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Page 13
11) Consider the market for mobile homes. If personal incomes in the United States rise, we
would expect to see
A) a decline in mobile home prices if mobile homes are a normal good.
B) an increase in the demand for mobile homes if mobile homes are an inferior good.
C) a decrease in mobile home prices if mobile homes are an inferior good.
D) a decrease in the demand for mobile homes if mobile homes are a normal good.
12) If the price of coffee increases, the probable result will be
A) a decrease in the demand for coffee.
B) a decrease in the price of substitutes for coffee.
C) an increase in the price of substitutes for coffee.
D) a decrease in the supply of coffee.
13) Which of the following statements is incorrect?
A) If demand increases and supply remains constant, the equilibrium price will rise.
B) If supply rises and demand remains constant, the equilibrium price will fall.
C) If demand rises and supply falls, the equilibrium price will rise.
D) If supply increases and demand decreases, the equilibrium price will rise.
14) If additional farmers enter the hog-producing industry, the result will be
A) lower prices but a higher equilibrium quantity.
B) higher prices but a lower equilibrium quantity.
C) lower prices but the same equilibrium quantity.
D) lower prices and a lower equilibrium quantity.
15) Which of the following is correct?
A) An increase in demand results in a temporary surplus, leading to competition between
consumers, which pushes up the product's price.
B) An increase in supply results in a temporary shortage, leading to competition between
consumers, which pushes up the product's price.
C) An increase in demand results in a temporary shortage, leading to competition between
consumers, which pushes up the product's price.
D) An increase in supply results in a temporary surplus, leading to competition between
suppliers, which pushes up the product's price.
1) Demand is
A) the amount of a product which consumers desire to have.
B) a schedule showing the quantities of various products which consumers are willing and able
to purchase in a given time period.
C) the quantity of a product which consumers are willing to buy, given their present income.
D) a schedule showing the quantities of a product which consumers are willing and able to
purchase at various prices in a given time period.
2) According to the law of demand, a reduction in the price of a product
A) will increase the demand for the product.
B) will shift the demand curve for the product to the right.
C) will increase the quantity demanded of the product.
D) All of the above are correct.
3) If the price of laptop computers falls,
A) the demand for laptop computers would tend to increase.
B) computer makers would supply a greater quantity of laptop computers.
C) the demand curve for laptop computers would shift to the right.
D) consumers would demand a higher quantity of laptop computers.
4) Which of the following would shift the demand curve for Ford Mustang automobiles to the
right?
A) a reduction in the price of Mustangs
B) an increase in personal incomes (assuming that Mustangs are an inferior good)
C) expectations of higher Mustang prices in the near future
D) a reduction in the price of the Chevrolet Camaro (a substitute for the Mustang)
5) Which of the following would reduce the demand for Papa John's pizza?
A) an increase in personal incomes (assuming Papa John's pizza is a normal good)
B) a reduction in the price of Mama John's pizza
C) an increase in the cost of the ingredients required to make pizza.
D) a reduction in the price of ranch salad dressing (assuming it is regarded as a complement for
Papa John's pizza).
6) In recent years, there has been a dramatic increase in the supply of cranberries. This could be
attributed to all of the following EXCEPT
A) a technological advance which reduces the cost of producing cranberries.
B) a reduction in the price of the resources used to produce cranberries.
C) an increase in the price of cranberries.
D) an increase in the number of cranberry producers.
7) If there has been an "increase in supply," this means that
A) suppliers are moving along a stationary supply curve to supply a higher quantity.
B) the entire supply curve has shifted up, or to the left.
C) the entire supply curve has shifted to the right.
D) Both A and C are correct.
8) Which of the following would cause an increase in the supply of aluminum?
A) higher prices for the resources required to make aluminum
B) discovery of a cheaper method of producing aluminum
C) an increase in the number of consumers of aluminum
D) a reduction in the number of firms producing aluminum
9) Increases in college tuition (the "price" of college) could be the result of
A) technological advances which reduce the cost of educating students.
B) declining demand for a college education.
C) higher salaries for teachers and college administrators.
D) a nation-wide increase in the number of colleges and universities.
10) Rising prices for new homes could be caused by all of the following EXCEPT
A) a reduction in the interest rate which new home buyers pay to borrow money.
B) higher lumber prices.
C) an increase in personal incomes (assuming new homes are a normal good).
D) the expectation of lower home prices in the near future.
11) Which of the following would increase the equilibrium price, but reduce the equilibrium
quantity?
A) an increase in demand
B) a decrease in demand
C) a decrease in supply
D) an increase in supply
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12) In which of the following situations would it be impossible to tell with certainty whether the
equilibrium price has risen, fallen, or remained unchanged?
A) Demand increases.
B) Demand increases and supply decreases.
C) Demand decreases and supply increases.
D) Demand increases and supply increases.
13) In which of the following situations would it be impossible to tell with certainty whether the
equilibrium quantity has risen, fallen, or remained unchanged?
