Deck 2: The Basics of Supply and Demand

Question 1

The discussion of Figure 2.2 in the text indicates that quantity demanded for most goods tends to increase as income rises.However,the quantity of bananas demanded in the U.S.tends to decrease as income rises.Under this condition,we expect that an increase in consumer income shifts the demand curve for bananas:

A)rightward
B)no shift.
C)leftward.
D)downward.

Answer 1

C

Question 2

Which of the following will cause the demand curve for Beatles' compact discs to shift to the right?

A)An increase in the price of the discs
B)A decrease in consumers' incomes
C)An increase in the price of Phil Collins' latest compact disc (a substitute)
D)all of the above
E)none of the above

Answer 2

C

Question 3

Assume that steak and potatoes are complements.When the price of steak goes up,the demand curve for potatoes:

A)shifts to the left.
B)shifts to the right.
C)remains constant.
D)shifts to the right initially and then returns to its original position.

Answer 3

A

Question 4

Sugar can be refined from sugar beets.When the price of those beets falls,

A)the demand curve for sugar would shift right.
B)the demand curve for sugar would shift left.
C)the supply curve for sugar would shift right.
D)the supply curve for sugar would shift left.

Question 5

Which of the following will NOT cause a rightward shift in the demand curve for beer?

A)A change in the price of beer
B)A health study indicating positive health benefits of moderate beer consumption
C)An increase in the price of French wine (a substitute)
D)A decrease in the price of potato chips (a complement)
E)none of the above

Question 6

Which of the following is NOT an application of supply and demand analysis?

A)Understanding changing world economic conditions and their effects on prices
B)Evaluating the effects of government price controls on the agricultural industry
C)Determining how taxes affect aggregate consumption spending patterns
D)all of the above
E)none of the above

Question 7

Which of the following will NOT cause a shift in the supply of gasoline?

A)An increase in the wage rate of refinery workers
B)A decrease in the price of gasoline
C)An improvement in oil refining technology
D)A decrease in the price of crude oil

Question 8

You are analyzing the demand for good X.Which of the following will result in a shift to the right of the demand curve for X?

A)A decrease in the price of X
B)An increase in the price of a good that is a complement to good X
C)An increase in the price of a good that is a substitute for X
D)all of the above

Question 9

Which of the following events will cause a leftward shift in the supply curve of gasoline?

A)A decrease in the price of gasoline
B)An increase in the wage rate of refinery workers
C)Decrease in the price of crude oil
D)An improvement in oil refining technology
E)all of the above

Question 10

Coffee and cream:

A)are both luxury goods.
B)are complements.
C)are both more inelastic in demand in the long run than in the short run.
D)have a positive cross price elasticity of demand.

Question 11

Suppose biochemists discover an enzyme that can double the amount of ethanol that may be derived from a given amount of biomass.Based on this technological development,we expect the:

A)supply curve for ethanol to shift leftward.
B)supply curve for ethanol to shift rightward.
C)demand curve for ethanol to shift leftward.
D)demand curve for ethanol to shift rightward.

Question 12

Due to the recent increase in the price of natural gas,the quantity of coal demanded by electric power generation plants has increased.Based on this information,coal and natural gas are:

A)complements.
B)substitutes.
C)independent goods.
D)none of the above

Question 13

When an industry's raw material costs increase,other things remaining the same,

A)the supply curve shifts to the left.
B)the supply curve shifts to the right.
C)output increases regardless of the market price and the supply curve shifts upward.
D)output decreases and the market price also decreases.

Question 14

Which of the following would shift the demand curve for new textbooks to the right?

A)A fall in the price of paper used in publishing texts
B)A fall in the price of equivalent used textbooks
C)An increase in the number of students attending college
D)A fall in the price of new textbooks.

Question 15

The price of good A goes up.As a result,the demand for good B shifts to the left.From this we can infer that:

A)good A is used to produce good B.
B)good B is used to produce good A.
C)goods A and B are substitutes.
D)goods A and B are complements.
E)none of the above

Question 16

Plastic and steel are substitutes in the production of body panels for certain automobiles. If the price of plastic increases,with other things remaining the same,we would expect:

A)the price of steel to fall.
B)the demand curve for steel to shift to the right.
C)the demand curve for plastic to shift to the left.
D)nothing to happen to steel because it is only a substitute for plastic.
E)the demand curve for steel to shift to the left.

Question 17

A supply curve reveals:

A)the quantity of output consumers are willing to purchase at each possible market price.
B)the difference between quantity demanded and quantity supplied at each price.
C)the maximum level of output an industry can produce,regardless of price.
D)the quantity of output that producers are willing to produce and sell at each possible market price.

