Chapter 02 Market Forces: Demand and Supply
1. In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P. A price ceiling of $3 will result in a
A. shortage of 30 units.
B. shortage of 15 units.
C. surplus of 30 units.
D. surplus of 12 units.
Difficulty: Medium
2. In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P. The full economic price under a price ceiling of $3 is A. 6.
B. 7.
C. 8.
D. 9.
Difficulty: Hard
3. The buyer side of the market is known as the: A. income side.
B. demand side.
C. supply side.
D. seller side.
Difficulty: Easy
4. The law of demand states that, holding all else constant: A. as price falls, demand will fall also.
B. as price rises, demand will also rise.
C. price has no effect on quantity demanded.
D. as price falls, quantity demanded rises.
Difficulty: Medium
5. Which of the following would not shift the demand for good A? A. drop in price of good A.
B. drop in price of good B.
C. consumer income.
D. change in the level of advertising of good A.
Difficulty: Easy
6. Changes in the price of good A leads to a change in: A. demand of good A.
B. demand of good B.
C. the quantity demanded of good A.D. the quantity demanded of good B.
Difficulty: Medium
7. A change in income will not lead to:
A. a movement along the demand curve.
B. a leftward shift of the demand curve.
C. a rightward shift of the demand curve.
D. all of the statements associated with the question are correct.
Difficulty: Medium
8. Good A is an inferior good, an increase in income leads to: A. a decrease in the demand for good B.
B. a decrease in the demand for good A.
C. an increase in the demand for good A.
D. no change in the quantity demanded of good A.
Difficulty: Easy
9. Which of the following is probably not a normal good? A. designer dresses.
B. lobster.
C. macaroni and cheese.
D. expensive automobiles.
Difficulty: Easy
10. An increase in the price of steak will probably lead to: A. an increase in demand for chicken.
B. an increase in demand for steak.
C. no change in the demand for steak or chicken.
D. an increase in the supply for chicken.
Difficulty: Medium
11. Which of the following pairs of goods are probably complements? A. televisions and roller skates.
B. frozen yogurt and ice cream.
C. steak and chicken.
D. hamburgers and ketchup.
Difficulty: Easy
12. If A and B are complements, an increase in the price of good A would: A. have no effect on the quantity demanded of B.
B. lead to an increase in demand for B.
C. lead to a decrease in demand for B.
D. none of the statements associated with this question are correct.
Difficulty: Medium
13. Graphically, a decrease in advertising will cause the demand curve to: A. become steeper.
B. shift rightward.
C. become flatter.
D. shift leftward.
Difficulty: Easy
14. Persuasive advertising influences demand by:
A. providing information about the availability of a product.
B. offering reduced prices for the product.
C. altering the underlying tastes of consumers.
D. none of the statements are correct.
Difficulty: Medium
15. Which of the following can explain an increase in the demand for housing in retirement communities?
A. A drop in real estate prices.
B. An increase in the population of the elderly.
C. A drop in the average age of retirees.
D. Mandatory government legislation.
Difficulty: Medium
16. The demand function recognizes that the quantity of a good consumed depends on: A. the prices of other goods only.
B. price and supply shifters.
C. demand shifters and price.
D. demand shifters only.
Difficulty: Easy
17. Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. From the law of demand we know that ax will be: A. less than zero.
B. greater than zero.
C. zero.
D. none of the statements associated with this question are correct.
Difficulty: Easy
18. Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. If ay is positive, then:
A. goods y and x are complements.
B. goods y and x are inferior goods.
C. goods y and x are normal goods.
D. goods y and x are substitutes.
Difficulty: Easy
19. Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. If aM is negative, then good y is: A. a normal good.
B. an inferior good.
C. a complement.
D. a substitute.
Difficulty: Easy
20. Suppose the demand for good X is given by Qdx = 10 - 2Px + Py + M. The price of good X is $1, the price of good Y is $10, and income is $100. Given these prices and income, how much of good X will be purchased? A. 115.
