Name: ______Date: ______
Test 2: The Basics of Supply & Demand
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____1.Assume the demand schedule for cookies is downward sloping. If the price of cookies falls from $1.50 to $1.25 per dozen,
a. / the demand for cookies will rise.b. / the demand for cookies will fall.
c. / a larger quantity of cookies will be demanded.
d. / a smaller quantity of cookies will be demanded.
____2.Throughout history, governments have used price controls to
a. / protect buyers.b. / protect sellers.
c. / serve the "public interest."
d. / All of the above are correct.
____3.Firms often seek to borrow money to expand their capital stock, and the price they pay for that money is the interest rate. What happens to quantity of money demanded if the interest rate increases?
a. / Uncertain-the law of demand does not apply to money.b. / It decreases.
c. / It increases.
d. / It does not change.
Figure 3-11
____4.The Russian government has restricted sugar availability to reduce the supply of illegal liquor (sugar is used to increase alcohol content). Russians also like to sweeten their tea with jam, another sugar product. Which graph in Figure 3-11 depicts the impact of sugar rationing on the Russian tea market?
a. / 1b. / 2
c. / 4
d. / 3
___5.If orange juice prices double next year, there will be a
a. / leftward shift in the demand for grapefruit juice.b. / leftward shift in the supply of grapefruit juice.
c. / rightward shift in the demand for grapefruit juice.
d. / rightward shift in the supply of grapefruit juice
____6.Which of the following would be most likely to cause an outward shift of the demand curve for electricity?
a. / an increase in the price of air conditionersb. / a decrease in the price of electricity
c. / a decrease in the price of natural gas
d. / an increase in the price of heating oil
___7.The invention of machinery that can double the amount of gold extracted from raw ore will likely lead mining companies to
a. / raise the world price of gold to pay for the new machinery.b. / raise the world price of gold because miners' wages must double as their productivity doubles.
c. / lower the world price of gold because any amount can now be produced more cheaply.
d. / lower the world price of gold only if new mining companies are not allowed to enter the industry.
____8.Which of the following will shift the demand curve for milk?
a. / change in the income of buyers of milkb. / change in the price of milk
c. / change in input prices for milk
d. / All of the above are correct. are correct
Figure 3-4
____9.Assume that Figure 3-4 shows demand for orange juice. An increase in the price of soda will change demand from
a. / D3 to D2.b. / D3 to D1.
c. / D1 to D2.
d. / D2 to D1.
____10.Assume that Figure 3-4 shows demand for soda. A decrease in the price of apple juice will change demand from
a. / D1 to D3.b. / D2 to D3.
c. / D2 to D1.
d. / D1 to D2.
____11.Assume that Figure 3-4 shows demand for cameras. An increase in the price of photographic film changes demand from
a. / D2 to D1.b. / D2 to D3.
c. / D1 to D3.
d. / D1 to D2.
___12.In Figure 3-4, an increase in population will change demand from
a. / D3 to D1.b. / D1 to D2.
c. / D2 to D1.
d. / D3 to D2.
___13.The major drawback of a price ceiling is
a. / it causes a surplus.b. / There is no drawback.
c. / it causes a shortage.
d. / government regulations of this kind are difficult to enforce.
____14.All else remaining constant, a decrease in demand will have what effect on equilibrium price and quantity?
a. / Price will decrease; quantity will increase.b. / Price will increase; quantity will decrease.
c. / Both price and quantity will increase.
d. / Both price and quantity will decrease.
____15.A decrease in supply will have what effect on equilibrium price and quantity?
a. / Price will increase; quantity will decrease.b. / Both price and quantity will increase.
c. / Price will decrease; quantity will increase.
d. / Both price and quantity will decrease.
____16.Why does quantity supplied increase when price increases?
a. / Producers find it more profitable to make the item.b. / People "drop out" of the market, so buyers find it more abundant.
c. / As demand decreases with a high price, surpluses appear.
d. / All of the above.
