Chapter 2: DEMAND, SUPPLY, AND MARKET EQUILIBRIUM

11 Use the following general linear demand relation: where M is income and is the price of a related good, R. If M = $15,000 and = $20 and the supply function is , equilibrium price and quantity are, respectively, a. P = $55 and Q = 195. b. P = $6 and Q = 38. c. P = $12 and Q = 200. d. P = $50 and Q = 170. e. P = $40 and Q = 250. Answer: a

a. P = $55 and Q = 195.

2 The market demand curve for a given good shifts when there is a change in any of the following factors EXCEPT a. the price of the good. b. the level of consumers' income. c. the prices of goods related in consumption. d. the tastes of consumers. Answer: a

a. the price of the good

8 When the average price of videocassette recorders (VCRs) falls, the result is a. an increase in supply of VCRs. b. an increase in the quantity of VCRs supplied. c. an increase in the quantity of VCRs demanded. d. a decrease in the quantity of VCRs demanded. Answer: c

c. an increase in the quantity of VCRs demanded

1 If the price of a complement for tires decreases, all else equal, a. quantity demanded for tires will decrease. b. quantity supplied for tires will decrease. c. demand for tires will increase. d. demand for tires will decrease. e. supply for tires will increase. Answer: c

c. demand for tires will increase

4 If input prices increase, all else equal, a. quantity supplied will decrease. b. supply will increase. c. supply will decrease. d. demand will decrease. Answer: c

c. supply will decrease

6 When Sonoma Vineyards reduces the price of its Cabernet Sauvignon from $15 a bottle to $12 a bottle, the result is an increase in a. the demand for this wine. b. the supply of this wine. c. the quantity of this wine demanded. d. the quantity of this wine supplied. Answer: c

c. the quantity of the wine demanded

7 Which of the following will cause a change in quantity supplied? a. a change in input prices b. a technological change c. a change in the number of firms in the market d. a change in the market price of the good Answer: d

d. a change in the market price of the good.

3 Which of the following would DECREASE the demand for tennis balls? a. An increase in the price of tennis balls b. A decrease in the price of tennis rackets c. An increase in the cost of producing tennis balls d. A decrease in average household income when tennis balls are a normal good Answer: d

d. a decrease in average household income when tennis balls are a normal good

5 Which of the following would increase the supply of corn? a. an increase in the price of pesticides b. a decrease in the demand for corn c. a fall in the price of corn d. a severe drought in the corn belt e. a decrease in the price of wheat Answer: e

e. a decrease in the price of wheat

9 Use the following general linear demand relation: where M is income and is the price of a related good, R. From this relation it is apparent that the good is: a. an inferior good b. a substitute for good R c. a normal good d. a complement for good R e. both c and d Answer: e

e. both c and a