Microeconomics, 4e – Testbank 2 (Hubbard)
Chapter 3 Where Prices Come From: The Interaction of Demand and Supply
3.1 The Demand Side of the Market
1) The market for tablet computers has become very competitive. The increase in competition in
this market is an example of how the market responds to
A) decreases in the price of desktop computers (a substitute for the product).
B) increases in income.
C) changes in population.
D) changes in consumer tastes.
2) If you are considering buying either an Apple iPad or a Samsung Galaxy Tab, and you choose
the Samsung only because the price is lower, then you consider
A) the iPad and the Galaxy Tab to be complements.
B) the iPad and the Galaxy Tab to be substitutes.
C) the iPad to be a normal good and the Galaxy Tab to be an inferior good.
D) the iPad to be an inferior good and Galaxy Tab to be a normal good.
3) An ________ is represented by a rightward shift of the demand curve while an ________ is
represented by a movement along a given demand curve.
A) increase in demand; decrease in demand
B) increase in demand; increase in quantity demanded
C) decrease in demand; decrease in quantity demanded
D) increase in quantity demanded; increase in demand
4) A demand curve shows the relationship between
A) the price of a product and the quantity of the product demanded.
B) the amount of a product sellers are willing to sell at a particular price and the amount
consumers are willing to buy at that price.
C) the quantity that consumers are willing and able to buy and the quantity that sellers are
willing and able to offer.
D) the price of a produce and the demand for the product.
5) If, in response to a decrease in the price of coffee, the quantity demanded of coffee increases,
economists would describe this as
A) an increase in demand.
B) an increase in quantity demanded.
C) a change in consumer income.
D) an increase in consumers’ taste for coffee.
6) By drawing a demand curve with price on the vertical axis and quantity on the horizontal axis,
economists assume that the most important determinant of the demand for a good is
A) consumer income.
B) consumer tastes and preferences.
C) the price of the good.
D) the quality of the good.
7) The law of demand implies, holding everything else constant, that as the price of yogurt
A) increases, the demand for yogurt will increase.
B) increases, the quantity of yogurt demanded will decrease.
C) decreases, the quantity of yogurt demanded will decrease.
D) decreases, the demand for yogurt will increase.
8) The phrase “demand has increased” means that
A) a demand curve has shifted to the left.
B) there has been an upward movement along a demand curve.
C) there has been a downward movement along a demand curve.
D) a demand curve has shifted to the right.
9) Holding everything else constant, a decrease in the price of GPS systems will result in
A) a decrease in the quantity of GPS systems demanded.
B) an increase in the demand for GPS systems.
C) a decrease in the supply of GPS systems.
D) an increase in the quantity of GPS systems demanded.
10) A change in which variable will change the market demand for a product?
A) the price of the product
B) expected future prices
C) the number of firms in the market
D) the quantity supplied of the product
Table 3-1
Kona
Coffee
Price per
lb.
(dollars)
Luke’s
Quantity
Demande
d (lb.)
Ravi’s
Quantity
Demande
d (lb.)
Rest of
Market
Quantity
Demande
d (lb.)
Market
Quantity
Demande
d (lb.)
$10
3
0
23
8
9
3
32
6
14
7
68
5
18
12
85
4
22
18
110
11) Refer to Table 3-1. The table above shows the demand schedules for Kona coffee of two
individuals (Luke and Ravi) and the rest of the market. At a price of $6, the quantity demanded
in the market would be
A) 36 lb.
B) 68 lb.
C) 89 lb.
D) 123 lb.
12) Refer to Table 3-1. The table above shows the demand schedules for Kona coffee of two
individuals (Luke and Ravi) and the rest of the market. If the price of Kona coffee rises from $4
to $5, the market quantity demanded would
A) decrease by 35 lb.
B) increase by 115 lb.
C) increase by 35 lb.
D) decrease by 115 lb.
