Introduction to Economic Reasoning, 8e (Rohlf)
Chapter 3: Demand and Supply: Price Determination in Competitive Markets
1) According to the law of demand, a reduction in the price of a product will
A) increase the demand for the product.
B) increase the quantity demanded of the product.
C) reduce the demand for the product.
D) reduce the quantity demanded of the product.
E) cause producers to supply a higher quantity of the product.
2) If the price of hamburger increases, this is likely to
A) reduce the demand for hamburger.
B) reduce the demand for chicken.
C) reduce the quantity demanded of hamburger.
D) increase the quantity demanded of hamburger.
E) increase the demand for hamburger buns.
3) If the price of gasoline declined, we would expect
A) consumers to move down along their stationary demand curve to a higher quantity.
B) the demand curve for gasoline to shift to the right.
C) consumers to move up along their stationary demand curve to a lower quantity.
D) the demand curve for gasoline to shift to the left.
E) the demand curve for large cars to shift to the left.
4) One reason that consumers choose to buy more of a product at a lower price than at a higher
price is because the product becomes more attractive relative to other items serving the same
function. This is called
A) the substitution effect.
B) the price effect.
C) the income effect.
D) the normal good effect.
E) the Adam Smith effect.
5) The “income effect” of a price reduction will cause consumers to purchase more of a product
because
A) the demand curve will shift to the right.
B) their income will stretch farther than before.
C) consumers will tend to substitute this product in the place of other similar products.
D) the demand curve will shift to the left.
E) the lower price conveys an image of superior quality.
6) An increase in the price of beef will result in a lower quantity demanded because
A) some consumers will now choose to substitute fish and other meat products in the place of
beef.
B) the higher price means consumers’ incomes will stretch farther than before.
C) suppliers will cut back on the quantity supplied.
D) the demand curve for beef will shift to the left, due to the price hike.
E) the demand curve for beef will shift to the right, due to the price hike.
7) An increase in per capita income will cause the demand curve for lobster to
A) shift to the right, if lobster is a normal good.
B) shift to the right, if lobster is an inferior good.
C) shift to the left, if lobster is a normal good.
D) stay the same, but the quantity of lobster demanded will increase.
E) stay the same, but the quantity of lobster demanded will decrease.
8) If an increase in income results in a leftward shift of the demand curve for product X, then X
is a (an)
A) status good.
B) normal good.
C) inferior good.
D) prestige product.
E) abnormal good.
9) If consumers expect the price of a product to increase in the future they will probably
A) reduce their current demand for the product.
B) increase their current demand for the product.
C) move down along their stationary demand curve to a higher quantity.
D) move up along their stationary demand curve to a lower quantity.
E) buy less of that product today than they normally would.
10) If chicken and fish are substitutes, then an increase in the price of chicken will
A) increase the quantity of chicken demanded.
B) decrease the quantity of fish demanded.
C) shift the demand curve for chicken to the right.
D) shift the demand curve for fish to the right.
E) increase the demand for Shake-N-Bake, a complement for chicken (but not for fish).
11) If Flavor Cola and Swill Cola are substitutes, then
A) an increase in the price of Flavor Cola will decrease the quantity demanded of Swill Cola.
B) a decrease in the price of Swill Cola will increase the demand for Flavor Cola.
C) a decrease in the price of Swill Cola will increase the quantity demanded of Flavor Cola.
D) an increase in the price of Flavor Cola will increase the demand for Swill Cola.
E) the demand curve for Swill Cola will shift to the left when the price of Flavor Cola rises.
12) If sour cream and baking potatoes are complements, an increase in the price of baking
potatoes would tend to
A) increase the demand for sour cream.
B) increase the demand for baking potatoes.
C) decrease the demand for sour cream.
D) increase the quantity demanded of sour cream.
E) increase the quantity demanded of baking potatoes.
13) If the demand curve for product X shifts to the right when the price of product Y increases,
then
A) X and Y are substitute products.
B) X and Y are complementary products.
C) X and Y are independent products.
D) X is an inferior good and Y is a status good.
E) X is an inferior good.
14) Which of the following is most likely to be an inferior good?
A) a lobster dinner
B) a color television
C) an ocean cruise
D) generic soda pop
E) a college education
15) If butter and Bread Spread are substitute products, then an increase in the price of butter will
most likely
A) shift the demand curve for Bread Spread to the left.
B) shift the demand curve for Bread Spread to the right.
C) shift the demand curve for butter to the right.
