File: ch03, Chapter 3:Demand, Supply, and Price Determination

Multiple Choice

1. A demand schedule:
a) is of no use without the corresponding supply schedule.
b) provides information on the amounts of a product that buyers would purchase at different
prices.
c) illustrates that as price increases, the amounts of a product that buyers would purchase
increases.
d) is important only if the product sells for more than a dollar.
Ans: b
2) The law of demand states that there is a(n) _______ relationship between a product's price and
the quantity demanded.
a) inverse
b) direct
c) positive
d) elastic
Ans. a
3. When a supply schedule is illustrated on a graph:
a) the vertical axis is labeled quantity.
b) the horizontal axis is labeled price.
c) the curve slopes upward toward the right.
d) the curve shows a negative relationship between price and quantity.
Ans: d

4. Which of following are the best examples of substitute goods?

a) computers and computer software.
b) milk and cookies.
c) Gateway and Dell computers.
d) hot dogs and mustard.
Ans: c

5. If buyers expect the price of a product to increase in the future, the result is:
a) an increase in supply today.
b) an increase in demand today.
c) that demand and supply remain unchanged until the price increases.
d) a price decrease today.
Ans: b

6. If cookies and milk are complementary goods, a decrease in the price of cookies causes:
a) a decrease in the supply of cookies.
b) an increase in the demand for milk.
c) a decrease in the demand for milk.
d) a decrease in the supply of milk.
Ans: b

7. Which of the following would not lead to a change in the supply of chocolate ice cream?
a) an increase in the price of milk, a key component of ice cream.
b) technological improvements in the making of ice cream.
c) a wage increase for ice cream factory workers.
d) consumers flavor preference changes from chocolate to vanilla.
Ans: d

8. If the demand for CDs rises and the supply remains the same, then:
a) the price of CDs will rise and the quantity will fall.
b) the price and the quantity of CDs will fall.
c) the price of CDs will fall and the quantity will rise.
d) the price and the quantity of CDs will rise.
Ans: d

9. If the supply of coffee falls due to bad weather conditions in coffee growing countries, then:
a) the price and quantity of coffee will rise.
b) the price and quantity of coffee will fall.

c) the price of coffee will fall and the quantity will rise.
d) the price of coffee will rise and the quantity will fall.
Ans: d
10. At the market-clearing price, the:
a) quantity of goods that consumers want to buy equals the quantity of goods that sellers want to
sell.
b) demand curve equals the supply curve.
c) demand curve and supply curve rotate vertically at the equilibrium quantity.
d) consumers have a hard time finding the product to purchase because there is no excess supply.
Ans. a
11. A shortage occurs when:
a) the actual price is less than the equilibrium price.
b) the actual price is greater than the equilibrium price.
c) the quantity supplied is greater than the quantity demanded.
d) government planners use price floors.
Ans: a

12. Which of the following situations is demand likely to be price inelastic?

a) Insulin, a necessity.
b) Mercedes automobile, a luxury.
c) Green colored Hanes tee shirt.
d) Byers chocolate ice cream.
Ans: a
13.Which of the following factors will cause an increase in demand?
a) A decrease in the number of buyers.
b) An increase in the price of a complement good.
c) A decrease in the price of a substitute good.
d) An increase in income for a normal good.
Ans. d
14. What happens to the equilibrium price and quantity of good x (an inferior good) if consumer
income rises?
a) Price rises and quantity falls.

b) Price falls and quantity falls.

c) Price falls and quantity rises.
d) Price falls and quantity remains unchanged.
Ans. b
15. New fertilizers reduce the cost of producing tomatoes. What happens to the equilibrium price
and quantity of tomatoes?
a. Price rises and quantity falls.
b) Price falls and quantity falls.
c) Price falls and quantity rises.
d) Price rises and quantity rises.
Ans.c
16. With ______ demand, a price ______ causes total revenue to _______.
a) elastic; decrease; fall
b) elastic; increase; fall
c) inelastic; increase; fall
d) inelastic decrease; rise
Ans. b
True/False

17. Other than the price of the product itself, all factors affecting buyer behavior are held
constant when constructing a demand schedule.
Ans: True
18. If the price of DVDs decreases, then the demand for DVDs will increase.
Ans: False
Response: The quantity demanded will increase.

19. If the price of cereal increases, the quantity demanded of cereal will decrease.

Ans: True

20. A shift of the supply curve to the right or to the left is called a change in supply.
Ans: True

21. A movement along a supply curve is called a change in supply.

Ans: False
Response: It is called a change in the quantity supplied.

22. If scientists report that the expression An apple a day, keeps the doctor away is really true,
we can expect the demand for apples to increase.
Ans: True
23. An increase in demand and decrease in supply will cause the equilibrium quantity to rise.
Ans. False
Response: The effect on quantity is ambiguous.
24. If the price elasticity of demand were 1.4, the demand for the product would be price
inelastic.
Ans: False

Short Answer

25. A price floor set above the equilibrium price will cause a ____________ in the market.
Ans: surplus

26. A price _______ is a government-set maximum price that can be charged for a good or
service.
Ans: ceiling

27. A decrease in the cost of producing a product shifts the supply curve for the product to the
________.
Ans: right

28. If a good has many close substitutes, the demand for that good would likely be characterized
as _____________.
Ans: elastic