Question 1

A decrease in supply of X increases the equilibrium price of X, which reduces the demand for X and
automatically returns the price of X to its initial level.

Accepted Answer

A) True 
 B)False

Question 2

Assume that the graphs show a competitive market for the product stated in the question.  Select the graph above that best shows the change in the market speciﬁed in the following
Situation: the market for leather coats, when leather coats become more fashionable among young
Consumers.

Accepted Answer

A)  Graph A 
B)  Graph B 
C)  Graph C 
D)  Graph D

Question 3

Blu-ray players and Blu-ray discs are

Accepted Answer

A)  complementary goods. 
B)  substitute goods. 
C)  independent goods. 
D)  inferior goods.

Question 4

An increase in the price of a product will reduce the amount of it purchased because

Accepted Answer

A)  the higher price will signal to consumers that the good is of low quality. 
B)  the higher price means that real incomes have risen. 
C)  consumers will substitute other products for the one whose price has risen. 
D)  consumers substitute relatively high-priced for relatively low-priced products.

Question 5

Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread, and potatoes are a consumer substitute for bread, we would
Expect the price of wheat to

Accepted Answer

A)  rise, the supply of bread to increase, and the demand for potatoes to increase. 
B)  rise, the supply of bread to decrease, and the demand for potatoes to increase. 
C)  rise, the supply of bread to decrease, and the demand for potatoes to decrease. 
D)  fall, the supply of bread to increase, and the demand for potatoes to increase.

Question 6

A price ﬂoor means that

Accepted Answer

A)  inﬂation is severe in this particular market. 
B)  sellers are artiﬁcially restricting supply to raise price. 
C)  government is imposing a maximum legal price that is typically below the equilibrium price. 
D)  government is imposing a minimum legal price that is typically above the equilibrium price.

Question 7

College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they ﬁnish school and start careers, their consumption of both goods
Frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are

Accepted Answer

A)  inferior goods. 
B)  normal goods. 
C)  complementary goods. 
D)  substitute goods.

Question 8

An increase in demand for oil along with a simultaneous increase in supply of oil will

Accepted Answer

A)  decrease price and increase quantity. 
B)  increase price and decrease quantity. 
C)  increase quantity, but whether it increases price depends on how much each curve shifts. 
D)  increase price, but whether it increases quantity depends on how much each curve shifts.

Question 9

Refer to the market graph shown above. A black market where the price is $2.00 could result from a price

Accepted Answer

A)  ceiling set at $2.50. 
B)  ceiling set at $1.50. 
C)  ﬂoor set at $1.50. 
D)  ﬂoor set at $2.00.

Question 10

If the price of gasoline increases signiﬁcantly, then we'd expect the demand curve for large trucks and SUVs to

Accepted Answer

A)  shift to the right. 
B)  shift to the left. 
C)  become upward-sloping. 
D)  not shift, but there will be a movement along that demand curve.

Question 11

If the demand curve for product B shifts to the right as the price of product A declines, then

Accepted Answer

A)  both A and B are inferior goods. 
B)  A is a superior good and B is an inferior good. 
C)  A is an inferior good and B is a superior good. 
D)  A and B are complementary goods.

Question 12

A leftward shift of a product supply curve might be caused by

Accepted Answer

A)  an improvement in the relevant technique of production. 
B)  a decline in the prices of needed inputs. 
C)  an increase in consumer incomes. 
D)  some ﬁrms leaving an industry.

Question 13

A normal good is one

Accepted Answer

A)  whose amount demanded will increase as its price decreases. 
B)  whose amount demanded will increase as its price increases. 
C)  whose demand curve will shift leftward as incomes rise. 
D)  for which its consumption varies directly with income.

Question 14

If two goods are complements,

Accepted Answer

A)  they are consumed independently. 
B)  an increase in the price of one will increase the demand for the other. 
C)  a decrease in the price of one will increase the demand for the other. 
D)  they are necessarily inferior goods.

Question 15

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that

Accepted Answer

A)  there are many goods that are substitutes for bicycles. 
B)  there are many goods that are complementary to bicycles. 
C)  there are few goods that are substitutes for bicycles. 
D)  bicycles are normal goods.

Question 16

(Advanced analysis) The demand for commodity X is represented by the equation P = 100 - 2Q and supply by the equation P = 10 + 4Q. If demand changed from P = 100 - 2Q to P = 130 - Q, the new
Equilibrium price is

Accepted Answer

A)  $90. 
B)  $110. 
C)  $96. 
D)  $106.

Question 17

Refer to the above graph, which shows the market for bicycles. S1 and D1 are the original supply and demand curves. D2 and D3 and S2 and S3 are possible new demand and supply curves. Starting
From the initial equilibrium (point 1), which point on the graph is most likely to be the new equilibrium
After the introduction of technological improvements in bicycle production and successful publicity
Campaigns by the government on the virtues of bicycling to work?

Accepted Answer

A)  3 
B)  4 
C)  5 
D)  6

Question 18

(Last Word) Based on economic theory and research on tuition costs and student borrowing, the best way to reduce tuition costs for students would be to

Accepted Answer

A)  increase subsidies for student loans. 
B)  impose price ﬂoors on tuition. 
C)  subsidize higher education to increase the supply. 
D)  increase grants to students (such as Pell Grants) that do not need to be repaid.

Question 19

Running shoes and staplers are

Accepted Answer

A)  substitute goods. 
B)  complementary goods. 
C)  inferior goods. 
D)  independent goods.

Question 20

Assume product A is an input in the production of product B. In turn, product B is a complement to product C. We can expect a decrease in the price of A to

Accepted Answer

A)  increase the supply of B and increase the demand for C. 
B)  decrease the supply of B and increase the demand for C. 
C)  decrease the supply of B and decrease the demand for C. 
D)  increase the supply of B and decrease the demand for C.

Exam 3: Demand, Supply, and Market Equilibrium

A decrease in supply of X increases the equilibrium price of X, which reduces the demand for X and automatically returns the price of X to its initial level.

Assume that the graphs show a competitive market for the product stated in the question. Select the graph above that best shows the change in the market speciﬁed in the following Situation: the market for leather coats, when leather coats become more fashionable among young Consumers.