

Holding everything else constant, an increase in the price of MP3 players will result in

A)a decrease in the quantity of MP3 players supplied.
B)a decrease in the demand for MP3 players.
C)an increase in the supply of MP3 players.
D)a decrease in the quantity of MP3 players demanded.

Question 21

Figure 3.1

Refer to Figure 3.1.A case in which consumers no longer cared for a product would be represented by a movement from

A)A to B.
B)B to A.
C)D₁ to D₂.
D)D₂ to D₁.

Question 22

In January, buyers of gold expect that the price of gold will rise in February.What happens in the gold market in January, holding all else constant?

A)The supply curve shifts to the right.
B)The demand curve shifts to the left.
C)The demand curve shifts to the right.
D)The quantity demanded increases.

Question 23

Figure 3.1

Refer to Figure 3.1.An increase in population would be represented by a movement from

A)A to B.
B)B to A.
C)D₁ to D₂.
D)D₂ to D₁.

Question 24

Suppose that when the price of raspberries increases, Lonnie increases his purchases of papayas.To Lonnie

A)raspberries and papayas are complements.
B)raspberries and papayas are inferior goods.
C)raspberries and papayas are normal goods.
D)raspberries and papayas are substitutes.

Question 25

Which of the following is expected to occur as the baby-boom generation ages?

A)The demand for baby clothes should increase.
B)The demand for prescription drugs should decrease.
C)The demand for medical services should increase.
D)The demand for larger houses should increase.

Question 26

The Internet has created a new category in the book selling market, namely, the "barely used" book.How does the availability of barely used books affect the market for new books?

A)The demand curve for new books shifts to the right.
B)The demand curve for new books shifts to the left.
C)The supply curve for new books shifts to the right.
D)The supply curve for new books shifts to the left.

Question 27

How does the increasing use of MP3 players affect the market for compact discs?

A)The demand curve for compact discs shifts to the right.
B)The supply curve for compact discs shifts to the left.
C)The supply curve for compact discs shifts to the right.
D)The demand curve for compact discs shifts to the left.

Question 28

Studies have shown links between calcium consumption and a reduction in osteoporosis.How does this affect the market for calcium?

A)The calcium supply curve shifts to the right because of a change in tastes in favor of calcium.
B)The calcium demand curve shifts to the right because of a change in tastes in favor of calcium.
C)The calcium demand curve shifts to the left because this new information will increase the price of calcium.
D)The calcium supply curve shifts to the left because this new information will increase the price of calcium.

Question 29

If the price of automobiles was to increase, then

A)the demand for gasoline would decrease.
B)the demand for gasoline would increase.
C)the supply of gasoline would increase.
D)the quantity demanded of gasoline would decrease.

Question 30

Suppose that when the price of hamburgers decreases, the Li family increases their purchases of ketchup.To the Li family

A)hamburgers and ketchup are complements.
B)hamburgers and ketchup and substitutes.
C)hamburgers and ketchup are normal goods.
D)hamburgers are normal goods and hot dogs are inferior goods.

Question 31

In June, buyers of titanium expect that the price of titanium will fall in July.What happens in the titanium market in June, holding everything else constant?

A)The demand curve shifts to the right.
B)The quantity demanded increases.
C)The quantity demanded decreases
D)The demand curve shifts to the left.

Question 32

Technological advancements have led to lower prices and an increase in the sale of digital cameras.How does this affect the digital photo printing paper market?

A)The demand curve for digital photo printing paper shifts to the right.
B)The demand curve for digital photo printing paper shifts to the left.
C)The supply curve for digital photo printing paper shifts to the right.
D)The supply curve for digital photo printing paper shifts to the left.

Question 33

Technological advances have resulted in lower prices for digital cameras.What is the impact of this on the market for traditional (non-digital)cameras?

A)The demand curve for traditional cameras shifts to the right.
B)The supply curve for traditional cameras shifts to the right.
C)The demand curve for traditional cameras shifts to the left.
D)The supply curve for traditional cameras shifts to the left.

Question 34

Buyers rush to purchase stocks in Ontario vineyards following a forecast of a 30 percent decline in this year's grape harvest.What happens in the Ontario wine market as a result of this announcement?

A)The demand curve for Ontario wine shifts to the left in anticipation of higher prices in the future.
B)The demand curve for Ontario wine shifts to the right in anticipation of higher prices in the future.
C)The supply curve for Ontario wine shifts to the right in anticipation of higher prices in the future.
D)The supply curve for Ontario wine shifts to the left in anticipation of lower quantities in the future.

Question 35

During the recession of 2008-2009

A)sales of premium liquor products experienced decreased demand and cheaper liquor products (like mainstream beer)experienced increased demand.
B)sales of premium liquor products experienced increased demand and cheaper liquor products experienced decreased demand.
C)both premium and cheaper liquor products (like mainstream beer)experienced increased demand.
D)both premium and cheaper liquor products (like mainstream beer)experienced decreased demand.