B. 515.
C. 1,000.
D. none of the statements associated with this question are correct.
Difficulty: Medium
21. Other things held constant, the greater the price of a good A. the lower the demand.
B. the higher the demand.
C. the greater the consumer surplus.
D. the lower the consumer surplus.
Difficulty: Medium
22. The curve which summarizes the total quantity producers are willing and able to produce at differing prices is the:
A. market demand curve.
B. consumer surplus curve.
C. average cost curve.
D. market supply curve.
Difficulty: Easy
23. The law of supply states that, holding all else constant, as the price of a good falls: A. quantity demanded rises.
B. quantity supplied falls.
C. quantity supplied rises.
D. quantity demanded falls.
Difficulty: Easy
24. The economic principle that producers are willing to produce more output when price is high is depicted by the:
A. upward slope of the supply curve.
B. extreme steepness of the supply curve.
C. downward slope of the supply curve.
D. interaction of the supply and demand curves.
Difficulty: Easy
25. For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve to:
A. become flatter.
B. shift to the left.
C. shift to the right.
D. become parallel to the price axis.
Difficulty: Medium
26. Changes in the price of a good lead to:
A. changes in the quantity supplied of the good.
B. changes in supply.
C. changes in demand.
D. no effects in quantity supplied or demanded.
Difficulty: Easy
27. Technological advances will cause the supply curve to: A. shift to the left.
B. shift to the right.
C. become flatter.
D. become steeper.
Difficulty: Easy
28. An ad valorem tax causes supply curve to: A. shift to the right.
B. become flatter.
C. become steeper.
D. shift to the left.
Difficulty: Medium
29. Suppose the supply of good X is given by QSx = 10 + 2Px. How many units of good X are produced if the price of good X is 20? A. 10.
B. 20.
C. 30.
D. None of the statements associated with this question are correct.
Difficulty: Easy
30. If a shortage exists in a market, the natural tendency is for: A. demand to increase.
B. price to increase.
C. quantity supplied to decrease.
D. no change in the market.
Difficulty: Medium
31. Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. The equilibrium price is: A. $15.
B. $19.
C. $17.
D. $20.
Difficulty: Medium
32. Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. The equilibrium quantity is: A. 92.
B. 81.
C. 45.
D. 62.
Difficulty: Medium
33. The maximum legal price that can be charged in a market is: A. a price floor.
B. an ad valorem tax.
C. the market equilibrium price.
D. a price ceiling.
Difficulty: Easy
34. Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If a price ceiling of $15 is imposed,
A. there will be a surplus of 40 units.
B. there will be neither a surplus or shortage.
C. there will be a shortage of 40 units.
D. there will be a shortage of 20 units.
Difficulty: Medium
35. Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If a price ceiling of $15 is imposed, what will be the resulting full economic price? A. $19.
B. $21.
C. $6.
D. $25.
Difficulty: Medium
36. The minimum legal price that can be charged in a market is: A. a price floor.
B. a price ceiling.
C. non-pecuniary price.
D. full economic price.
Difficulty: Easy
37. Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If a price floor of $30 is set, what will be size of the resulting surplus? A. 0.
B. 45.
C. 30.
D. 55.
Difficulty: Medium
38. Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If the government sets a price floor of $30 and agrees to purchase all surplus at $30 per unit, the total cost to the government will be: A. $1,650.
B. $1,375.
C. $900.
D. $1,125.
Difficulty: Medium
39. If steak is a normal good, what do you suppose would happen to price and quantity during an economic recession?
A. Price would increase and quantity decrease.
B. Price and quantity would both increase.
C. Price and quantity would both decrease.
D. Price would decrease and quantity increase.
Difficulty: Medium
40. Suppose you produce wooden desks, and government legislation protecting the spotted owl has made it more expensive for you to purchase wood. What do you expect to happen to the equilibrium price and quantity of wooden desks? A. Price and quantity will increase.