D) have no effect on the demand curves for butter or Bread Spread.
E) increase the demand for bread.
16) A leftward shift in demand curve for new cars could be caused by
A) an increase in the price of new cars.
B) an increase in fares for public transportation.
C) a decrease in per capita income.
D) expectation of higher new car prices in the future.
E) a reduction in used car prices.
17) An increase in the demand for vacation motor homes could be caused by
A) an increase in the price of gasoline.
B) a decrease in rental rates for motel rooms.
C) a reduction in the price of motor homes.
D) a reduction in the interest rate, the cost of borrowing money.
E) lower plane fares.
18) All of the following would shift the demand curve for pond-raised catfish to the right
EXCEPT
A) an increase in per capita income (assuming catfish is a normal good).
B) an advertising campaign touting the health benefit of eating catfish.
C) an increase in the price of chicken (a substitute).
D) a reduction in the price of catfish.
E) an increase in the price of pond-raised trout.
19) If the price of wheat increases and other factors remain unchanged, then we can expect
A) an increase in the demand for wheat.
B) an increase in the quantity of wheat supplied.
C) a decrease in the supply of wheat.
D) an increase in the quantity of wheat demanded.
E) a reduction in the prices of breakfast cereals made from wheat.
20) According to the law of supply
A) price and quantity supplied are inversely related.
B) when the price of a product increases, the quantity supplied decreases.
C) price and quantity supplied are directly related.
D) when the price of a product falls, the supply curve shifts to the right.
E) when the price of a product increases, the supply curve shifts to the right.
21) If the price of leather increases, then
A) the supply curve of leather shoes will shift to the left.
B) the demand for leather will increase.
C) the supply curve of leather shoes will shift to the right.
D) the quantity of leather supplied will decrease.
E) the price of leather belts will tend to fall.
22) New technology has reduced the cost of mining gold. This discovery will probably
A) cause an increase in the price of gold.
B) cause the supply curve of gold to shift to the right.
C) cause less gold to be supplied at every price.
D) cause a reduction in the supply of gold.
E) cause the supply curve of gold to shift to the left.
23) If the price of fertilizer declined, this would be likely to
A) decrease the quantity of wheat supplied.
B) cause wheat farmers to move down along their stationary supply curve to a higher quantity.
C) increase the supply of wheat.
D) cause farmers to grow less wheat.
E) increase the supply of fertilizer.
24) If a severe drought destroyed much of the hay crop,
A) the supply curve of hay would shift to the right.
B) the price of hay would tend to rise.
C) the price of hay would tend to fall.
D) the demand for hay would increase.
E) the price of substitutes for hay (such as cattle feed) would tend to fall.
25) If demand increases and supply remains constant,
A) the equilibrium price will rise; the equilibrium quantity will remain constant.
B) the equilibrium price and quantity will rise.
C) the equilibrium price and quantity will fall.
D) the equilibrium price will rise; the equilibrium quantity will fall.
E) the equilibrium price will remain constant; the equilibrium quantity will rise.
26) If supply declines, and demand remains constant,
A) the equilibrium price will rise; the equilibrium quantity will remain constant.
B) the equilibrium price and quantity will rise.
C) the equilibrium price and quantity will fall.
D) the equilibrium price will rise; the equilibrium quantity will fall.
E) the equilibrium price will fall; the equilibrium quantity will remain constant.
27) If both supply and demand increase,
A) the equilibrium price will rise; the equilibrium quantity will remain constant.
B) the equilibrium price will fall; the equilibrium quantity will remain constant.
C) the equilibrium price will rise; the equilibrium quantity will be indeterminate.
D) the equilibrium quantity will rise; the equilibrium price will be indeterminate.
E) the equilibrium quantity will fall; the equilibrium price will be indeterminate.
28) If demand increases, and supply decreases
A) the equilibrium price will rise; the equilibrium quantity will remain constant.
B) the equilibrium price will fall; the equilibrium quantity will remain constant.
C) the equilibrium price will rise; the equilibrium quantity will be indeterminate.
D) the equilibrium quantity will rise; the equilibrium price will be indeterminate.
E) the equilibrium quantity will fall; the equilibrium price will be indeterminate.
29) Which of the following statements is not correct?
A) If demand increases and supply remains constant, equilibrium price will rise.
B) If supply declines and demand increases, equilibrium price will rise.
C) If demand decreases and supply increases, equilibrium price will rise.
D) If supply increases and demand remains constant, equilibrium price will fall.
