Unit 2
Other things equal, if the price of a key resource used to produce product X falls, the: A) product supply curve of X will shift to the right. B) product demand curve of X will shift to the right. C) product supply curve of X will shift to the left. D) product demand curve of X will shift to the right.
A
A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus, A) the demand for pizza is elastic above $5 and inelastic below $5. B) the demand for pizza is elastic both above and below $5. C) the demand for pizza is inelastic above $5 and elastic below $5. D) $5 is not the equilibrium price of pizza.
A
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.
A
The law of demand states that: 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.
A
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.
A
Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity? A) an increase in supply B) an increase in demand C) a decrease in supply D) a decrease in demand
A
A recent study found that an increase in the Federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. 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.
B
An effective price floor will: A) force some firms in this industry to go out of business. B) result in a product surplus. C) result in a product shortage. D) clear the market.
B
If steak is a normal good and its price rises: A) the amount purchased may either increase or decrease depending on the relative importance of the income and substitution effects. B) both the income and substitution effects suggest that less will be purchased. C) the substitution effect suggests more will be purchased, but the income effect suggests less will be purchased. D) the income effect suggests more will be purchased, but the substitution effect suggests less will be purchased.
B
In 2003 the price of oil increased, which in turn caused the price of natural gas to rise. 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.
B
Other things equal, the shortage associated with a price ceiling will be greater the: A) smaller the elasticity of both demand and supply. B) greater the elasticity of both demand and supply. C) greater the elasticity of supply and the smaller the elasticity of demand. D) greater the elasticity of demand and the smaller the elasticity of supply.
B
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
B
The basic formula for the price elasticity of demand coefficient is: A) absolute decline in quantity demanded/absolute increase in price. B) percentage change in quantity demanded/percentage change in price. C) absolute decline in price/absolute increase in quantity demanded. D) percentage change in price/percentage change in quantity demanded.
B
The elasticity of demand for a product is likely to be greater: A) if the product is a necessity, rather than a luxury good. B) the greater the amount of time over which buyers adjust to a price change. C) the smaller the proportion of one's income spent on the product. D) the smaller the number of substitute products available.
B
The income and substitution effects account for: A) the upward sloping supply curve. B) the downward sloping demand curve. C) movements along a given supply curve. D) the "other things equal" assumption.
B
We would expect: A) the demand for Coca-Cola to be less elastic than the demand for soft drinks in general. B) the demand for Coca-Cola to be more elastic than the demand for soft drinks in general. C) no relationship between the elasticity of demand for Coca-Cola and the elasticity of demand for soft drinks in general. D) none of the above to hold true.
B
Which of the following statements is correct? A) If demand increases and supply decreases, equilibrium price will fall. B) If supply increases and demand decreases, equilibrium price will fall. C) If demand decreases and supply increases, equilibrium price will rise. D) If supply declines and demand remains constant, equilibrium price will fall.
B
Which of the following would not shift the demand curve for beef? A) a widely publicized study that indicates beef 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
B
An effective ceiling price will: A) induce new firms to enter the industry B) result in a product surplus. C) result in a product shortage. D) clear the market.
C
An increase in consumer incomes will: A) increase the demand for an inferior good. B) increase the supply of an inferior good. C) increase the demand for a normal good. D) decrease the supply of a normal good.
C
If a firm's demand for labor is elastic, a union-negotiated wage increase will: A) necessarily be inflationary. B) cause the firm's total payroll to increase. C) cause the firm's total payroll to decline. D) cause a shortage of labor.
C
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.
C
In 1994 Ford sold 500,000 Escorts at an average price of $7,200 per car; in 1995, 600,000 Escorts were sold at an average price of $7,500 per car. These statements: A) suggest that the demand for Escorts decreased between 1994 and 1995. B) imply that Escorts are an inferior good. C) suggest that the demand for Escorts increased between 1994 and 1995. D) constitute an exception to the law of demand in that they suggest an upsloping demand curve.
C
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 the quantity demanded
C
The demands for such products as salt, bread, and electricity tend to be: A) perfectly price elastic. B) of unit price elasticity. C) relatively price inelastic. D) relatively price elastic.
C
The elasticity of demand: A) is infinitely large for a perfectly inelastic demand curve. B) tends to be inelastic in high-price ranges and elastic in low-price ranges. C) tends to be elastic in high-price ranges and inelastic in low-price ranges. D) is the same at each price-quantity combination on a stable demand curve.
C
When the percentage change in price is greater than the resulting percentage change in quantity demanded: A) a decrease in price will increase total revenue. B) demand may be either elastic or inelastic. C) an increase in price will increase total revenue. D) demand is elastic.
C
When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes: A) the cost effect. B) the inflationary effect. C) the income effect. D) the substitution effect.
C
When the price of a product rises, consumers 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.
C
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 consumer incomes C) a change in the price of K D) a change in consumer tastes
C
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.
D
A rightward shift in the demand curve for product C might be caused by: A) an increase in income if C is an inferior good. B) a decrease in income if C is a normal good. C) a decrease in the price of a product that is a close substitute for C. D) a decrease in the price of a product that is complementary to C.
D
Diminishing marginal utility explains why: A) the income effect exceeds the substitution effect. B) the substitution effect exceeds the income effect. C) supply curves are upsloping. D) demand curves are downsloping.
D
If Z is an inferior good, a decrease 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.
D
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 consumer income. B) an increase in the price of a substitute good. C) a change in consumer expectations. D) a change in buyer tastes.
D
The substitution effect causes a consumer to buy less of a product when its price rises because the: A) consumer's real income has decreased. B) consumer's real income has increased. C) product is now less expensive compared to other products. D) product is now more expensive compared to other products.
D
Which of the following is not characteristic of the demand for a commodity that is elastic? A) The relative change in quantity demanded is greater than the relative change in price. B) Buyers are relatively sensitive to price changes. C) Total revenue declines if price is increased. D) The elasticity coefficient is less than one.
D