____17.The demand curve for a good connects points describing how much consumers
a. / would have been willing and able to buy at different prices during a particular period.b. / actually bought at different prices in different periods.
c. / would have been willing and able to buy at different prices in different periods.
d. / actually bought at different prices during a particular period.
____18.Pork can be used to produce bacon or sausage, but not both. If the price of bacon rises for some reason, then, everything else equal,
a. / the resources used in raising Pork will become more expensive.b. / the price of sausage will rise.
c. / the price of sausage will fall.
d. / the resources used in raising Pork will become less expensive.
____19.The price for labor is the wage rate. What happens to the quantity of labor demanded if wages increase?
a. / It increases.b. / It decreases.
c. / The whole demand schedule shifts to the left.
d. / It does not change.
____20.Assuming that resources are specialized, the opportunity cost of an item increases as production of it rises. Therefore, we expect that firms will produce more if
a. / government asks firms to produce more.b. / the income of buyers increases.
c. / the price decreases.
d. / the price increases.
e. / the opportunity cost is greater than the price.
____21.Some medical authorities announced in the late 1980s that an acne medicine named Retin-A also had previously unknown wrinkle-reducing properties. An economist would expect to find that, after this announcement, the price of Retin-A ______and the quantity sold ______.
a. / fell; fellb. / rose; fell
c. / fell; rose
d. / rose; rose
____22.Each point on the demand curve is
a. / demand for the product.b. / a quantity demanded at that price.
c. / the amount that people want to buy.
d. / the amount people want to buy at different income levels.
e. / All of the above are correct.
____23.Two studies published in the New England Journal of Medicine link the risk of breast cancer to alcohol consumption. Young women who have nine drinks per week were reportedly 150 percent more likely to develop breast cancer. Considering the market for alcohol, an economist would predict a movement
a. / down the supply curve as the demand curve shifts.b. / up the supply curve as the demand curve shifts.
c. / down the demand curve as quantity falls.
d. / up the demand curve as quantity demanded falls.
____24.Suppose the numbers in parentheses represent two points on a line: (59 billion quarts; $4) and (78 billion quarts; $6). The line is likely a
a. / ray through the origin.b. / supply curve for milk.
c. / time series line.
d. / production possibilities frontier for milk.
e. / demand curve for milk.
____25.All else remaining constant, an increase in demand will have what effect on equilibrium price and quantity?
a. / Both price and quantity will decrease.b. / Both price and quantity will increase.
c. / Price will decrease; quantity will increase.
d. / Price will increase; quantity will decrease.
____26.An upward-sloping supply curve shows that
a. / at higher prices, an envy effect begins to affect the demand curve.b. / buyers are unaffected by sellers' costs of production.
c. / suppliers are willing to increase production of their goods if they can receive higher prices for them.
d. / buyers are willing to pay more for a scarce product.
e. / the price of a product is not influenced by the price buyers are willing to pay.
____27.For more than a thousand years, the Catholic Church required its members to abstain from meat on Fridays. Catholics customarily ate fish on Friday. After 1966 abstinence from meat on Fridays was no longer required. Consequently, the
a. / demand for meat decreased.b. / price of fish increased.
c. / demand curve for fish shifted to the left.
d. / demand curve for fish shifted to the right.
____28.Firms often seek to borrow money to expand their capital stock, and the price they pay for that money is the interest rate. What happens to the demand for money if the interest rate increases?
a. / It does not change.b. / The quantity of money demanded will increase.
c. / It increases.
d. / It decreases.
Figure 3-16
____29.In Figure 3-16, an increase in the number of producers will shift supply from
a. / S3 to S1.b. / S2 to S1.
c. / S3 to S2.
d. / S1 to S2.
____30.Assume that Figure 3-16 shows the supply of soda. An increase in the price of syrup used in the production of soda will shift supply from
a. / S2 to S3.b. / S2 to S1.
c. / S1 to S3.
d. / S1 to S2.
____31.Assume that Figure 3-16 shows the supply of orange juice. A decrease in the wage rate paid to workers in the orange juice industry will shift supply from
a. / S2 to S1.b. / S3 to S2.
c. / S1 to S2.
d. / S3 to S1.
