Chapter 4—Supply and Demand

TRUE/FALSE

1. When the price of steak falls, we would expect the quantity demanded of steak to rise.

ANS: T PTS: 1

2. If consumers were originally willing to buy 500 units of a good at a price of $20 are now willing to
buy 500 units of the same good at a price of $10, that change would be described as a decrease in
demand.

ANS: T PTS: 1

3. If the price of Good A increases and the demand for Good B increases as well, Goods A and B are
most likely complements.

ANS: F PTS: 1

4. If watermelons are normal goods, the demand for them will rise as the income of consumers rises.

ANS: T PTS: 1

5. If hot dogs are inferior goods, the demand for hot dogs will rise as consumer income falls.

ANS: T PTS: 1

6. Ceteris paribus, if the price of lumber increases, we would expect an increase in the supply of lumber.

ANS: F PTS: 1

7. When the price of corn falls, the market supply of wheat (which can be grown using the same land) is
likely to increase.

ANS: T PTS: 1

8. A technological advance that reduces the cost of producing computers will shift the supply curve of
computers to the right.

ANS: T PTS: 1

9. Increasing government taxation or regulation of an industry generally increases the supply of goods.

ANS: F PTS: 1

10. If the price of pizza falls, the demand for pizza will rise.
 ANS: T PTS: 1

11. When Mom buys more Jell-O(tm) because the price of pudding, a substitute, has risen, it is an example
of the substitution effect.

ANS: T PTS: 1

12. According to the law of demand, other things equal, when the price of a good or service falls, demand
increases.

ANS: F PTS: 1

13. According to the law of supply, other things equal, when the price of a good or service rises, the
quantity supplied increases, but supply does not.

ANS: T PTS: 1

14. Two goods are complements if an increase in the price of one causes an increase in the demand for the
other good.

ANS: F PTS: 1

15. If input prices fall, it will lower the cost of production, causing the supply curve to shift to the right.

ANS: T PTS: 1

16. Because personal tastes differ, what are substitutes for one person need not be substitutes for another
person.

ANS: T PTS: 1

17. Either technological progress or cost increasing new government regulations will increase supply.

ANS: F PTS: 1

18. Either an increase in the number of buyers or an increase in tastes or preferences for a good or service
will increase the market demand for that good or service.

ANS: T PTS: 1

19. An increase in the price of ice cream would cause a decrease in the demand for ice cream and an
increase in the demand for frozen yogurt, a substitute.

ANS: F PTS: 1
MULTIPLE CHOICE

1. Which of the following relationships reflect the law of supply?

a. QS => P
b. ¯ P => ¯ S
c. P => QS
d. ¯ P => QS

ANS: C PTS: 1

2. The law of demand refers to the:

a. decrease in price that results as more units of a product are demanded.
b. increase in price that results from an increase in demand for a good of limited supply.
c. inverse relationship between the price of a good and the quantity demanded.
d. increase in the quantity of a good made available when its price increases.
ANS: C PTS: 1

3. The law of demand illustrates a(n) ____ relationship between price and ____.
a. direct; quantity demanded
b. inverse; quantity demanded
c. inverse; demand
d. direct; demand
ANS: B PTS: 1

4. Which of the following is true of a competitive market?

a. The rules of supply and demand do not apply to it.
b. Buyers and sellers have little market power.
c. Each buyer's or seller's effect on market price is substantial.
d. Few sellers offer similar products.
ANS: B PTS: 1

5. The law of demand asserts that:

a. output prices are more important than input prices.
b. when people want a good badly enough they will find a way to pay for it.
c. people want to buy more of goods that are priced very high because of their prestige.
d. the quantity of a good that people will buy is inversely related to the product's price.
ANS: D PTS: 1

6. In economics, the demand for a good refers to the amount of the good people:
a. would like to have if the good were free.
b. will buy at various prices.
c. need to achieve a minimum standard of living.
d. will buy at alternative income levels.
ANS: B PTS: 1

7. When the price of a good falls relative to other goods and the consumer consequently buys more of
this good, it is called the:
 a. income effect.
b. substitution effect.
c. complement effect.
d. net effect.
e. demand effect.
ANS: B PTS: 1

8. Which of the following relationships reflect the law of demand?

a.
b.
c.
d.

