1) “Demand” is best defined as the relationship between: 1) A) the price of a good and the quantity

1) “Demand” is best defined as the relationship between: 1)
A) the price of a good and the quantity consumers are willing and able to buy at each price.
B) the quantity supplied and the price people are willing to pay for a good.
C) the amount of income someone has and the price he is willing to pay for a good.
D) the current price of a good and the quantity demanded at that price.
2) Which of the following is an example of substitute goods? 2)
A) Tennis racquets and tennis balls. B) Beer and pretzels.
C) Ford and Dodge sport utility vehicles. D) Cars and gasoline.
3) Which of the following is an example of complementary goods? 3)
A) SUVs and gasoline.
B) Ford and Dodge sport utility vehicles (SUVs).
C) SUVs and public transportation.
D) Air travel and train travel.
4) Many people consider hot dogs to be an inferior good. For such people, all else constant, a decrease
in income would cause their demand for hot dogs to:
4)
A) increase.
B) decrease.
C) stay the same.
D) cannot be determined with the information given.
5) All else constant, a decrease in income would cause the demand for a normal good to: 5)
A) decrease.
B) stay the same.
C) increase.
D) cannot be determined with the information given.
6) If video tape movies for home rental and movies seen at a theater are substitutes, and the price of
movies seen at a theater increases, the demand for movies on video tape will:
6)
A) decrease. B) stay the same.
C) increase. D) cannot be determined.
7) An increase in the number of buyers in the market for good X would cause the market demand
curve for X to:
7)
A) stay the same because market demand doesn’t depend on the number of buyers.
B) shift left or right depending on whether the new buyers purchase more or less than existing
customers at each price.
C) shift right.
D) shift left.
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8) Assume the demand function for good X can be written as Qd = 80 – 3Px + 2Py + 10I, where Px =
the price of X, Py = the price of good Y, and I = Consumer income. According to this equation:
8)
A) X and Y are substitutes.
B) because the coefficient on income is positive, X is a given good.
C) because the coefficient on Px is negative, X is an inferior good.
D) X and Y are complements
9) “Supply” is best defined as the relationship between: 9)
A) the current price of a good and the quantity supplied at that price.
B) the cost of producing a good and the price consumers are willing to pay for it.
C) the price of a good or service and the quantity supplied by producers at each price during a
period of time.
D) the quantity supplied and the price people are willing to pay for a good.
10) In the market for cell phones, all of the following would cause the supply of cell phones to change
except:
10)
A) an increase in the number of buyers in the market for cell phones.
B) an improvement in the technology used to produce cell phones.
C) a change in cell phone producers’ expectations.
D) an increase in the cost of labor used to produce cell phones.
11) Which of the following would not cause the supply curve for gasoline to shift? 11)
A) A change in the incomes of drivers.
B) A change in the wages paid to gas station attendants.
C) A significant war in the Middle East.
D) A change in the number of gas stations.
12) Assume declining profits in the market for Internet service force several firms in the area to drop
out of the market. All else constant, this would cause the:
12)
A) equilibrium price and quantity to increase.
B) equilibrium price to decrease and equilibrium quantity to increase.
C) equilibrium price to increase and equilibrium quantity to decrease.
D) equilibrium price and quantity to decrease.
13) Assume declining profits in the market for Internet service force several firms in the area to drop
out of the market. Which of the following best describes the effect of the reduction in the number
of service providers and the subsequent adjustment of the market to the new equilibrium price
and quantity?
13)
A) Quantity supplied would decrease, creating excess supply at the initial equilibrium price.
Demand would then decrease until quantity demanded and quantity supplied are once
again equal.
B) Quantity supplied would decrease, creating excess demand at the initial equilibrium price.
Demand would then decrease until quantity demanded and quantity supplied are once
again equal.
C) Supply would decrease, creating excess demand at the initial equilibrium price. Price would
then rise, causing quantity demanded to decrease and quantity supplied to increase until a
new equilibrium is reached.