E) If supply and demand both decrease, the equilibrium quantity will fall.
30) An increase in the price of lumber would probably result in
A) an increase in the supply of new homes and higher new home prices.
B) a decrease in the supply of new homes and higher new home prices.
C) an increase in the supply of new homes and lower new home prices.
D) a decrease in the supply of new homes and lower new home prices.
E) a decrease in the demand for lumber substitutes.
31) If the supply of apartments is increasing more rapidly than the demand, the likely result will
be
A) higher apartment rents.
B) lower apartment rents.
C) an increase in the demand for single-family homes, a substitute for apartments.
D) an increase in the demand for mobile homes.
E) higher apartment rents and an increase in the demand for apartments and mobile homes.
32) An increase in the price of codfish could be due to
A) a reduction in the demand for codfish.
B) a decrease in the price of chicken, a substitute for codfish.
C) an abnormally small codfish catch.
D) an increase in the price of a complement for codfish.
E) a reduction in the price of the equipment used to catch codfish.
33) If consumer preferences switch from pork to fish, this is likely to cause
A) a decrease in the price of fish.
B) an increase in the price of pork.
C) increases in the price of fish and pork.
D) an increase in the price of fish and a reduction in the price of pork.
E) decreases in the price of fish and pork.
34) If the price of tea increases, the probable result would be
A) a decrease in the demand for tea.
B) decreases in the prices of substitutes for tea.
C) increases in the prices of substitutes for tea.
D) a decrease in the supply of tea.
E) an increase in the demand for products which are complements for tea.
35) If wheat blight destroys one-third of the wheat crop
A) the price of breakfast cereals made from wheat will probably rise.
B) the supply of wheat will shift to the right.
C) the price of wheat will probably fall.
D) the price of wheat substitutes will probably fall.
E) the demand for wheat will probably fall.
36) If a shortage exists, then
A) the existing price is the equilibrium price.
B) the existing price is above the equilibrium price.
C) the existing price is below the equilibrium price.
D) at the existing price, the quantity supplied exceeds the quantity demanded.
E) at the existing price, supply exceeds demand.
37) Suppose that the average price of a new home in Hometown is $150,000. If the demand for
new homes increases,
A) there will be a permanent shortage of new homes at the $150,000 price.
B) there will be a temporary shortage of new homes at the $150,000 price. The shortage will be
eliminated when competition between suppliers raises the equilibrium price.
C) there will be a permanent surplus of new homes at the $150,000 price.
D) there will be a temporary surplus of new homes at the $150,000 price. The surplus will be
eliminated when competition between suppliers lowers the equilibrium price.
E) there will be a temporary shortage of new homes at the $150,000 price. The shortage will be
eliminated when competition between consumers raises the equilibrium price.
38) Suppose that the supply of personal computers increases. Which of the following is
consistent with the model of supply and demand?
A) The increased supply will lead to a temporary shortage, which will result in competition
between suppliers. This competition will lower the equilibrium price.
B) The increased supply will lead to a temporary surplus, which will result in competition
between suppliers. This competition will raise the equilibrium price.
C) The increased supply will lead to a temporary shortage, which will result in competition
between consumers. This competition will raise the equilibrium price.
D) The increased supply will lead to a temporary surplus, which will result in competition
between suppliers. This competition will lower the equilibrium price.
E) The increased supply will lead to a temporary surplus, which will result in competition
between consumers. This competition will lower the equilibrium price.
39) If there is a reduction in the supply of turkeys, the price of turkeys
A) will fall, because there will be a shortage at the initial price.
B) will fall, because there will be a surplus at the initial price.
C) will rise, because there will be a shortage at the initial price.
D) will rise, because there will be a surplus at the initial price.
E) may either rise or fall, but the equilibrium quantity of turkeys will fall.
40) When economists speak of the “motivating” function of price changes, they are referring to
the ability of price changes to
A) divide up the amount of a product available among those desiring to receive it.
B) provide information to producers and consumers.
C) provide a forecast about future economic conditions.
D) predict the winner of the next World Series.
E) provide incentive to producers to increase or decrease their output.
41) The process of dividing up or allocating scarce items among those who desire them is called
A) equilibrating.
B) rationing.
C) signaling.
D) motivating.
E) sifting.
42) Which of the following will not shift the demand curve for color television sets to a new
position?
A) the expectation of rising prices for color TVs
B) a decline in per capita income
C) a reduction in the selling price of color TVs
D) an increase in population
E) improvements in the quality of TV programs
43) Which of the following will shift the demand curve for compact cars to the right?