Question 36

Figure 3.1

Refer to Figure 3.1.If the product represented is an inferior good, an increase in income would be represented by a movement from

A)A to B.
B)B to A.
C)D₁ to D₂.
D)D₂ to D₁.

Question 37

Tom Searchinger, a senior attorney at the Environmental Defense Fund, observed that generous U.S.farm subsidies have encouraged farmers to produce more corn and more wheat.How does this affect the market for fertilizer?

A)The supply of fertilizer increases.
B)The supply of fertilizer decreases
C)The demand for fertilizer increases.
D)The demand for fertilizer decreases.

Question 38

At the end of the recession in 2009, as incomes recovered, sales of Alcool NB Liquor's own brand of low-priced beer were low.At the same time sales of premium products rose.The decrease in demand for Alcool NB Liquor's low-priced beer despite the increase in incomes indicates that this brand of beer is considered a(n)

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

Question 39

Figure 3.1

Refer to Figure 3.1.A decrease in the price of the product would be represented by a movement from

A)A to B.
B)B to A.
C)D₁ to D₂.
D)D₂ to D₁.

Question 40

Elvira decreased her consumption of bananas when the price of peanut butter increased.For Elvira, peanut butter and bananas are

A)substitutes in consumption.
B)both inferior goods.
C)complements in consumption.
D)both luxury goods.

Question 41

When deciding on which new products to develop, a firm must devote people, time, and money to designing a new product.Because any firm has only limited resources, it

A)should wait until its competitors develop a similar product before deciding on devoting resources to its own product development.
B)is not able to develop more than one new product at a time.
C)must be certain that the product it chooses to develop will be successful or it will not be able to stay in business.
D)faces a trade-off, because resources used to develop one product will not be available to develop another product.

Question 42

Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each.This year, the company supplied the same quantity of ceramic pots at $55 each.Based on this evidence, The Pottery Palace has experienced

A)a decrease in supply.
B)an increase in supply.
C)an increase in the quantity supplied.
D)a decrease in the quantity supplied.

Question 43

The income effect explains why there is an inverse relationship between the price of a product and the quantity of the product demanded.

Question 44

What are the two effects that explain the Law of Demand? Briefly explain each effect.

Question 45

What is the difference between an "increase in supply" and an "increase in quantity supplied"?

A)There is no difference between the two terms; they both refer to a shift of the supply curve.
B)There is no difference between the two terms; they both refer to a movement along a given supply curve.
C)An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" means at any given price supply has increased.
D)An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.

Question 46

If in the market for blueberries, the supply curve has shifted to the left

A)the supply of peaches has increased.
B)the supply of peaches has decreased.
C)the quantity of peaches supplied has increased.
D)the quantity of peaches supplied has decreased.

Question 47

Figure 3.2

Refer to Figure 3.2.An increase in price of inputs would be represented by a movement from

A)A to B.
B)B to A.
C)S₁ to S₂.
D)S₂ to S₁.

Question 48

One would speak of a change in the quantity of a good supplied, rather than a change in supply, if

A)supplier expectations about future prices change.
B)the price of the good changes.
C)the cost of producing the good changes.
D)prices of substitutes in production change.

Question 49

Which of the following would cause a decrease in the supply of milk?

A)an increase in the price of cookies (assuming that milk and cookies are complements)
B)a decrease in the price of milk
C)an increase the price of a product that producers sell instead of milk
D)an increase in the number of firms that produce milk

Question 50

If consumers believe the price of iPads will decrease in the future, this will cause the demand for iPads to decrease now.

Question 51

Explain the difference between a normal good and an inferior good.

Question 52

Chips and salsa are complements.If the price of salsa decreases, the demand for chips will increase.

Question 53

As baby boomers age we would expect

A)jobs in health care to increase.
B)jobs in health care to decline at a faster rate than overall jobs in the economy.
C)demand for medical services to decline, which would result in a decline in available jobs in the medical field.
D)demand for large houses to increase.

Question 54

A normal good is a good for which the demanded increases as income decreases, holding everything else constant.

Question 55

If, in the market for oranges, the supply has increased then

A)the supply curve for oranges has shifted to the right.
B)the supply curve for oranges has shifted to the left.
C)there has been a movement upwards along the supply curve for oranges.
D)there has been a movement downwards along the supply curve for oranges.

Question 56

The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in purchasing power as a result of the price change.

Question 57

What is the ceteris paribus condition?

Question 58

For each of the following pairs of products state which are complements, which are substitutes, and which are unrelated.
a.Digital camera and memory stick
b.7Up and Mountain Dew
c.Swimsuits and flip-flo
d.Tylenol and cat food
e.Photocopier and paper

Question 59

A supply schedule

A)is a table that shows the relationship between the price of a product and the quantity of the product supplied.
B)is a curve that shows the relationship between the price of a product and the quantity of the product supplied.
C)is the relationship between the supply of a good and the cost of producing the good.
D)is a table that shows the relationship between the price of a product and the quantity of the product that producers and consumers are willing to exchange.