A) Demand increases.
B) Demand increases and supply decreases.
C) Demand decreases and supply decreases.
D) Demand increases and supply increases.
14) If a shortage exists at the prevailing price, then the prevailing price
A) must be the equilibrium price.
B) is too high for equilibrium.
C) is too low for equilibrium.
D) Any of the above may be true.
15) If a shortage exists at the prevailing price,
A) it is caused by the fact that suppliers find that price very attractive while consumers do not.
B) in the absence of government restrictions, it will tend to be eliminated as competition between
buyers pushes price up to the equilibrium level.
C) in the absence of government restrictions, it will tend to be eliminated as competition between
suppliers pushes price down to the equilibrium level.
D) it will tend to be eliminated as additional suppliers enter the industry to take advantage of the
attractive price.
16) When there is an increase in demand, this creates
A) a temporary surplus at the old price, and competition between suppliers tends to bid price
down to the new equilibrium level.
B) a temporary shortage at the old price, and competition between suppliers tends to bid price up
to the new equilibrium level.
C) a temporary surplus at the old price, and competition between consumers tends to bid price up
to the new equilibrium level.
D) a temporary shortage at the old price, and competition between consumers tends to bid price
up to the new equilibrium level.
17) When we hear that there is a "shortage" of nurses, this means that
A) hospitals are willing to pay whatever they need to, but can't find enough qualified applicants
to serve as nurses.
B) at the prevailing wage, the quantity of nurses demanded exceeds the quantity of nurses
supplied.
C) the demand curve for nurses never intersects the supply curve of nurses.
D) hospitals require more than the fixed quantity of nurses which is available.
18) Economists believe that two factors explain the inverse relationship between price and
quantity demanded. These two factors are
A) the rationing effect and the motivating effect.
B) the income effect and the rationing effect.
C) the income effect and the substitution effect.
D) the substitution effect and the motivating effect.
19) If the price of Blast Cola falls and the prices of other soft drinks remain unchanged, some
consumers will tend to purchase Blast Cola instead of the soft drinks they have been purchasing.
This is termed
A) the substitution effect of the price reduction.
B) the income effect of the price reduction.
C) the replacement effect of the price reduction.
D) the expansionary effect of price reduction.
20) Whenever there is a reduction in demand, the force that is ultimately responsible for reducing
price is
A) competition between buyers, caused by the existence of a temporary shortage.
B) competition between suppliers, caused by the existence of a temporary shortage.
C) competition between buyers, caused by the existence of a temporary surplus.
D) competition between suppliers, caused by the existence of a temporary surplus.
21) Suppose that both gasoline prices and personal incomes rise. Assuming that sport utility
vehicles (SUVs) are a normal good, the equilibrium price of sport utility vehicles
A) will rise.
B) will fall.
C) will remain unchanged.
D) might rise, fall, or remain unchanged.
22) Which of the following could lead to an increase in the quantity of motorcycles demanded
(but would not increase the demand for motorcycles)?
A) an increase in the price of automobiles
B) a cost-reducing technological advance in the manufacture of motorcycles
C) a hike in the price of gasoline, assuming motorcycles are fuel-efficient.
D) an increase in the price of motorcycle components
23) If lettuce and salad tomatoes are complements, an increase in the price of lettuce would tend
to
A) increase the demand for salad tomatoes.
B) increase the supply of salad tomatoes,
C) reduce the quantity of salad tomatoes demanded.
D) reduce the price of salad tomatoes.
24) If grasshoppers destroy half of the wheat crop, the result will be
A) an increase in the demand for wheat.
B) a decrease in the quantity of wheat supplied.
C) a decrease in the demand for wheat.
D) a leftward shift of the supply curve for wheat.
25) If the price of cattle feed increases, the result will probably be
A) an increase in the supply of cattle and lower cattle prices.
B) a decrease in the supply of cattle and higher cattle prices.
C) an increase in the demand for cattle and higher cattle prices.
D) a decrease in the demand for cattle and lower cattle prices.
26) If the supply of cattle is increasing more rapidly than the demand
A) cattle prices will rise.
B) cattle prices will not change.
C) cattle prices will fall.
D) each of the above is possible.
1) The law of demand holds that the quantity demanded of a product is inversely related to its
price.
2) Economists use the term "demand" to describe the number of consumers who want an item.
Question Status: Previous Edition
3) The income and substitution effects explain why consumers buy more of a product at lower
prices.
4) The income and substitution effects will cause the demand curve to shift to a new position.
5) An increase in income will cause the demand curve for a normal good to shift to the right.
6) An increase in income will cause the demand curve for an inferior good to shift to the right.
7) A decrease in income will cause the demand curve for a normal good to shift to the left.
8) A decrease in income will cause the demand curve for an inferior good to shift to the right.
9) If the price of an item is expected to rise, the current demand curve for that item will shift to
the left.