A) a reduction in the price of compact cars
B) the expectation of lower compact car prices in the near future
C) an increase in income, assuming that compact cars are an inferior good
D) an increase in the price of full-size cars
E) a reduction in the price of steel, an input in the manufacture of compact cars
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44) Which of the following would not lead to a higher price for tomatoes?
A) an increase in the price of the fertilizer used on tomato plants
B) a good growing season, producing an abundant crop
C) a government finding that tomatoes help reduce the amount of cholesterol in your blood
D) a reduction in the price of lettuce, a complement for tomatoes
E) passage of a law preventing the importation of tomatoes from outside the United States
45) An increase in the supply of wheat would lead to
A) an increase in the price of wheat and in the quantity of wheat demanded.
B) an increase in the price of wheat and in the demand for wheat.
C) a reduction in the price of wheat and an increase in the quantity of wheat demanded.
D) a reduction in the price of wheat and an increase in the demand for wheat.
E) higher prices for food products made from wheat.
46) A reduction in the demand for steak would lead to
A) an increase in the demand for complements such as steak sauce and onion rings.
B) an increase in the price of steak and in the quantity of steak supplied.
C) an increase in the price of steak and in the supply of steak.
D) a reduction in the price of steak and in the quantity of steak supplied.
E) a reduction in the price of steak and in the supply of steak.
47) The phrase “increase in demand” means that
A) a reduction in a product’s price has caused consumers to purchase a larger quantity.
B) the demand curve for the product has shifted to the left.
C) consumers have moved down along their stationary demand curve to a higher quantity.
D) the demand curve for the product has not shifted, but consumers desire to purchase a larger
quantity.
E) the demand curve for the product has shifted to the right.
1) If the price of automobiles increases and all other factors remain unchanged, it will be
reasonable to expect
A) an increase in the demand for automobiles.
B) a decrease in the demand for automobiles.
C) an increase in the quantity of automobiles demanded.
D) a decrease in the quantity of automobiles demanded.
2) If the demand curve for Brock’s Heavy Beer shifts to the left, this could be due to
A) an increase in the price of Brock’s Heavy Beer.
B) an increase in consumer income.
C) an increase in the price of other beers.
D) a shift in tastes and preferences to light beers.
3) An increase in the price of apples is likely to cause
A) a decrease in the demand for apples.
B) an increase in the quantity of apples demanded.
C) an increase in the demand for other types of fruit.
D) an increase in the quantity demanded of other types of fruit.
4) If the price of black walnuts increases and other factors remain unchanged, it is reasonable to
expect
A) a decrease in the demand for black walnuts.
B) an increase in the supply of black walnuts.
C) an increase in the quantity of black walnuts supplied.
D) a decrease in the demand for pecans and other walnut substitutes.
5) A new labor settlement that increases the cost of producing computers will probably cause
A) a decrease in supply of computers.
B) a reduction in the demand for computers.
C) a reduction in the quantity of computers supplied.
D) the supply curve of computers to shift to the right.
6) If an excellent growing season doubles the corn harvest, the result will be
A) an increase in the demand for corn.
B) a lower price and an increase in the quantity of corn demanded.
C) an increase in the quantity of corn supplied.
D) a lower price and an increase in the demand for corn.
7) If demand increases and supply declines,
A) the equilibrium price and quantity will both increase.
B) the equilibrium price will rise, but the quantity will fall.
C) the equilibrium price will fall, but the quantity will rise.
D) the equilibrium price and quantity will both fall.
E) the equilibrium price will rise; quantity will be indeterminate.
8) If the demand for used cars declines, the likely result will be
A) an increase in the supply of used cars.
B) a reduction in the equilibrium price of used cars.
C) an increase in the equilibrium price of used cars.
D) a temporary shortage of used cars at the old price.
9) If the price of computer chips and other component parts falls, this would lead to
A) an increase in the supply of computers and lower computer prices.
B) a decrease in the supply of computers and higher computer prices.
C) an increase in the demand for computers and higher computer prices.
D) a decrease in the demand for computers and lower computer prices.
10) When a drought destroys half of the orange crop, newspapers are likely to report a “shortage
of oranges.”
An economist would say that
A) a drought would lead to a surplus of oranges, not a shortage.
B) this shortage will exist until the next season, when more oranges can be produced.
C) this shortage is temporary and will be eliminated when the price of oranges rises.
D) the existing price of oranges must be above the equilibrium level.