Question 18

Which of the following would cause a shift to the right of the supply curve for gasoline? I.A large increase in the price of public transportation.
II)A large decrease in the price of automobiles.
III)A large reduction in the costs of producing gasoline.

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

Question 19

To protect the cod fishery off the northeast coast of the U.S.,the federal government may limit the amount of fish that each boat can catch in the fishery.The result of this public policy is to:

A)shift the cod demand curve to the left.
B)shift the cod demand curve to the right.
C)shift the cod supply curve to the right.
D)shift the cod supply curve to the left.

Question 20

Which of the following would cause a rightward shift in the demand curve for gasoline? I.A large increase in the price of public transportation.
II)A large decrease in the price of automobiles.
III)A large reduction in the costs of producing gasoline.

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

Question 21

When the current price is above the market-clearing level we would expect:

A)quantity demanded to exceed quantity supplied.
B)quantity supplied to exceed quantity demanded.
C)a shortage.
D)greater production to occur during the next period.

Question 22

Which of the following represents the price elasticity of demand?

A)
B) +
C) ×
D) -

Question 23

A vertical demand curve is

A)completely inelastic.
B)infinitely elastic.
C)highly (but not infinitely)elastic.
D)highly (but not completely)inelastic.

Question 24

Which of the following will cause the price of beer to rise?

A)A shift to the right in the demand curve for beer
B)A shift to the left in the supply curve of beer
C)both A and B
D)none of the above

Question 25

From 1970 to 1993,the real price of eggs decreased.Which of the following would cause an unambiguous decrease in the real price of eggs?

A)A shift to the right in the supply curve for eggs and a shift to the right in the demand curve for eggs.
B)A shift to the right in the supply curve for eggs and a shift to the left in the demand curve for eggs.
C)A shift to the left in the supply curve for eggs and a shift to the right in the demand curve for eggs.
D)A shift to the left in the supply curve for eggs and a shift to the left in the demand curve for eggs.

Question 26

Last year,the world demand curve for copper shifted rightward due to continued economic growth in China and other emerging economies.Also,the supply curve for copper shifted leftward due to strikes and other labor disruptions at some of the copper mines.As a result,we observed:

A)higher equilibrium copper prices and unambiguously lower quantities.
B)higher equilibrium copper prices and unambiguously higher quantities.
C)higher equilibrium copper prices and either higher or lower quantities.
D)lower equilibrium copper prices and either higher or lower quantities.

Question 27

As long as the actual market price exceeds the equilibrium market price,there will be:

A)downward pressure on the market price.
B)upward pressure on the market price.
C)no purchases made.
D)Both A and C are correct.
E)Both B and C are correct.

Question 28

Which of these measures the responsiveness of the quantity of one good demanded to an increase in the price of another good?

A)price elasticity.
B)income elasticity.
C)cross price elasticity.
D)cross substitution elasticity.

Question 29

The price elasticity of demand for a demand curve that has a zero slope is

A)zero.
B)one.
C)negative but approaches zero as consumption increases.
D)infinity.

Question 30

We observe that both the price of and quantity sold of golf balls are rising over time.This is due to:

A)continual improvements in the technology used to produce golf balls.
B)increases in the price of golf clubs over time.
C)decreases in membership fees for country clubs with golf facilities.
D)more stringent professional requirements on the quality of golf balls requiring producers to use more expensive raw materials.

Question 31

Suppose the quantity of nursing services demanded exceeds the quantity of nursing services supplied.The nursing wage rate will:

A)decrease.
B)increase.
C)not change.
D)none of the above

Question 32

The income elasticity of demand is the

A)absolute change in quantity demanded resulting from a one unit increase in income.
B)percent change in quantity demanded resulting from the absolute increase in income.
C)percent change in quantity demanded resulting from a one percent increase in income.
D)percent change in income resulting from a one percent increase in quantity demanded.
E)percent change in income resulting from a one percent increase in price.

Question 33

If we plot the quantity of aluminum ore mined per year on the horizontal axis and the real annual price of aluminum ore on the vertical axis,we find that the path of price-quantity combinations generally indicates lower real prices and higher quantities over time.Which of the following statements is a plausible explanation for this observed outcome?

A)Aluminum supply shifted leftward faster than the aluminum demand curve shifted rightward.
B)Aluminum supply shifted rightward faster than the aluminum demand curve shifted rightward.
C)Aluminum supply shifted rightward and aluminum demand remained constant.
D)both A and B above
E)both B and C above

Question 34

The effect of the September 11 attacks on the World Trade Center on the market for office space in downtown Manhattan was that both the equilibrium price and the equilibrium quantity fell.What is the most likely explanation for this?

