McGraw-Hill Ryerson

Chapter 4. Demand and Supply


1. The markets examined in this chapter
A. sell nonstandard or differentiated products
B. have buyers cooperating to determine prices
C. are controlled by a single producer
D. are highly competitive



2. A schedule which shows the various amounts of a product consumers are willing and able to purchase at each price in a series of possible prices during a specified period of time is called
A. supply
B. demand
C. quantity supplied
D. quantity demanded



3. The reason for the law of demand can best be explained in terms of
A. supply
B. complementary goods
C. the rationing function of prices
D. diminishing marginal utility



4. Assume that in a competitive market video tape players (VCRs) double in price. What will most likely happen  to the equilibrium price and quantity of video tapes?
A. price will increase; quantity will decrease
B. price will decrease; quantity will increase
C. price will decrease; quantity will decrease
D. price will increase; quantity will increase



5.
R-1 3a

Given the following individuals' demand schedules for product X, and assuming these are the only three consumers of X, which set of prices and output levels below will be on the market demand curve for this product?

A. ($5, 2); ($1, 10)
B. ($5, 3); ($1, 18)
C. ($4, 6); ($2, 12)
D. ($4, 0); ($1, 3)



6. Which factor will decrease the demand for a product?
A. a favourable change in consumer tastes
B. an increase in the price of a substitute good
C. a decrease in the price of a complementary good
D. a decrease in the number of buyers



7. The income of a consumer decreases and the consumer's demand for a particular good increases. It can be concluded that the good is
A. normal
B. inferior
C. a substitute
D. a complement



8. Which of the following could cause a decrease in consumer demand for product X?
A. a decrease in consumer income
B. an increase in the prices of goods which are good substitutes for product X
C. an increase in the price which consumers expect will prevail for product X in the future
D. a decrease in the supply of product X



9. If two goods are substitutes for each other, an increase in the price of one will necessarily
A. decrease the demand for the other
B. increase the demand for the other
C. decrease the quantity demanded of the other
D. increase the quantity demanded of the other



10. If two products, A and B, are complements, then
A. an increase in the price of A will decrease the demand for B
B. an increase in the price of A will increase the demand for B
C. an increase in the price of A will have no significant effect on the price of B
D. a decrease in the price of A will decrease the demand for B



11. If two products, X and Y, are independent goods, then
A. an increase in the price of X will significantly increase the demand for Y
B. an increase in the price of Y will significantly increase the demand for X
C. an increase in the price of Y will have no significant effect on the demand for X
D. a decrease in the price of X will significantly increase the demand for Y



12. The law of supply states that, other things being constant, as price increases
A. supply increases
B. supply decreases
C. quantity supplied increases
D. quantity supplied decreases



13.
R-2 3b

If the supply curve moves from S1 to S2 on the graph below, there has been

A. an increase in supply
B. a decrease in supply
C. an increase in quantity supplied
D. a decrease in quantity supplied



14. A decrease in the supply of a product would most likely be caused by
A. an increase in business taxes
B. an increase in consumer incomes
C. a decrease in resource costs for production
D. a decrease in the price of a complementary good



15. Which of the following could not cause an increase in the supply of cotton?
A. an increase in the price of cotton
B. improvements in the art of producing cotton
C. a decrease in the price of the machinery and tools employed in cotton production
D. a decrease in the price of corn



16. If the quantity supplied of a product is greater than the quantity demanded for a product, then
A. there is a shortage of the product
B. there is a surplus of the product
C. the product is a normal good
D. the product is an inferior good



17. When government sets the price of a good and that price is below the equilibrium price, the result will be
A. a surplus of the good
B. a shortage of the good
C. an increase in the demand for the good
D. a decrease in the supply of the good



18.
R-3 3c

The equilibrium price in this market is

A. $22
B. $24
C. $26
D. $28



19.
R-3 3c

An increase in the cost of labour lowers the quantity supplied by 65 units at each price. The new equilibrium price would be

A. $22
B. $24
C. $26
D. $28



20.
R-3 3c

If the quantity demanded at each price increases by 130 units, then the new equilibrium quantity will be

A. 290
B. 320
C. 345
D. 365



21. A decrease in supply and a decrease in demand will
A. increase price and decrease the quantity exchanged
B. decrease price and increase the quantity exchanged
C. increase price and affect the quantity exchanged in an indeterminate way
D. affect price in an indeterminate way and decrease the quantity exchanged



22. An increase in demand and a decrease in supply will
A. increase price and increase the quantity exchanged
B. decrease price and decrease the quantity exchanged
C. increase price and the effect upon quantity exchanged will be indeterminate
D. decrease price and the effect upon quantity exchanged will be indeterminate



23. An increase in supply and an increase in demand will:
A. increase price and increase the quantity exchanged
B. decrease price and increase the quantity exchanged
C. affect price in an indeterminate way and decrease the quantity exchanged
D. affect price in an indeterminate way and increase the quantity exchanged



24. A cold spell in Florida devastates the orange crop. As a result, California oranges command a higher price. Which of the following statements best explains the situation?
A. the supply of Florida oranges decreases, causing the supply of California oranges to increase and their price to increase
B. the supply of Florida oranges decreases, causing their price to increase and the demand for California oranges to increase
C. the supply of Florida oranges decreases, causing the supply of California oranges to decrease and their price to increase
D. the demand for Florida oranges decreases, causing a greater demand for California oranges and an increase in their price



25.
R-4 3d

Assume that the market is initially in equilibrium where D1 and S1 intersect. If there is an increase in the number of buyers, then the new equilibrium would most likely be at point

A. W
B. X
C. Y
D. Z



26.
R-4 3d

Assume that the equilibrium price and quantity in the market are P2 and Q2. Which factor would cause the equilibrium price and quantity to shift to P1 and Q3?

A. an increase in product price
B. an increase in demand
C. an increase in supply
D. a decrease in quantity



27.
R-4 3d

If the market equilibrium was at point Y but the price of the product was set at P1, then there would be a

A. surplus of Q3 - Q1
B. shortage of Q3 - Q1
C. surplus of Q1 - Q2
D. shortage of Q2 - Q1



28.
R-4 3d

What would cause a shift in the equilibrium price and quantity from point Z to point X?

A. a decrease in prodution costs and more favorable consumer tastes for the product
B. an increase in the number of suppliers and an increase in consumer incomes
C. an increase in production costs and decrease in consumer incomes
D. an improvement in production technology and decrease in the price of a substitute good



29.
R-4 3d

Assume that the market is initially in equilibrium where D1 and S1 intersect. If consumer incomes increased and the technology for making the product improved, then new equilibrium would most likely be at

A. P1 and Q1
B. P2 and Q2
C. P1 and Q3
D. P3 and Q1



30. The demand curve and its inverse relationship between price and quantity demanded is based on the assumption of
A. other things equal
B. changing expectations
C. complementary goods
D. increasing marginal utility




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