Question 60

In October, market analysts predict that the price of platinum will fall in November.What happens in the platinum market in October, holding everything else constant?

A)The supply curve shifts to the right.
B)The supply curve shifts to the left.
C)The quantity demanded and the quantity supplied of platinum increase.
D)The demand curve shifts to the right.

Question 61

If Canada bans the importation of beluga caviar (the most prized of caviars)from the Caspian Sea, what happens in the market for caviar in Canada?

A)The supply curve shifted to the left.
B)The supply curve shifted to the right.
C)The demand curve shifted to the right.
D)The demand curve shifted to the left.

Question 62

If a firm has an incentive to increase supply now and decrease supply in the future, the firm expects that the

A)price of its product will be lower in the future than it is today.
B)price of its product will be higher in the future than it is today.
C)price of inputs will be lower in the future than they are today.
D)demand for the product will be lower in the future than it is today.

Question 63

Indicate whether each of the following situations would shift the supply curve to the left, to the right, or not at all.
a.An increase in the number of firms in the market
b.An increase in the current price of the product
c.A decrease in productivity
d.An increase in the expected future price of a product
e.A decrease in the price of an input

Question 64

Figure 3.2

Refer to Figure 3.2.An increase in the price of substitutes in production would be represented by a movement from

A)A to B.
B)B to A.
C)S₁ to S₂.
D)S₂ to S₁.

Question 65

Which of the following would shift the supply curve for MP3 players to the right?

A)an increase in the price of a substitute in production
B)an increase in consumer income (assuming that all MP3 players are normal goods)
C)a decrease in the number of firms that produce MP3 players
D)a decrease in the price of an input used to produce MP3 players

Question 66

The popularity of digital cameras has enticed large discount stores like Walmart and Costco to offer digital photo printing services.How does this affect the digital photo printing market?

A)The demand curve for digital photo printing services shifts to the right.
B)The demand curve for digital photo printing services shifts to the left.
C)The supply curve for digital photo printing services shifts to the right.
D)The supply curve for digital photo printing services shifts to the left.

Question 67

Alberta ranchers can raise either cattle or sheep on their land.Which of the following would cause the supply of sheep to increase?

A)an increase in the price of sheep
B)a decrease in the price of cattle
C)an increase in the demand for cattle
D)an increase in the price of sheep feed

Question 68

From a supply perspective, what impact would an increase in the price of motorcycles have on the market for motorcycles?

Question 69

Which of the following is the correct way to describe equilibrium in a market?

A)At equilibrium, demand equals supply.
B)At equilibrium, quantity demanded equals quantity supplied.
C)At equilibrium, market forces no longer apply.
D)At equilibrium, scarcity is eliminated.

Question 70

If a firm expects that the price of its product will be higher in the future than it is today

A)the firm will go out of business.
B)the firm has an incentive to increase supply now and decrease supply in the future.
C)the firm has an incentive to decrease quantity supplied now and increase quantity supplied in the future.
D)the firm has an incentive to decrease supply now and increase supply in the future.

Question 71

An increase in the quantity of a product supplied is caused by an increase in the price of the product.

Question 72

What is the law of supply? What does this law imply about the shape of the supply curve?

Question 73

A change in supply is represented by a shift of the supply curve.

Question 74

Quantity supplied refers to the amount of a good or service that a firm is willing and able to supply at a given price.

Question 75

The supply curve for watches

A)shows the supply of watches consumers are willing and able to buy at any given price.
B)is downward sloping.
C)shows the relationship between the quantity of watches firms are willing and able to supply and the quantity of watches consumers are willing and able to purchase.
D)shows the relationship between the price of watches and the quantity of watches supplied.

Question 76

A decrease in the price of GPS systems will result in

A)a smaller quantity of GPS systems supplied.
B)a larger quantity of GPS systems supplied.
C)a decrease in the demand for GPS systems.
D)an increase in the supply of GPS systems.

Question 77

Figure 3.2

Refer to Figure 3.2.A decrease in the price of the product would be represented by a movement from

A)A to B.
B)B to A.
C)S₁ to S₂.
D)S₂ to S₁.

Question 78

An increase in the number of firms in a market will cause the quantity of a good supplied to increase.

Question 79

Figure 3.2

Refer to Figure 3.2.An increase in the number of firms in the market would be represented by a movement from

A)A to B.
B)B to A.
C)S₁ to S₂.
D)S₂ to S₁.

Question 80

Danielle Ocean pays for monthly pool maintenance for her home swimming pool.Last week the owner of the pool service informed Danielle that she will have to raise her monthly service fee because of increases in the price of pool chemicals.How is the market for pool maintenance services affected by this?

A)There is an increase in the supply of pool maintenance services.
B)There is a decrease in the demand for pool maintenance services.
C)There is a decrease in the quantity of pool maintenance services supplied.
D)There is a decrease in the supply of pool maintenance services.