Figure 3-21
____32.At price P3 in Figure 3-21, what will tend to happen?
a. / There will be a surplus, and the price will fall.b. / Equilibrium will occur in the market.
c. / There will be a shortage, and the price will rise.
d. / There will be a surplus, and the price will rise.
e. / There will be a shortage, and the price will fall.
____33.Which price in Figure 3-21 is equilibrium?
a. / P1b. / P3
c. / P2
____34.At price P1 in Figure 3-21, what will tend to happen?
a. / There will be a shortage, and the price will rise.b. / Equilibrium will occur in the market.
c. / There will be a surplus, and the price will rise.
d. / There will be a surplus, and the price will fall.
e. / There will be a shortage, and the price will fall.
____35.A shift in the supply curve of bicycles resulting from higher steel prices will lead to
a. / no change in the price of bicycles.b. / larger output of bicycles.
c. / a shift in the demand curve for bicycles.
d. / higher prices of bicycles.
e. / lower prices of bicycles.
Figure 3-6
____36.Grapes can be used for wine or for raisins. Which graph in Figure 3-6 best depicts the effects on the U.S. raisin market of an increase in imports of foreign wines?
a. / 1b. / 2
c. / 3
d. / 4
____37.When used in a professional or technical sense, the law of supply and demand refers to
a. / the fact that prices go up when commodities are scarce.b. / the market forces that show how prices and quantities are determined.
c. / the controls that regulate the amount of scarce goods that each consumer can purchase.
d. / some vague influences on economic affairs.
____38.To construct a supply curve, an economist needs data on price and quantity. Each point on the supply curve is
a. / supply of the product.b. / a quantity supplied at that price.
c. / the amount that people want to buy.
d. / the amount people want to sell to buyers of different incomes.
e. / All of the above are correct.
____39.U.S. steel workers constantly lobby for curbs on the volume of imported steel. This would produce a
a. / leftward shift in the supply curve of American steel.b. / rightward shift in the demand curve of American steel.
c. / leftward shift in the demand curve of American steel.
d. / rightward shift in the supply curve of American steel.
____40.The price for labor is the wage rate. What happens to the demand for labor if wages increase?
a. / It does not change.b. / It decreases.
c. / Uncertain-economic theory has no answer to this question.
d. / It increases.
___41.If price rises, what happens to quantity supplied for a product?
a. / It does not change.b. / It decreases.
c. / It increases.
d. / Quantity supplied is constant, but supply increases.
____42.The slope of a demand curve is almost always
a. / positive, because as the price rises, people want to sell more of the good.b. / positive, because when people buy more of a good the cost of producing it will rise.
c. / positive, because the more money a person has, the more of a particular good will be bought.
d. / negative, because when people buy more of a good the cost of producing it will fall.
e. / negative, because with everything else equal, the same people will buy more of a good when its price is lower.
____43.How will an increase in price tend to affect demand?
a. / Demand will increase.b. / Demand will decrease.
c. / Uncertain.
d. / Demand will not change.
____44.The supply curve shows
a. / plots of what quantities have been sold over the past few weeks or months.b. / the quantity produced as a function of the price.
c. / who will have an opportunity to produce or purchase an item.
d. / the same basic information as the demand curve.
____45.If price rises, what happens to quantity demanded for a product?
a. / It does not change.b. / It decreases.
c. / It increases.
d. / Uncertain-economic theory has no answer to this question.
____46.If oranges and grapefruit are close substitutes, an increase in the price of oranges will shift the demand curve of
a. / oranges to the left.b. / grapefruit to the right.
c. / both products to the left.
d. / both products to the right.
____47.If both the supply and demand curves shift to the left, then we can conclude that there will be
a. / an increase in the equilibrium quantity sold.b. / a decrease in the equilibrium quantity sold.
c. / an increase in the equilibrium price.
d. / a decrease in the equilibrium price.
____48.When there is an increase in demand,
a. / the demand curve twists clockwise.b. / the demand curve shifts toward the origin of the graph.
c. / the demand curve shifts away from the origin of the graph.
d. / the demand curve twists counterclockwise.
e. / a lower price has increased the amount of the good that consumers will buy.