B. Price will increase but quantity will decrease.
C. Price and quantity will decrease.
D. Price will decrease but quantity will increase.
Difficulty: Medium
41. Suppose that supply increases and demand decreases. What effect will this have on price and quantity?
A. Price will increase and quantity may rise or fall.
B. Price will decrease and quantity will increase.
C. Price will decrease and quantity will decrease.
D. None of the statements associated with this question are correct.
Difficulty: Hard
42. Suppose both supply and demand decrease. What effect will this have on price? A. It will fall.
B. It will rise.
C. It may rise or fall.
D. It will remain the same.
Difficulty: Hard
43. The law of demand states that if the price of a good falls and all other things remain the same, the
A. quantity demanded of the good falls.
B. quantity demanded of the good rises.
C. demand of the good rises.
D. all of the statements associated with this question are correct.
Difficulty: Easy
44. Demand shifters do not include A. the price of the good.
B. the consumer's income.
C. the level of advertising.
D. the price of the other goods.
Difficulty: Easy
45. Changes in the price of other goods lead to A. a change in quantity demanded.
B. a change in demand.
C. no change in the demand curve.
D. a movement along the demand curve.
Difficulty: Easy
46. Good X is a normal good if an increase in income leads to A. an increase in the supply for good X.
B. an increase in the demand for good X.
C. a decrease in the demand for good X.
D. a decrease in the supply for good X.
Difficulty: Easy
47. Which of the following is least likely to be a normal good? A. Steak.
B. Airline travel.
C. Bologna.
D. A house.
Difficulty: Easy
48. Suppose good X is a normal good. Then a decrease in income would lead to A. an outward shift of the demand curve.
B. an inward shift of the demand curve.
C. no shift of the demand curve.
D. a movement along the demand curve.
Difficulty: Easy
49. An inferior good is a good A. that has low quality.
B. that consumers purchase less of when their incomes are higher.
C. that consumers purchase more when their incomes are higher.
D. of high quality.
Difficulty: Easy
50. Suppose that good X is a substitute for good Y. Then an increase in the price of good Y leads to
A. an increase in the demand of good X.
B. a decrease in the demand of good X.
C. a decrease in the supply of good X.
D. an increase in the supply of good X.
Difficulty: Medium
51. Which of the following are least likely to be substitutes? A. Chicken and beef.
B. Cars and trucks.
C. Automobile and housing.
D. Automobile and gasoline.
Difficulty: Easy
52. Good Y is a complement to good X if an increase in the price of good Y leads to A. an increase in the demand for good X.
B. an increase in the supply for good X.
C. a decrease in the demand for good X.
D. a decrease in the supply for good X.
Difficulty: Medium
53. Which of the following are least likely to be complements? A. Peanut butter and jelly.
B. Bread and butter.
C. Sports coats and dress slacks.
D. Cars and trucks.
Difficulty: Medium
54. Firms advertise in order to cause the demand for their products to A. shift to the right.
B. shift to the left.
C. remain unchanged.
D. all of the statements associated with this question are correct.
Difficulty: Easy
55. Advertising provides consumers with information about the underlying existence or
quality of a product. These types of advertising messages are called A. persuasive advertising.
B. informative advertising.
C. green advertising.
D. influential advertising.
Difficulty: Easy
56. Advertising can influence demand by altering tastes of consumers. This type of advertising is known as
A. persuasive advertising.
B. informative advertising.
C. strategic advertising.
D. influential advertising.
Difficulty: Easy
57. Which of the following statements is incorrect?
A. As the population rises, the market demand curve shifts to the right.
B. As a greater fraction of the population becomes elderly, the demand for medical services will tend to increase.
C. Changes in the composition of the population affect the demand for a product.
D. none of the statements associated with this question are incorrect.
Difficulty: Medium
58. If consumers expect future prices to be higher
A. they substitute current purchases for future purchases of perishable products.
B. stockpiling will happen when products are durable in nature.
C. the position of the demand will not change.
D. the demand for automobiles today will not change.
Difficulty: Medium
59. The demand function
A. describes how much of good X will be purchased at the alternative price of good X, given all the other variables being constant.
B. recognizes that the quantity of a good consumed depends on its price and demand shifters.C. shows the relationship between the quantity demanded of X and variables other than its price.
D. does not include expectations.
Difficulty: Hard
60. Which of the following is a linear demand function?
A. Qxd = α0 + αXPX + αYPY + αMM + αHH.
B. Qxd = αPXαX PYαY MαM HαH.
C. Qxd = α0 + αXPX2 + αYPY2 + αMM2 + αMH2.
D. Qxd = α +αX log PX +αY log PY + αM log M + αM log H.
Difficulty: Easy
61. Good X is a normal good and its demand is given by Qxd = α0 + αXPX + αYPY + αMM + αHH. Then we know that
A. αH > 0.
B. αX > 0.
C. αY > 0.
D. αM > 0.
Difficulty: Medium
62. Suppose X and Y are complements and demand for X is Qxd = α0 + αXPX + αYPY + αMM + αHH. Then we know
A. αH > 0.
B. αX > 0.
C. αY < 0.
D. αM < 0.
Difficulty: Medium
63. Suppose the demand for X is given by Qxd = 100 - 2PX + 4PY + 10M + 2A, where PX represents the price of good X, PY is the price of good Y, M is income and A is the amount of
advertising on good X. Based on this information, we know that good Y is A. a substitute for good X.
