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Principles of Microeconomics Practice Problems for Supply and Demand Prof. Jepsen Questions: 1.

can be expressed as P = 2Q. Find the equilibrium price and quantity. Be able to draw the graph that illustrates your answer. Answers: 1. Demand decreases (shifts left) because of a change in consumer tastes. Equilibrium price decreases, and equilibrium quantity decreases. 2. Demand increases (shifts right) because the price of a substitute good increases. Equilibrium price increases, and equilibrium quantity increases. 3. Supply decreases (shifts left) because the price of an input increases. Equilibrium price increases, and equilibrium quantity decreases. 4. Supply increases (shifts right) because of better technology. Equilibrium price decreases, and equilibrium quantity increases. 5. Q = 20 Q 2Q = 20 Q = 10 P = Q, so P = 10 6. Q = 40 2Q 3Q = 40 Q = 40/3 = 13.3 P = Q, so P = 40/3 = 13.3 7. 2Q = 30 Q 3Q = 30 Q = 10 P = 2Q, so P = 2 * 10 = 20 http://www.proprofs.com/quiz-school/story.php?title=Principles-Economics-QUIZ1

Question Excerpt From Principles of Economics QUIZ #1

Q.1) The word economy comes from the Greek word oikonomos, which means Q.2) The phenomenon of scarcity stems from the fact that

A.

most economies production methods are not very good.

B.

in most economies, wealthy people consume disproportionate quantities of goods and services.

C.

D.

E.

Q.3) The opportunity cost of going to college is

A.

the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses.

B.

the value of the best opportunity a student gives up to attend college.

C.

zero for students who are fortunate enough to have all of their college expenses paid by someone else.

D.

zero, since a college education will allow a student to earn a larger income after graduation.

E.

A.

B.

C.

D.

E.

Q.5) In a market economy, economic activity is guided by

A.

the governme

nt.
B.

corpora tions.

C.

central planners.

D.

the preside nt

E.

self-interest and prices.

Q.6) Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?
A.

There is no such thing as a free lunch.

B.

People buy more when prices are low than when prices are high.

C.

No matter how much people earn, they tend to spend more than they earn.

D.

Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

E.

none of the above

Q.7) Which of the following is not among the reasons why we need the government?
A.

the government provides social welfare services for the poor and the needy

B.

C.

D.

the government provides free food for everyone

E.

the government imposes laws and controls to protect competitiveness of the industry

A.

government
B.

economic growth

C.

more consumption

D.

E.

A.

B.

C.

D.

the populati on

E.

all of the above

Q.10) Suppose a gardener produces both green beans and corn in her garden. If she must give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1 bushel of green beans is
A.

B.

C.

2.8 bushels of corn.

D.

70 bushels of corn.

E.

1 bushel of corn

1: A monopoly is a market structure characterized by: (A) a single buyer. (B) a product with many close substitutes. (C) a large number of small firms. (D) a small number of large firms. (E) limited entry and exit. 2: A "natural" monopoly is most likely to result if a single firm: (A) is owned and operated by the federal or local government. (B) is investor-owned, but granted the exclusive right by the government to operate in a market. (C) experiences long-run decreasing average cost over a wide range of output. (D) has gained control over an essential input of an important production process. (E) has acquired the exclusive right by the government to make, use, or vend an invention or discovery. 3: A downward-sloping demand curve exists for: (A) a monopoly, but not for a perfectly competitive firm. (B) a perfectly competitive firm, but not for a monopoly. (C) both a monopoly and a perfectly competitive firm. (D) neither a monopoly nor a perfectly competitive firm.

(E) either a monopoly or a perfectly competitive firm, depending on the costs of production. 4: The profit maximizing rule MC = MR is followed by: (A) a monopoly, but not a perfectly competitive firm. (B) a perfectly competitive firm, but not a monopoly. (C) both a monopoly and a perfectly competitive firm. (D) neither a monopoly nor a perfectly competitive firm. (E) either a monopoly or a perfectly competitive firm, if the market demand curve is upward-sloping. 5: Suppose a monopolist increases production from 10 units to 11 units. If the market price declines from \$20 to \$19 per unit, marginal revenue for the eleventh unit is: (A) \$1. (B) \$9. (C) \$19. (D) \$20. (E) \$209. 6: Suppose a monopolist increases production from 10 units to 11 units. If the market price declines from \$20 to \$19 per unit, average revenue for the eleventh unit is: (A) \$1. (B) \$9.

(C) \$19. (D) \$20. (E) \$209. 7: Average revenue for a monopolist is: (A) greater than price. (B) less than price. (C) equal to marginal revenue. (D) less than marginal revenue. (E) greater than marginal revenue. 8: Above-normal profits are guaranteed for: (A) a monopoly, but not a perfectly competitive firm. (B) a perfectly competitive firm, but not a monopoly. (C) both a monopoly and a perfectly competitive firm. (D) neither a monopoly nor a perfectly competitive firm. (E) either a monopoly or a perfectly competitive firm, if the market demand curve is upward-sloping. 9: A monopoly firm will shut down and will not produce at the profitmaximizing quantity of output in the short run if: (A) price is greater than marginal cost. (B) price is less than marginal cost.