D) Supply would increase, creating excess demand at the initial equilibrium price. Price would
then rise, causing quantity demanded to decrease and quantity supplied to increase until a
new equilibrium is reached.
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14) All else constant, an increase in the number of buyers in the market for cell phone service would
cause:
14)
A) equilibrium price and quantity to decrease.
B) equilibrium price to decrease and equilibrium quantity to increase.
C) equilibrium price and quantity to increase.
D) equilibrium price to increase and equilibrium quantity to decrease.
15) All else constant, if the market for diet soft drinks is initially in equilibrium and a new brand of diet
soft drink is then introduced into the market, this will cause:
15)
A) a decrease in equilibrium price and quantity.
B) an increase in equilibrium price and decrease in equilibrium quantity.
C) a decrease in equilibrium price and increase in equilibrium quantity.
D) an increase in equilibrium price and quantity.
16) For a particular product, a demand elasticity is a quantitative measure that shows: 16)
A) the percentage change in quantity demanded relative to the percentage change in any of the
other variables included in the demand function for that product.
B) the absolute change in quantity demanded relative to the percentage change in any of the
other variables included in the demand function for that product.
C) the absolute change in quantity demanded relative to the absolute change in any of the other
variables included in the demand function for that product.
D) the percentage change in quantity demanded relative to the absolute change in any of the
other variables included in the demand function for that product.
17) The price elasticity of demand is calculated as: 17)
A) the percentage change in price divided by the percentage change in quantity demanded.
B) the change in quantity demanded divided by the change in price.
C) the change in price divided by the change in quantity demanded.
D) the percentage change in quantity demanded divided by the percentage change in price.
18) Assume the demand for a good is price elastic, i.e., ed > 1 (in absolute terms). This means that if
price increases by 10 percent, quantity demanded will:
18)
A) increase by less than 10 percent. B) decrease by more than 10 percent.
C) decrease by less than 10 percent. D) increase by more than 10 percent.
19) According to the text, the price elasticity of demand for oranges has been estimated to be -0.62.
This implies that a doubling of the price of oranges would cause the quantity demanded of oranges
to:
19)
A) increase by 6.2 percent. B) decrease by 6.2 percent.
C) increase by 62 percent. D) decrease by 62 percent.
20) If the percentage change in quantity demanded is less than the percentage change in price, we
would say that over this range, demand is:
20)
A) inelastic. B) elastic.
C) unit elastic. D) perfectly elastic.
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21) If electricity demand is inelastic, and electric rates increase, which of the following is likely to
occur?
21)
A) Quantity demanded will fall in the short run, but rise in the long run.
B) Quantity demanded will fall by a relatively small amount.
C) Quantity demanded will rise in the short run, but fall in the long run.
D) Quantity demanded will fall by a relatively large amount.
22) Suppose the demand for meals at a medium-priced restaurant is elastic. If the management of the
restaurant is considering raising prices, it can expect the total revenues the restaurant earns to:
22)
A) increase.
B) decrease.
C) stay the same.
D) cannot be determined with the information given.
23) An increase in price will result in an increase in total revenue if demand is: 23)
A) unit elastic. B) inelastic.
C) relatively elastic. D) perfectly elastic.
24) When demand is inelastic and price is decreased: 24)
A) quantity demanded and total revenue fall to zero.
B) the effect of the decrease in price on total revenue dominates the effect of the increase in
quantity demanded on total revenue; overall total revenue declines.
C) the effects of the decrease in price on total revenue and the corresponding increase in
quantity demanded on total revenue perfectly offset one another; overall total revenue
remains unchanged.
D) the effect of the increase in quantity demanded on total revenue dominates the effect of the
decrease in price on total revenue; overall total revenue increases.
25) At a price of $5, consumers buy 150 units of good X. When the price rises to $6, quantity
demanded decreases to 100 units. We can conclude that over this range, demand is:
25)
A) inelastic. B) elastic.
C) unit elastic. D) perfectly inelastic.
……. …..

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