A)Supply and demand both shifted left,and the magnitude of the demand shift was greater.
B)Supply and demand both shifted left,and the magnitude of the supply shift was greater.
C)Supply shifted left,demand shifted right,and the magnitude of the demand shift was greater.
D)Supply shifted left,demand shifted right,and the magnitude of the supply shift was greater.

Question 35

From 1970 to 1993,the real price of a college education increased,and total enrollment increased.Which of the following could have caused this increase in price and enrollment?

A)A shift to the right in the supply curve for college education and a shift to the left in the demand curve for college education.
B)A shift to the left in the supply curve for college education and a shift to the right in the demand curve for college education.
C)A shift to the left in the supply curve for college education and a shift to the left in the demand curve for college education.
D)none of the above

Question 36

Elasticity measures

A)the slope of a demand curve.
B)the inverse of the slope of a demand curve.
C)the percentage change in one variable in response to a one percent increase in another variable.
D)sensitivity of price to a change in quantity.

Question 37

Assume that the current market price is below the market clearing level.We would expect:

A)a surplus to accumulate.
B)downward pressure on the current market price.
C)upward pressure on the current market price.
D)lower production during the next time period.

Question 38

From 1970 to 1993,the real price of eggs decreased and the total annual consumption of eggs decreased.Which of the following would cause an unambiguous decrease in the real price of eggs and an unambiguous decrease in the quantity of eggs consumed?

A)A shift to the right in the supply curve for eggs and a shift to the right in the demand curve for eggs.
B)A shift to the left in the supply curve for eggs and a shift to the right in the demand curve for eggs.
C)A shift to the left in the supply curve for eggs and a shift to the left in the demand curve for eggs.
D)none of the above

Question 39

If the actual price were below the equilibrium price in the market for bread,a:

A)surplus would develop that cannot be eliminated over time.
B)shortage would develop,which market forces would eliminate over time.
C)surplus would develop,which market forces would eliminate over time.
D)shortage would develop,which market forces would tend to exacerbate.

Question 40

Suppose the supply of textbooks is upward sloping and shifts leftward due to higher ink and paper costs.Which of the following events would leave the equilibrium price of textbooks at the same level observed before the supply shift?

A)Demand is perfectly elastic (horizontal).
B)Demand is downward sloping and shifts leftward.
C)all of the above
D)none of the above

Question 41

Which of the following statements about the diagram below is true?

A)Demand is infinitely elastic.
B)Demand is completely inelastic.
C)Demand becomes more inelastic the lower the price.
D)Demand becomes more elastic the lower the price.

Question 42

For U.S.consumers,the income elasticity of demand for fruit juice is 1.1.If the economy enters a recession next year and consumer income declines by 2.5%,what is the expected change in the quantity of fruit juice demanded next year?

A)-2.75%
B)+2.75%
C)-27.5%
D)+27.5%

Question 43

The price elasticity of gasoline supply in the U.S.is 0.4.If the price of gasoline rises by 8%,what is the expected change in the quantity of gasoline supplied in the U.S.?

A)+3.2%
B)-3.2%
C)+32.0%
D)+0.32%

Question 44

Ice cream can be frozen.In the short run the magnitude of the own price elasticity of demand for ice cream:

A)is higher than in the long run.
B)is lower than in the short run.
C)is the same as in the long run.
D)does not depend on the fact that ice cream can be frozen.

Question 45

If two goods are substitutes,the cross price elasticity of demand must be

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

Question 46

For most consumer goods,the own price elasticity of demand is

A)negative only when price decreases.
B)negative regardless of the direction of the price change.
C)positive only when price decreases.
D)positive regardless of the direction of the price change.

Question 47

The cross price elasticity between a pair of complementary goods will be

A)positive.
B)negative.
C)zero.
D)positive or zero depending upon the strength of the relationship.

Question 48

The cross-price elasticity of demand for peanut butter with respect to the price of jelly is -0.3.If we expect the price of jelly to decline by 15%,what is the expected change in the quantity demanded for peanut butter?

A)+15%
B)+45%
C)+4.5%
D)-4.5%

Question 49

Figure 2.1
Refer to Figure 2.1.At point D,demand is:

A)completely inelastic.
B)inelastic,but not completely inelastic.
C)unit elastic.
D)elastic,but not infinitely elastic.
E)infinitely elastic.

