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Managerial Economics, 7e (Keat)
Chapter 3 Supply and Demand (Appendix 3A)
Multiple-Choice Questions
1) How long is the "short-run" time period in the economic analysis of the market?
A) three months or one business quarter
B) total time in which sellers already in the market respond to changes in demand and
equilibrium price
C) total amount of time it takes new sellers to enter the market
D) total amount of time it takes original sellers to leave the market
2) Which of the following best applies to the distinction between the "long run" and the "short
run"?
A) The short run is a period of approximately 1-6 months while the long run is any time frame
which is longer.
B) In the short run, only new firms may enter, while in the long-run firms may either enter or exit
the market.
C) The rationing function of price is a short-run phenomenon whereas the guiding function is a
long-run phenomenon.
D) All of the above statements are correct.
3) In the short-run if there is a surplus in the market for a product, the rationing function of price
can be expected to cause
A) an increasing shift in the demand for the product.
B) a decreasing shift in the supply of the product.
C) an increase in the market price of the product.
D) a decrease in the market price of the product.
4) In the long run if there is a shortage in the market for a product, the guiding (allocation)
function of price can be expected to cause
A) an increasing shift in the demand for the product.
B) a decreasing shift in the demand for the product.
C) an increasing shift in the supply of the product.
D) a decreasing shift in the supply of the product.
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5) The rationing function of price
A) occurs when there is a movement of resources into or out of markets as a result of changes in
the equilibrium market price.
B) is also known as the guiding function of price.
C) occurs when consumers change their tastes and preferences.
D) occurs only when the market experiences severe shortages.
6) Which of the following best describes the "guiding function" of price?
A) In response to a surplus or shortage in two markets, price serves as a "guiding function" by
decreasing in one market and increasing in the other market in the short run.
B) The guiding function of price is the movement of resources into or out of markets in response
to a change in the equilibrium price of a good or service.
C) The guiding function of price occurs when the market price changes to eliminate the
imbalance between supply and demand caused by a shortage or surplus at the original price.
D) The guiding function usually occurs in the short run while the rationing function usually
occurs in the long run.
7) The guiding function of price is
A) the movement of price to clear the market of any shortages or surpluses.
B) the use of price as a signal to guide government on the use of market subsidies.
C) a long-run function resulting in the movement of resources into or out of markets.
D) the movement of price as a result of changes in the demand for a product.
8) The "law" of demand can be best described by
A) people will buy things that they enjoy.
B) if incomes rise, people will buy more.
C) a rise in price will cause shortages.
D) a fall in price will increase quantity demanded.
9) A movement along a demand curve may be caused by a change in
A) the non-price determinants of demand.
B) the change in consumer expectations.
C) the change in demand.
D) the change in supply.
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10) All of the following are non-price determinants of demand except
A) tastes and preferences.
B) income.
C) technology.
D) future expectations.
11) Which of the following will result in a decrease in demand for residential housing in the
short run?
A) a decrease in the price of lumber
B) an increase in the wages of carpenters
C) a decrease in real household incomes
D) a decrease in the prices of residential housing
12) Which of the following would cause a decrease in the demand for fish?
A) The price of red meat increases.
B) The price of fish increases.
C) The price of chicken decreases.
D) The number of fishing boats decreases.
13) Which of the following refers to a shift in the demand curve?
A) "This new advertising campaign should really increase our demand."
B) "Let's drop our price to increase our demand."
C) "We dare not raise our price because our demand will drop."
D) "If new sellers enter the market, the demand for the product is bound to increase."
14) Which of the following can result in a decrease in the demand for I-Pods in the short run?
A) a decrease in the population
B) a decrease in real household incomes
C) a decrease in the price of MP4s
D) All of the above
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15) A good that is similar to another, and can be consumed in place of it, is called
A) a normal good.
B) an inferior good.
C) a complementary good.
D) a substitute good.
16) Two goods are ________ if the quantity consumed of one increases when the price of the
other decreases.
A) normal
B) superior
C) complementary
D) substitute
17) If the price of a substitute increases, which of the following is most likely to happen in the
market for the product under consideration in the short run?
A) Supply will increase.
B) Firms will leave the market.
C) Firms will devote more variable inputs in the production of this good.
D) Firms will devote less variable inputs in the production of this good.
18) Which of the following will not cause the demand curve for good X to shift?
A) a change in the price of X
B) a change in the price of Y, a complement
C) a change in the price of Z, a substitute
D) an increase in average disposable real income
19) Which of the following will change only the quantity demanded of oranges?
A) an increase in the population
B) a change in the price of tangerines
C) a change in the price of oranges
D) a decrease in the taste and preferences for oranges
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20) Coke and Pepsi are substitutes if
A) the demand for Coke increases when the price of Pepsi falls.
B) the demand for Coke increases when the price of Pepsi rises.
C) the supply of Coke increases when the price of Pepsi falls.
D) the demand for Coke and Pepsi rise and fall together.
21) All of the following are non-price determinants of supply except
A) costs.
B) technology.
C) income.
D) future expectations.
22) Which of the following would cause a short-run decrease in the quantity supplied of personal
computers?
A) The price of CPUs decreases.
B) The price of software decreases.
C) The number of PC manufacturers decreases.
D) The cost of manufacturing PCs decreases.
23) Which of the following will not cause a short-run shift in the supply curve?
A) a change in the number of sellers
B) a change in the cost of resources
C) a change in the price of the product
D) a change in future expectations
24) Which of the following applies most generally to supply in the long run?
A) Average total cost must decline.
B) Producers are able to make change in all their factors of production.
C) Producers are only able to make change in their variable factors of production.
D) All original producers will leave the market.
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25) Which of the following could cause a long-run shift in demand as part of the "guiding
function of price"?
A) a change in tastes and preferences
B) an increase in price caused by a shift in supply
C) income shift caused by an economic recession
D) an increase in number of buyers
26) Which of the following is a common determinant of both supply and demand?
A) income
B) future expectations
C) tastes and preferences
D) sales tax
27) Which of the following indicates that there is a shortage in the market?
A) Demand is rising.
B) Demand is falling.
C) Price is rising.
D) Price is falling.
28) Which of the following is correct? The supply curve will shift when
A) income, preferences, or the number of suppliers change.
B) income, preferences, or the number of buyers change.
C) income, preferences, or production technology changes.
D) the number of sellers and the number of buyers change.
E) production technology and input prices change.
29) A fall in the price of pesticide use in the production of cotton will
A) decrease the supply of cotton, causing the supply curve of cotton to shift to the left.
B) increase the supply of cotton, causing the supply curve of cotton to shift to the left.
C) cause a downward movement along the supply curve of cotton.
D) have no effect on the supply of cotton.
E) None of the above
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