Chapter 2

A movement along the demand curve to the left may be caused by

a decrease in supply.

If the demand for coffee decreases as income decreases, coffee is:

a normal good

The price of computer chips used in the manufacture of personal computers has fallen. This will lead to __________ personal computers.

an increase in the supply of

The Setrite Corporation produces chairs. An economist working for the firm predicts that 'if people's incomes rise next year, then the demand for our chairs will increase, ceteris paribus.' The accuracy of the economist's prediction depends on whether the chairs Setrite produce:

are normal goods

The 'law of demand' implies that:

as prices fall, quantity demanded increases.

If the cross-price elasticity of demand between two goods is negative, then the two goods are:

complements

Suppose the demand for good Z goes up when the price of good Y goes down. We can say that goods Z and Y are

complements

When the decrease in the price of one good causes the demand for another good to decrease, the goods are:

substitutes

When the market operates without interference, price increases will distribute what is available to those who are willing and able to pay the most. This process is known as:

price rationing

When excess demand occurs in an unregulated market, there is a tendency for:

price to rise

Market equilibrium exists when _____________ at the prevailing price.

quantity demanded equals quantity supplied

The price elasticity of demand is the:

ratio of the percentage change in quantity demanded to the percentage change in price.

The quantity demanded of Pepsi has decreased. The best explanation for this is that:

the price of Pepsi increased.

Demand curves are derived while holding constant:

income, tastes, and the price of other goods.

If the quantity demanded of beef increases by 5% when the price of chicken increases by 20%, the cross-price elasticity of demand between beef and chicken is:

0.25

Which of the following will NOT cause a shift in the demand curve for compact discs?

A change in the price of compact discs.

Which of the following is consistent with the law of supply?

As the price of calculators rise, the quantity supplied of calculators increases, ceteris paribus

What effect is working when the price of a good falls and consumers tend to buy it instead of other goods?

The substitution effect.

The price of apples falls by 5% and quantity demanded increases by 6%. This means that demand is:

elastic

The price of burgers increases by 22% and the quantity of burgers demanded falls by 25%. This indicates that demand for burgers is:

elastic