Question 50

Suppose the demand for gourmet coffee can be represented by a linear demand curve.At the prevailing market price the income elasticity of demand for gourmet coffee is 2.When income rises the demand curve for gourmet coffee:

A)becomes less elastic at every price.
B)becomes less elastic at the price that prevailed before the change in income
C)becomes more elastic at every price
D)becomes more elastic at the price that prevailed before the change in income

Question 51

Which of the following pairs of goods are most likely to have a negative cross price elasticity of demand?

A)Hotdogs and hotdog buns
B)Coke and Pepsi
C)Rail tickets and plane tickets
D)A Luciano Pavarotti compact disc and a Placido Domingo compact disc (Both Pavarotti and Domingo are opera stars.)

Question 52

The introduction of refrigerators into American homes:

A)decreased the magnitude of the short run own price elasticity of demand for raw meat.
B)did not affect the short run own price elasticity of demand for raw meat.
C)increased the magnitude of the short run own price elasticity of demand for raw meat.
D)decreased the magnitude of the short run own price elasticity of demand for smoked meats.

Question 53

Along any downward sloping straight-line demand curve:

A)both the price elasticity and slope vary.
B)the price elasticity varies,but the slope is constant.
C)the slope varies,but the price elasticity is constant.
D)both the price elasticity and slope are constant.

Question 54

Which of the following statements about the diagram below is true?

A)Demand is infinitely elastic.
B)Demand is completely inelastic.
C)Demand becomes more inelastic as price declines.
D)Demand becomes more elastic as price declines.

Question 55

Figure 2.1
Refer to Figure 2.1.At point C,demand is:

A)completely inelastic.
B)inelastic,but not completely inelastic.
C)unit elastic.
D)elastic,but not infinitely elastic.
E)infinitely elastic.

Question 56

Figure 2.1
Refer to Figure 2.1.At point B,demand is:

A)small.
B)inelastic,but not completely inelastic.
C)unit elastic.
D)elastic,but not infinitely elastic.
E)infinitely elastic.

Question 57

Figure 2.1
Refer to Figure 2.1.At point A,demand is:

A)completely inelastic.
B)inelastic,but not completely inelastic.
C)unit elastic.
D)elastic,but not infinitely elastic.
E)infinitely elastic.

Question 58

Consider the demand curve of the form Q = a - bP.If a is a positive real number,and b = 0,then demand is

A)completely inelastic.
B)inelastic,but not completely.
C)unit elastic.
D)elastic,but not infinitely.

Question 59

Which of the following statements about the diagram below is true?

A)Demand is infinitely elastic.
B)Demand is completely inelastic.
C)Demand becomes more inelastic the lower the price.
D)Demand becomes more elastic the lower the price.

Question 60

Figure 2.1
Refer to Figure 2.1.At point E,demand is:

A)completely inelastic.
B)inelastic,but not completely inelastic.
C)unit elastic.
D)elastic,but not infinitely elastic.
E)infinitely elastic.

Question 61

In the long run,new firms can enter an industry and so the supply elasticity tends to be

A)more elastic than in the short run.
B)less elastic than in the short run.
C)perfectly elastic.
D)perfectly inelastic.

Question 62

Use the following statements to answer this question: I.Even though people need water to survive,the price of water is less than the price of diamonds because water is in greater supply than diamonds.
II)Suppose that the demand for corn is highly price inelastic.If every corn farmer's harvesting technologies become more efficient,the total revenue received by all corn farmers would fall.

A)I and II are true.
B)I is true,and II is false.
C)II is true,and I is false.
D)I and II are false.

Question 63

For computers and other business equipment,small changes in business earnings tend to generate relatively large short-run changes in the demand for this equipment.In the long run,the responsiveness of demand for business equipment with respect to income changes tends to be:

A)even more responsive.
B)less responsive.
C)equally responsive.
D)none of the above

Question 64

What happens if price falls below the market clearing price?

A)Demand shifts out.
B)Supply shifts in.
C)Quantity demanded decreases,quantity supplied increases,and price falls.
D)Quantity demanded increases,quantity supplied decreases,and price rises.

Question 65

A freeze in Florida's orange growing regions will:

A)result in a sharp increase in the price of oranges in the short run because demand and supply are highly inelastic.
B)result in a sharp increase in the price of oranges in the short run because demand and supply are highly elastic.
C)result in a sharp decrease in the price of oranges in the short run because demand is highly inelastic and supply is highly elastic.
D)result in little change in the price of oranges in the short run because supply is infinitely elastic.

Question 66

A demand curve of the form: Q = a - bP,where a and b are positive real numbers,:

A)is an upward sloping straight line.
B)has a constant price elasticity of demand.
C)is a downward sloping straight line.
D)is a parabolic curve.