13) The ________ effect of a price change refers to the impact of a change in the price of a good
on a consumer’s purchasing power.
A) income
B) substitution
C) demographics
D) ceteris paribus
14) Which of the following will not shift the demand curve for a good?
A) an increase in population
B) an increase in the price of the good
C) a decrease in the price of a substitute good
D) an increase in consumer incomes
15) A ________ demand curve for shampoo would be caused by a change in the price of
shampoo.
A) rightward shift of the
B) leftward shift of the
C) movement along the
D) positively sloped
16) The substitution effect of a price change refers to
A) the change in quantity demanded that results from a change in price making a good more or
less expensive relative to other goods that are substitutes.
B) the shift of a demand curve when the price of a substitute good changes.
C) the movement along the demand curve due to a change in purchasing power brought about by
the price change.
D) the shift in the demand curve due to a change in purchasing power brought about by the price
change.
17) If the price of pork rinds falls, the substitution effect due to the price change will cause
A) an increase in the demand for pork rinds.
B) an increase in the demand for corn chips, a substitute for pork rinds.
C) an increase in the quantity of pork rinds demanded.
D) a decrease in the quantity of pork rinds demanded.
18) The income effect of a price change results in a
A) shift of the demand curve when income changes.
B) movement along the demand curve due to a change in relative prices.
C) shift of the demand curve due to a change in purchasing power brought about by the price
change.
D) movement along the demand curve due to a change in purchasing power brought about by the
price change.
19) If a decrease in income leads to in a decrease in the demand for ice cream, then ice cream is
A) a normal good.
B) a neutral good.
C) a complement.
D) a necessity.
20) If a decrease in income leads to an increase in the demand for macaroni, then macaroni is
A) an inferior good.
B) a neutral good.
C) a necessity.
D) a normal good.
Figure 3-1
21) Refer to Figure 3-1. An increase in the price of a complement would be represented by a
movement from
A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.
22) Refer to Figure 3-1. A decrease in the expected future price of the product would be
represented by a movement from
A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.
23) Refer to Figure 3-1. If the product represented is a normal good, an increase in income
would be represented by a movement from
A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.
24) Refer to Figure 3-1. An increase in the price of the product would be represented by a
movement from
A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.
25) How has the growing popularity of factory outlet stores affected the market for clothing at
retail department stores?
A) the demand curve for clothing at retail department stores shifts to the right.
B) the demand curve for clothing at retail department stores shifts to the left.
C) the supply curve for clothing at retail department stores shifts to the right.
D) the supply curve for clothing at retail department stores shifts to the left.
26) According to a recent study, “Stricter college alcohol policies, such as raising the price of
alcohol, or banning alcohol on campus, decrease the number of students who use marijuana.”
On the basis of this information, how would you describe alcohol and marijuana?
A) The two goods are substitutes in consumption.
B) There is no relationship between the two goods.
C) The two goods are complements in consumption.
D) They are both luxury goods.
27) If the price of propane-fueled gas grills was to decrease, then
A) the demand for propane would decrease.
B) the demand for propane would increase.
C) the quantity of propane demanded would increase.
D) the quantity of propane demanded would decrease.
28) Suppose that when the price of hamburgers increases, the Ruiz family increases their
purchases of hot dogs. To the Ruiz family,
A) hamburgers and hot dogs are complements.
B) hamburgers and hot dogs are inferior goods.
C) hamburgers and hot dogs are normal goods.
D) hamburgers and hot dogs are substitutes.
29) Suppose that when the price of ice cream increases, Liza decreases her purchase of hot
fudge. To Liza,
A) ice cream and hot fudge are complements.
B) ice cream and hot fudge and substitutes.
C) ice cream and hot fudge are normal goods.
D) ice cream is a normal good and hot fudge is an inferior good.
30) Several studies have shown promising links between green tea consumption and cancer
prevention. How does this affect the market for green tea?
