Question 1

The demand curve for oil slopes downward because:

Accepted Answer

A)  oil will only be used in its higher-valued uses when the price of oil is lower. 
B)  oil will only be used in its higher-valued uses when the price of oil is higher. 
C)  oil has many substitutes so that no buyer is willing to pay when the price of oil rises. 
D)  oil has no substitutes so that buyers do not react to any change in the price of oil.

Question 2

Why does supply slope up?

Accepted Answer

A)  At higher prices, suppliers can profitably produce using more expensive techniques and inputs. 
B)  The cost of producing a given good is the same, no matter how many are produced. 
C)  Producers charge the maximum price that they can get. 
D)  If supply did not slope up, it would not intersect with demand.

Question 3

Michael graduates from college and his income increases by $40,000 a year. Other things held constant, he decreases the quantity of pizza he buys. For Michael, pizza is:

Accepted Answer

A)  an inferior good. 
B)  a complement. 
C)  a substitute. 
D)  a normal good.

Question 4

When the price of a good goes down, demand for the good goes down.

Accepted Answer

A) True 
 B)False

Question 5

Total producer surplus equals:

Accepted Answer

A)  the supply curve. 
B)  the area above the supply curve and beneath the market price. 
C)  the area beneath the supply curve and above the demand curve. 
D)  the market price.

Question 6

As world coal prices rise due to increasing scarcity and coal-based energy costs rise, the demand for wind energy will:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  change in random patterns.

Question 7

Demand slopes down because:

Accepted Answer

A)  supply slopes up, and supply and demand must intersect. 
B)  consumers focus too much on the price of goods when they choose the quantity to demand. 
C)  goods usually only have a single use. 
D)  consumers will choose to use goods only in their most valuable uses when prices are high.

Question 8

Figure: Bananas  Refer to the figure. If the price of bananas in the diagram is $6 a pound, what is the total producer surplus?

Accepted Answer

A)  $80,000 
B)  $120,000 
C)  $160,000 
D)  $240,000

Question 9

The law of demand suggests a _____ relationship between price and _____.

Accepted Answer

A)  positive; quantity demanded 
B)  positive; quantity supplied 
C)  negative; quantity demanded 
D)  negative;, quantity supplied

Question 10

Use the following to answer questions:
Figure: Good X 
-(Figure: Good X) From the figure, which statement is TRUE?

Accepted Answer

A)  At a price of $12 per unit, consumers are willing and able to purchase between 11 and 26 units of Good X. 
B)  36 units of Good X can be purchased by spending a total of $4. 
C)  At a price of $6 per unit, consumers are willing and able to purchase 26 units of Good X. 
D)  At a price of $4 per unit, consumers are willing and able to purchase 11 units of Good X.

Question 11

An increase in income increases the demand for normal goods.

Accepted Answer

A) True 
 B)False

Question 12

Which statement correctly completes the definition of a demand curve? A demand curve is a function that shows the relationship between:

Accepted Answer

A)  price and the quantity sold. 
B)  price and the quantity supplied. 
C)  price and the quantity demanded. 
D)  quantity demanded and quantity supplied.

Question 13

The supply curve:

Accepted Answer

A)  illustrates the quantity supplied at different prices. 
B)  shows the relationship between the number of units purchased and the number of units produced. 
C)  gives the maximum price that sellers may charge for a good and the quantity supplied. 
D)  shows a negative relationship between price and output.

Question 14

Use the following to answer questions:
Figure: Oil 
-(Figure: Oil) To produce 30 million barrels of oil per day, the minimum price per unit that producers in the diagram require is:

Accepted Answer

A)  $20. 
B)  $40. 
C)  $60. 
D)  $80.

Question 15

A supply curve indicates that:

Accepted Answer

A)  the quantity supplied of a good is higher when the price of that good is higher. 
B)  the quantity supplied of a good is higher when the price of that good is lower. 
C)  the supply for a good is higher when the price of that good is lower. 
D)  the supply for a good is higher when the price of that good is higher.

Question 16

A change in which factor would shift the supply curve?

Accepted Answer

A)  the price of the good being sold 
B)  the demand for the product 
C)  production technology 
D)  the willingness of consumers to pay

Question 17

Mario buys eight units of good X when his income is $2,000 a month. When his income increases to $2,700 per month, he buys only six units of good X. For Mario, good X is:

Accepted Answer

A)  a normal good. 
B)  a good with few substitutes. 
C)  an inferior good. 
D)  a good of high value.

Question 18

Weather forecasters predict that a major winter storm will strike your town within the next few days. Which would occur today based upon the expected storm?

Accepted Answer

A)  a decrease in peoples' willingness to pay for bottled water 
B)  a decrease in demand for batteries 
C)  an increase in people's willingness to pay for electric generators 
D)  a shift to the left of the demand curve for snow tires

Question 19

The market price of a good is $10 and 40 units of the good sell at this price. Its demand curve intersects the vertical axis at a price of $12 and has a constant slope. What is the approximate value of consumer surplus in this market?

Accepted Answer

A)  $20 
B)  $30 
C)  $40 
D)  $50

Question 20

If the university president valued a parking space close to the administration building at $500 and paid $30 for a parking permit, he would receive consumer surplus equal to:

Accepted Answer

A)  $30. 
B)  $470. 
C)  $500. 
D)  $530.

Exam 3: Supply and Demand