Question 67

When the government controls the price of a product,causing the market price to be above the free market equilibrium price,

A)all producers gain.
B)both producers and consumers gain.
C)only consumers gain.
D)some,but not all,sellers can find buyers for their goods.

Question 68

An important determinant of the amount of grains harvested next year by Ethiopian farmers is the amount of seeds planted this year.Given that Western nations have guaranteed to donate five hundred tons of grain next year,this year the Ethiopian farmers will:

A)plant more seeds as the food aid establishes a minimum price for grain.
B)plant more seeds as the farmers' confidence is restored.
C)plant the same amount of seeds as they would have without the food aid.
D)plant fewer seeds as consumers demand for grain is completely price elastic.
E)plant fewer seeds as the price of grain will be lower with the food aid.

Question 69

Suppose that,at the market clearing price of natural gas,the price elasticity of demand is -1.2 and the price elasticity of supply is 0.6.What will result from a price ceiling that is 10 percent below the market clearing price?

A)A shortage equal to 1.8 percent of the market clearing quantity
B)A shortage equal to 0.6 percent of the market clearing quantity
C)A shortage equal to 18 percent of the market clearing quantity
D)A shortage equal to 6 percent of the market clearing quantity
E)More information is needed.

Question 70

For automobile demand in the U.S.,the income response tends to be larger in the:

A)short run.
B)long run.
C)The income response is the same in the long run and the short run.
D)We do not have enough information to answer this question.

Question 71

There are two techniques of egg production: free range (where hens roam around the farm)or factory (where hens are fed and watered in wire cages).The free range technique has a much more elastic supply curve than the factory technique.When the demand for eggs falls:

A)egg production using the factory technique falls less than with the free range technique.
B)egg production using the factory technique falls more than with the free range technique.
C)the production using both techniques falls by the same amount.
D)the factory egg producers supply curve shifts inward.
E)the free range egg producers supply curve shifts inward.

Question 72

For computers and other business equipment,small changes in business earnings tend to generate relatively large short-run changes in the demand for this equipment,and the long-run income response tends to be smaller.Industries that face demand behavior of this type are known as:

A)natural monopolies.
B)cartels.
C)cyclical industries.
D)constant-cost industries.

Question 73

Due to capacity constraints,the price elasticity of supply for most products is:

A)the same in the long run and the short run.
B)greater in the long run than the short run.
C)greater in the short run than in the long run.
D)too uncertain to be estimated.

Question 74

Consider a linear,upward sloping supply curve.If the supply curve shifts upward,then:

A)the price elasticity of supply will increase.
B)the price elasticity of supply will increase if the slope of the supply curve is greater than one.
C)the price elasticity of supply will increase if the slope of the supply curve is greater than one and the lowest price needed to induce firms to supply anything is positive.
D)the price elasticity of supply will be constant.
E)none of the above

Question 75

A simple linear demand function may be stated as Q = a - bP + cI where Q is quantity demanded,P is the product price,and I is consumer income.To compute an appropriate value for b,we can use observed values for Q and P and then set -b(P/Q)equal to the:

A)income elasticity of demand.
B)cross-price elasticity of demand.
C)price elasticity of demand.
D)price elasticity of supply.

Question 76

A simple linear demand function may be stated as Q = a - bP + cI where Q is quantity demanded,P is the product price,and I is consumer income.To compute an appropriate value for c,we can use observed values for Q and I and then set the estimated income elasticity of demand equal to:

A)c(I/Q)
B)c(Q/I)
C)-b(I/Q)
D)Q/(cI)

Question 77

This year a new oil field with substantial reserves has been discovered.Such discoveries are not made every year.Therefore an increase in the demand for oil will:

A)increase the long run price of oil more than the short run price of oil.
B)increase the long run price of oil less than the short run price of oil.
C)ensure the long run price of oil and short run price of oil increase by the same amount.
D)ensure that the short run price of oil falls.
E)ensure that the short run price of oil remains unchanged.

Question 78

Use the following two statements to answer this question: I.The supply of newly mined copper is more elastic in the long run than in the short run.
II)The supply of scrap copper is more elastic in the short run than in the long run.

A)Both I and II are true.
B)I is true,and II is false.
C)I is false,and II is true.
D)Both I and II are false.

Question 79

Consider a supply curve of the form: Q = c + dP.If d equals zero,then supply is:

A)completely inelastic.
B)inelastic,but not completely inelastic.
C)elastic,but not infinitely elastic.
D)infinitely elastic

Question 80

When the government controls the price of a product,causing the market price to be below the free market equilibrium price,

A)some consumers gain from the price controls and other consumers lose.
B)all producers gain from the price controls.
C)both producers and consumers gain.
D)all consumers are better-off.