A) The quantity of green tea demanded increases because of a change in tastes in favor of green
tea.
B) The green tea demand curve shifts to the right because of a change in tastes in favor of green
tea.
C) The green tea demand curve shifts to the left because this new information will increase the
price of green tea.
D) The quantity of green tea demanded decreases because this new information will increase the
price of green tea.
31) If the price of gasoline increases, what will be the impact in the market for public
transportation?
A) The demand curve for public transportation shifts to the right.
B) The quantity of public transportation demanded increases.
C) The demand curve for public transportation shifts to the left.
D) The quantity of public transportation demanded decreases.
32) How does the increasing use of digital cameras affect the market for traditional camera film?
A) The demand curve for traditional camera film shifts to the right.
B) The quantity of traditional camera film demanded decreases.
C) The quantity of traditional camera film demanded increases.
D) The demand curve for traditional camera film shifts to the left.
33) Technological advancements have led to lower prices and an increase in the sale of color
laser printers. How does this affect the market for laser printer ink cartridges?
A) The demand curve for laser printer ink cartridges shifts to the right.
B) The demand curve for laser printer ink cartridges shifts to the left.
C) The quantity of laser printer ink cartridges demanded increases.
D) The quantity of laser printer ink cartridges demanded decreases.
34) Buyers scrambled to secure stocks of Australian wool following a forecast of an 11 percent
decline in wool production. What happens in the Australian wool market as a result of this
announcement?
A) The demand curve for Australian wool shifts to the left in anticipation of higher prices in the
future.
B) The demand curve for Australian wool shifts to the right in anticipation of higher prices in the
future.
C) The quantity of Australian wool demanded increases in anticipation of higher prices in the
future.
D) The quantity of Australian wool demanded decreases in anticipation of lower quantities in the
future.
35) Factory incentives on cell phones have encouraged consumers to upgrade their phones. How
does this affect the market for bluetooth headsets?
A) The quantity of bluetooth headsets demanded increases.
B) The quantity of bluetooth headsets demanded decreases.
C) The demand for bluetooth headsets increases.
D) The demand for bluetooth headsets decreases.
36) In January, buyers of gold expect that the price of gold will fall in February. What happens in
the gold market in January, holding everything else constant?
A) The demand curve shifts to the right.
B) The quantity demanded increases.
C) The quantity demanded decreases
D) The demand curve shifts to the left.
37) In September, buyers of silver expect that the price of silver will rise in October. What
happens in the silver market in September, holding all else constant?
A) The quantity demanded decreases.
B) The demand curve shifts to the left.
C) The demand curve shifts to the right.
D) The quantity demanded increases.
38) During the recession of 2007-2009, several casual dining restaurants experienced a drop in
business as many consumers chose to become more in spending their declining incomes. The
decrease in demand due to falling income indicates that meals sold in casual restaurants are
considered
A) normal goods.
B) inferior goods.
C) complementary goods.
D) substitute goods.
39) During the recession of 2007-2009, Subway experienced increased sales. This increase in
demand for food such as a Subway sandwich indicates that Subway sandwiches are inferior
goods, which in economic terms means
A) the Subway sandwich is of low quality.
B) the Subway sandwich is not as large as it used to be.
C) competitors’ sandwiches, such as those from Quiznos, taste better than Subway sandwiches.
D) the demand for the Subway sandwich increases when income decreases.
40) The demand for medical services in the United States is expected to increase in upcoming
years because
A) the fraction of people over the age of 65 is increasing.
B) medical services are becoming less expensive.
C) the baby boom generation is finally lowering the fraction of people over the age of 50.
D) foreign nationals are expected to flock to the United States for medical care once the takes
over the health care industry.
41) Aging baby boomers are expected to have an effect on the housing market because
A) they have retirement money to use to get out of apartments and into large homes.
B) they tend to buy large vacation homes to accompany their primary residences.
C) older people often downsize their housing by moving from larger homes into smaller homes.