____49.If the supply curve for housing has the normal positive slope, rent controls will likely
a. / increase the demand for housing.b. / help low-income families find suitable housing.
c. / aggravate the housing shortage.
d. / increase the amount of housing.
e. / improve the quality of housing.
Figure 3-1
____50.If the government has stated that it will pay whatever it must to obtain 1,000 units of good X, which demand curve in Figure 3-1 is appropriate?
a. / 4b. / 2
c. / 1
d. / 3
____51.When a demand schedule is drawn as a graph,
a. / price is measured on the vertical axis.b. / quantity is measured on the horizontal axis.
c. / the resulting curve has a negative slope.
d. / theother variables (besides price and quantity) are held constant.
e. / All of the above are correct.
____52.An increase in the price of gasoline shifts the demand for tires to the
a. / right, because gasoline and tires are normally used together.b. / left, because gasoline and tires are normally used together.
c. / right, because gasoline and tires are substitutes.
d. / left, because gasoline and tires are substitutes.
____53.Why does quantity demanded decrease when price increases?
a. / People choose to reduce consumption of the item.b. / People "drop out" of the market for the item.
c. / People find substitutes for the item.
d. / All of the above are correct.
Figure 3-8
____54.Women today are having more babies than women did fifteen years ago. The result is that mothers today have trouble finding baby-sitters and are shocked at what they must pay for child care. Which graph in Figure 3-8 best illustrates how the situation has changed?
a. / 2b. / 4
c. / 3
d. / 1
____55.In January, 2,500 quarts of ice cream are sold in Boston at $2 a quart. In February, 3,000 quarts are sold at $2.50 a quart. This change in quantity sold and price may have been caused by
a. / a reduction in wages in the Boston area.b. / the decision by Boston ice cream sellers to eliminate discount coupons.
c. / the introduction of labor-saving automated ice cream-packing machinery.
d. / the release of a medical study showing that ice cream consumption improves mental health.
____56.The imposition of price ceilings on a market often results in
a. / a persistent surplus in the market.b. / the diversion of income toward black-market suppliers.
c. / an increase in investment in the industry.
d. / lower prices being offered on the black market.
Figure 3-20
____57.If there are empty seats at the university basketball game when the price per ticket is P*, then this situation can best be represented by which graph in Figure 3-20?
a. / 2b. / 4
c. / 3
d. / 1
Figure 3-2
____58.If the government has stated that it will buy any amount of good X offered at $30, which demand curve in Figure 3-2 is appropriate?
a. / 3b. / 1
c. / 2
d. / 4
____59.The Red Jacket Mountain View Inn in New Hampshire charges $99 per room in the winter ski season and $94 during the summer months. The number of rooms and operating costs are constant year round. These prices indicate
a. / a rightward shift in demand in the winter.b. / a leftward shift in demand in the winter.
c. / leftward shifts in the supply curve in the summer.
d. / rightward shifts in the demand curve in the summer.
Figure 3-9
____60."Moonshine" is illegal home brew made by adding sugar to accelerate corn fermentation. Ten pounds of sugar are necessary to make a gallon of moonshine. In the mid-1970s, the price of sugar tripled and the price of moonshine skyrocketed from $6 to $15 a gallon. Which graph in Figure 3-9 best illustrates this?
a. / 4b. / 3
c. / 1
d. / 2
____61.The quantity of newspapers sold will decline if
a. / magazine prices rise.b. / newsprint becomes more expensive.
c. / the printers' union makes wage concessions.
d. / prices are reduced.
____62.Assume a new technology further reduces the cost of producing calculators. Also assume that consumers have cut back on their scheduled purchases in anticipation of even more cost-saving developments. As a result, we can expect
a. / an increase in output but no predictable change in price.b. / a decrease in price but no predictable change in output.
c. / a predictable decrease in both output and price.
d. / a decrease in output but no predictable change in price.
____63.A shift in the demand curve occurs when