10) Expectations of lower new car prices will cause a reduction in the current demand for new
cars.
11) If A and B are substitutes, a reduction in the price of A will cause the demand curve for B to
shift to the right.
12) If X and Y are complements, a reduction in the price of X will cause the demand curve for Y
to shift to the right.
13) An increase in the number of consumers in the market would shift the demand curve to the
right.
14) An increase in the price of a complement for hotdogs would tend to reduce the demand for
hotdogs.
15) If lettuce and salad dressing are complements, an increase in the price of lettuce would
reduce the demand for salad dressing.
16) If fish and chicken are substitutes, an increase in the price of fish would probably cause the
demand curve for chicken to shift to the left.
17) An increase in the demand for new homes could be due to a reduction in new home prices.
18) An increase in the price of a product will reduce the demand for that product.
19) A reduction in the price of a product will increase the quantity demanded of that product but
not its demand.
20) When we say that the demand for a product has increased, we mean that its demand curve
has shifted to the right.
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21) An increase in the demand for orange juice could be due to an increase in the incomes of
consumers, a reduction in the price of orange juice, or an increase in the number of consumers of
orange juice.
22) An increase in the demand for new cars could be due to expectations of higher new car
prices, higher incomes, or an increase in the prices of used cars.
23) The law of supply holds that there is a direct relation ship between price and the quantity of a
product supplied.
24) An increase in the price of steel will lead to an increase in the quantity of steel supplied.
25) A technological advance in the lumber industry would cause the supply curve of lumber to
shift to the left.
26) A technological advance in the fishing industry would cause the supply of fish to increase;
more fish than before would be supplied at each and every price.
27) An increase in the price of chicken feed would tend to shift the supply curve of chicken to
the right.
28) A reduction in lumber prices would tend to increase the supply of new homes.
29) An increase in the supply of fresh corn could be due to lower labor costs, improved farming
techniques, or higher corn prices.
30) A reduction in the supply of cattle could be due to higher prices for cattle feed, increased
labor costs, or a reduction in the number of cattle ranchers
31) If the prevailing price is above equilibrium, a surplus will exist.
32) If a shortage exists, the prevailing price must be below the equilibrium price.
33) If demand increases and supply remains unchanged, the equilibrium price will tend to
increase.
34) If demand and supply both increase, the equilibrium price might rise, fall, or be unchanged.
35) If supply increases more rapidly than demand, the equilibrium price will tend to fall.
36) Higher lumber prices coupled with rising incomes would increase the price of new homes.
37) A technological advance that reduced the cost of producing a given type of steel would tend
to lower both the equilibrium price and quantity.
38) Suppose that Joe's Diner sold 5,000 hotdogs in 1998 at $1.00 each and 10,000 hotdogs in
2008 at $2.00 each. We should conclude that the demand curve for Joe's hotdogs is upward
sloping.
39) If an increase in demand is accompanied by an increase in supply, the equilibrium price is
certain to rise, but the impact on the equilibrium quantity is indeterminate.
40) If the incomes of consumers rise and, at the same time, the supply of lobsters falls, we can be
certain that the price of lobster will rise, but the equilibrium quantity will be indeterminate.
(Assume that lobster is a normal good.)
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41) Higher prices will ration some consumers out of the market while also motivating producers
to supply a greater quantity.
42) Higher prices ration by reducing the number of consumers who are willing and able to
purchase a product.
43) An increase in the price of fish will probably lead to an increase in the price of chicken and
other substitutes for fish.
44) An increase in the price of hamburger will probably lead to an increase in the price of catsup
and other complements for hamburger.
45) Suppose that the Ajax Shoe Company sold 10,000 pairs of shoes when it was charging $50 a
pair, and 15,000 shoes when it charged $100 a pair. An economist would explain this by saying
that the demand for Ajax shoes must have increased.
46) An increase in the equilibrium quantity could be explained by either an increase in incomes
(assuming a normal good) or a technological advance that lowered the cost of production.
47) An increase in the equilibrium price could be explained by either an increase in the price of a
substitute good or an increase in the number of suppliers.
1) A change in supply leads to a change in the quantity demanded while a change in demand
leads to a change in the quantity supplied. Explain and illustrate graphically.
2) "A severe drought has reduced the supply of oranges and increased their price. But the higher
price will reduce the demand for oranges and push their price back toward the original level."
Comment on the reasoning contained in this quotation.
3) Suppose that there is an increase in the demand for used cars. Carefully explain why you
expect the price of used cars to rise. Be sure to include a discussion of the role played by
shortages and competition.
4) Suppose that there is an increase in the demand for used cars. Discuss the rationing and
motivating functions that higher used car prices will perform.
5) The sale of single-family homes increased dramatically last year. Provide a complete list of
the possible reasons for the increased sales and represent each of them graphically.
6) According to a recent newspaper article, higher beef prices are likely to lead to higher prices
for chicken and fish. Do you agree? Defend your conclusion.