(C) price is less than average variable cost. (D) price is greater than average total cost. (E) price is greater than average variable cost and less than average total cost. 10: In general, a monopolist is likely to: (A) earn lower profits than a perfectly competitive firm. (B) earn about the same profits as a perfectly competitive firm. (C) sell less output than a perfectly competitive firm. (D) sell more output than a perfectly competitive firm. (E) charge a lower price than a perfectly competitive firm. 1: A perfectly inelastic demand exists if a 10 percent change in the price of a good results in a percentage change in quantity demanded that is: (A) equal to 0. (B) greater than 0 but less than 10. (C) equal to 10. (D) greater than 10 but less than infinity. (E) equal to infinity. 2: A relatively elastic demand exists if a 10 percent change in the price of a good results in a percentage change in quantity demanded that is:

(A) equal to 0. (B) greater than 0 but less than 10. (C) equal to 10. (D) greater than 10 but less than infinity. (E) equal to infinity. 3: A perfectly inelastic supply curve: (A) has a relatively flat, positive slope. (B) has a relatively steep, positive slope. (C) has a relatively steep, negative slope. (D) is vertical. (E) is horizontal. 4: The elasticity of a demand curve with a constant slope: (A) is equal to the slope. (B) is greater than the slope. (C) is less than the slope. (D) increases at higher prices. (E) increases at larger quantities. 5: If the price of chocolate-covered peanuts decreases 10 percent and the quantity demanded increases 5 percent, then the numerical elasticity of demand is:

(A) 0. (B) 0.5. (C) 1.0. (D) 2.0. (E) greater than 2.0. 6: Suppose your local public golf course increases the greens fees for using the course. If the demand for golf is relatively inelastic, you would expect: (A) a decrease in total revenue received by the course. (B) an increase in total revenue received by the course. (C) no change in total revenue received by the course. (D) an increase in the amount of golf played on the course. (E) no change in the amount of golf played on the course. 7: There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, you would expect the demand for: (A) both to be equally elastic. (B) both to be equally inelastic. (C) medical exams to be more elastic. (D) medical exams to be more inelastic. (E) Bayer aspirin to be more inelastic.

8: The income elasticity of demand of an inferior good is: (A) less than 0. (B) equal to 0. (C) greater than 0. (D) between 0 and 1. (E) greater than 1. 9: The cross elasticity of demand of complements goods is: (A) less than 0. (B) equal to 0. (C) greater than 0. (D) between 0 and 1. (E) greater than 1. 10: The burden of a tax is shifted toward buyers if: (A) demand is perfectly elastic. (B) demand is relatively more elastic than supply. (C) demand is relatively more inelastic than supply. (D) demand and supply have equal elasticities. (E) both demand and supply are unit elastic. 1: The highest price that buyers are willing and able to pay for a given quantity of a good is the:

(A) shortage price. (B) surplus price. (C) determinant price. (D) demand price. (E) supply price. 2: When a change in the price of a good causes a change in the quantity of the good demanded because the relative prices of other goods change, this is best attributed to the: (A) income effect. (B) substitution effect. (C) production effect. (D) complement effect. (E) price effect. 3: The law of demand operates because: (A) the more of a good you consume the more satisfaction it provides. (B) the more of a good you consume the more expensive it becomes. (C) people can afford to buy more of a good if its price decreases. (D) people can afford to buy more of a good if its price increases.

(E) when the price of one good decreases it increases relative to the prices of other goods. 4: If the price of a commodity increases, you would expect the: (A) demand to decrease. (B) quantity demanded to increase. (C) quantity demanded to decrease. (D) demand curve to shift to the right. (E) demand curve to shift to the left. 5: Which of the following would cause a change in the quantity demanded of cars produced in the United States? (A) a decrease in the average income of car buyers (B) an increase in the number of people over the legal driving age (C) concerns that the price of cars will increase next year (D) a decrease in the price of cars produced by U.S. car companies (E) an increase in the price of cars produced by Japanese car companies 6: A particular good can be classified as a normal good if an increase in buyers' income causes: (A) an increase in demand. (B) a decrease in demand. (C) an increase in quantity demanded.

(D) a decrease in quantity demanded. (E) no change in demand. 7: Suppose that after graduation from college you receive a substantial increase in your income from a new job. If you decide that you would rather purchase T-bone steak than hamburger, then for you hamburger would be: (A) a superior good. (B) a normal good. (C) a substitute good. (D) a complement good. (E) an inferior good. 8: Given that chicken and potatoes are complements in consumption, if the price of chicken increases there would be: (A) an increase in the demand for potatoes. (B) an increase in the quantity of potatoes demanded. (C) a decrease in the demand for potatoes. (D) a decrease in the quantity of potatoes demanded. (E) no change in the demand for potatoes. 9: A change in a demand determinant is directly responsible for a: (A) change in price. (B) shift of the demand curve.

(C) shift of the supply curve. (D) change in the quantity demanded. (E) change in a supply determinant. 10: Market demand is most closely related to the: (A) law of increasing opportunity cost aspect of production possibilities. (B) foregone alternative aspect of opportunity cost. (C) human capital aspect of labor. (D) limited resources aspect of scarcity. (E) unlimited wants and needs aspect of scarcity.