D) they have reached the age where the government will subsidize mortgages valued over
$500,000.
42) If consumers view tablet computers as good replacements for ________ demand will most
likely be greater than if consumers view tablet computers as good replacements for ________.
A) e-readers; laptop computers
B) e-readers; desktop computers
C) desktop computers; computers in general
D) laptop computers; e-readers
43) The income effect of a price change refers to the change in the quantity demanded of a good
that results from a change in the price of a substitute product.
44) If the price of peaches, a substitute for plums, increases the demand for plums will decrease.
45) An inferior good is a good for which the quantity demanded increases as the price decreases,
holding everything else constant.
46) The substitution effect explains why there is an inverse relationship between the price of a
product and the quantity of the product demanded.
47) If consumers believe the price of hybrid vehicles will decrease in the future, this will cause
the demand for hybrid vehicles to decrease now.
48) What is the difference between a “change in demand” and a “change in quantity demanded”?
49) Explain the Law of Demand.
50) Cole was discussing the market for cocoa beans with his friend John Schmidt. Cole said,
“Ever since Venezuela announced that its cocoa harvest was its lowest ever in fifteen years, the
price of cocoa beans has been rising and rising and people are buying more and more. I think the
demand for cocoa beans must be upward sloping.” Is Cole right? Briefly explain why or why not.
51) For each of the following pairs of products state which are complements, which are
substitutes, and which are unrelated.
a. Swim fins and scuba tanks
b. Coca Cola and Volkswagens
c. Printers and ink cartridges
d. Ice and ice chests
e. Heineken and Corona
3.2 The Supply Side of the Market
1) A supply curve
A) is a table that shows the relationship between the price of a product and the quantity of the
product supplied.
B) is a curve that shows the relationship between the price of a product and the quantity of the
product supplied.
C) is the relationship between the supply of a good and the cost of producing the good.
D) is a curve that shows the relationship between the price of a product and the quantity of the
product that producers and consumers are willing to exchange.
2) If in the market for apples the supply has decreased then
A) the supply curve for apples has shifted to the right.
B) there has been a movement upwards along the supply curve for apples.
C) the supply curve for apples has shifted to the left.
D) there has been a movement downwards along the supply curve for apples.
3) If in the market for bananas the supply curve has shifted to the right, then
A) the supply of bananas increased.
B) the quantity of bananas supplied has increased.
C) the supply of bananas has decreases.
D) the quantity of bananas supplied has decreased.
4) Last month, the Tecumseh Corporation supplied 400 units of three-ring binders at $6 per unit.
This month, the company supplied the same quantity of binders at $4 per unit. Based on this
evidence, Tecumseh has experienced
A) a decrease in supply.
B) an increase in supply.
C) an increase in the quantity supplied.
D) a decrease in the quantity supplied.
5) ________ means the supply curve has shifted to the right, while ________ refers to a
movement along a given supply curve in response to an increase in price.
A) An increase in supply; a decrease in supply
B) A decrease in supply; an increase in supply
C) An increase in supply; an increase in quantity supplied
D) A decrease in supply; a decrease in quantity supplied
6) One would speak of a movement along a supply curve for a good, rather than a change in
supply, if
A) the cost of producing the good changes.
B) supplier expectations about future prices change.
C) the price of the good changes.
D) prices of substitutes in production change.
7) Which of the following would cause an increase in the supply of cheese?
A) a decrease in the price of wine (assuming that cheese and wine are complements)
B) an increase in the price of cheese
C) an increase the price of a product that producers sell instead of cheese
D) an increase in the number of firms that produce cheese
8) In July, market analysts predict that the price of gold will rise in August. What happens in the
gold market in July, holding everything else constant?
A) The supply curve shifts to the right.
B) The supply curve shifts to the left.
C) The quantity demanded and the quantity supplied of gold increase.
D) The demand curve shifts to the left.