B. a complement for good X.
C. an inferior good.
D. a normal good.
Difficulty: Easy
64. Suppose the demand for X is given by Qxd = 100 - 2PX + 4PY + 10M + 2A, where PX represents the price of good X, PY is the price of good Y, M is income and A is the amount of
advertising on good X. Based on this information, we know that good X is a A. substitute for good Y and a normal good.
B. complement for good Y and an inferior good.
C. complement for good Y and a normal good.
D. substitute for good Y and an inferior good.
Difficulty: Medium
65. Suppose the demand for X is given by Qxd = 100 - 2PX + 4PY + 10M + 2A, where PX represents the price of good X, PY is the price of good Y, M is income and A is the amount of advertising on good X. If advertising on good X increases by $10,000, then the demand for X will
A. decrease by $20,000.
B. decrease by $100,000.
C. increase by $100,000.
D. increase by $20,000.
Difficulty: Medium
66. Suppose the demand for X is given by Qxd = 100 - 2PX + 4PY + 10M + 2A, where PX represents the price of good X, PY is the price of good Y, M is income and A is the amount of advertising on good X. Good X is A. an inferior good.
B. a normal good.
C. a Giffin good.
D. a complement.
Difficulty: Medium
67. Consumer surplus is
A. the value consumers get from a supplier.
B. the value consumers do not pay because of a discount by supplier.
C. the value consumers get from a good but do not pay for.
D. equal to the amount consumers pay for a good.
Difficulty: Easy
68. If the price of good X becomes lower, then the level of consumer surplus becomes A. lower.
B. higher.
C. unchanged.
D. lower in the short-run but higher in the long run.
Difficulty: Easy
69. The market supply curve indicates the total quantity all producers in a competitive market would produce at each price, A. holding only input price fixed.
B. allowing input price to vary.
C. holding all supply shifters fixed.
D. allowing all supply shifters to vary.
Difficulty: Easy
70. Which of the following is not a supply shifter? A. Level of technology.
B. Prices of inputs.
C. Average income level.
D. Weather.
Difficulty: Medium
71. If the price of an input rises, producers are willing to produce A. more output at each given price.
B. less output at each given price.
C. the same output at each given price.
D. none of the statements associated with this question are correct.
Difficulty: Easy
72. As additional firms enter an industry, the market supply curve A. shifts to the right.
B. shifts to the left.
C. remains the same.
D. none of the statements associated with this question are correct.
Difficulty: Easy
73. An excise tax shifts the supply curve A. down by the amount of the tax.
B. up by the amount of the tax.
C. by rotating it counter-clockwise.
D. by rotating it clockwise.
Difficulty: Medium
74. An ad valorem tax shifts the supply curve A. down by the amount of the tax.
B. up by the amount of the tax.
C. by rotating it counter-clockwise.
D. by rotating it clockwise.
Difficulty: Medium
75. If firms expect prices to be higher in the future and the product is not perishable, then A. the current supply curve shifts to the left.
B. the current supply curve shifts to the right.
C. producers produce more output to hold back for the future.
D. none of the statements associated with this question are correct.
Difficulty: Medium
76. The supply function
A. describes how much of good X will be produced at an alternative price of good X, given all the other variables being constant.
B. recognizes that the quantity of a good produced depends on its price and supply shifters.C. shows the relationship between the quantity supplied of X and variables other than its price.
D. does not include technology.
Difficulty: Easy
77. The supply function for good X is given by Qxs = 1,000 + PX - 5PY - 2PW, where PX is the
price of X, PY is the price of good Y and PW is the price of input W. If the price of input W
increases by $10, then the supply of good X
A. will increase by 10 units.
B. will increase by 20 units.
C. will decrease by 10 units.
D. none of the statements associated with this question are correct.
Difficulty: Medium
78. The supply function for good X is given by Qxs = 1,000 + PX - 5PY - 2PW, where PX is the price of X, PY is the price of good Y and PW is the price of input W. If PX = 100, PY = 150, PW = 50, then the supply curve is A. Qxs = 550.
B. Qxs = 150 + Px.
C. Qxs = 550 + Px.
D. Qxs = 150 + Px.
Difficulty: Medium
79. If an excise tax is imposed on a good, then the supply curve A. shifts up by the amount of the demand elasticity.
B. does not change.
C. shifts down by the amount of the tax.
D. shifts up by the amount of the tax.
Difficulty: Hard
80. Producer surplus is the
A. area above the supply curve but below the demand curve.
B. area above the supply curve but below the market price of the good.
C. minimum amount required by a producer for producing the good.