ANS: B PTS: 1

9. The demand curve for a typical good has a(n):

a. negative slope because some consumers switch to other goods as the price rises.
b. negative slope because consumer incomes fall as the price of the good rises.
c. negative slope because the good has less "snob appeal" as its price falls.
d. inverse slope because as the price goes up, the good has more profitability.
e. positive slope because price is a clear indicator of need.
ANS: A PTS: 1

10. The demand schedule for a good:

a. indicates the quantity that people will buy at the prevailing price.
b. indicates the quantities that suppliers will sell at various market prices.
c. indicates the quantities that will be purchased at alternative market prices.
d. is determined primarily by the cost of producing the good.
ANS: C PTS: 1

11. The law of demand refers to the:

a. negative relationship between the price of a good and the willingness of producers to sell
it.
b. price increase that results from an increase in demand.
c. inverse relationship between the price of a good and the quantity demanded.
d. increase in the quantity of a good made available when its price increases.
ANS: C PTS: 1

12. A downward-sloping demand curve shows:

a. the direct relationship between price and quantity supplied; as price increases, the quantity
supplied increases.
b. the inverse relationship between price and quantity supplied; as price increases, the
quantity supplied decreases.
c. the direct relationship between price and quantity demanded; as price increases, the
quantity demanded increases.
d. the inverse relationship between price and quantity demanded; as price increases, the
quantity demanded decreases.
 e. how supply varies with demand.
ANS: D PTS: 1

13. If the demand for milk is downward sloping, then an increase in the price of milk will result in a(n):
a. increase in the demand for milk.
b. decrease in the demand for milk.
c. increase in the quantity of milk demanded.
d. decrease in the quantity of milk demanded.
e. decrease in the supply of milk.
ANS: D PTS: 1

14. If the price of music downloads decrease, which of the following is most likely to occur?
a. Quantity demanded will decrease.
b. Quantity demanded will increase.
c. Demand will increase.
d. Demand will decrease.
ANS: C PTS: 1

15. Assume the demand schedule for cookies is downward sloping. If the price of cookies falls from $2.50
to $2.25 per dozen:
a. the demand for cookies will fall.
b. the demand for cookies will rise.
c. a larger quantity of cookies will be demanded.
d. a smaller quantity of cookies will be demanded.
ANS: C PTS: 1

16. When a demand schedule is drawn in a graph:

a. price is measured on the vertical axis.
b. quantity is measured on the horizontal axis.
c. the resulting curve has a negative slope.
d. other variables are held constant.
e. all of the above are correct.
ANS: E PTS: 1

Table 4-1

Price per lb. of Sven Larry Rest of Market Market

ice cream
$8 5 0 7
$6 8 5 9
$5 11 9 11
$4 14 11 14
$3 17 14 20

17. Refer to Table 4-1. Shown are the demand schedules for gourmet ice cream of two individuals and the
rest of the market. At a price of $8, the quantity demanded in the market would be:
 a. 12.
b. 22.
c. 31.
d. 39.
e. 51.
ANS: A PTS: 1

18. Refer to Table 4-1. At $4 the quantity demanded in the market would be:
a. 12.
b. 22.
c. 31.
d. 39.
e. 51.
ANS: D PTS: 1

19. Which of the following explains why the quantity of a good demanded decreases when its price
increases?
a. Consumer preferences change when the price of a good changes.
b. The nominal income of consumers falls when the price of a good increases.
c. Substitutes become relatively cheaper when the price of a good increases.
d. Complements become relatively cheaper when the price of a good increases.
e. None of the above provides a reasonable explanation.
ANS: C PTS: 1

20. The quantity of a good demanded tends to increase as its price falls because:
a. a decrease in price shifts the demand curve to the right.
b. a decrease in price shifts the demand curve to the left.
c. a decrease in price shifts the supply curve to the right.
d. at lower prices, suppliers are willing to supply a greater quantity to the market.
e. a decrease in price leads consumers to substitute toward this now relatively cheaper
product.
ANS: E PTS: 1

21. A change in which of the following variables does not cause a change in demand?
a. prices of unrelated goods
b. incomes of demanders
c. the number of demanders
d. tastes of demanders
e. expectations of demanders
ANS: A PTS: 1

22. When quantity demanded decreases in response to a change in price:

a. the demand curve shifts to the right.
b. the demand curve shifts to the left.
c. there is a movement down along the demand curve.
d. there is a movement up along the demand curve.
e. the supply curve shifts to the right.
 ANS: D PTS: 1

23. Which of the following groups are likely to determine the demand side of the market?
a. Firms that buy inputs
b. Firms that produce and sell goods
c. Resource owners who sell their inputs
d. Workers in a firm
ANS: A PTS: 1

24. If consumers are less willing and able to pay for each level of output than they were previously, then
apparently:
a. demand has increased.
b. supply has increased.
c. demand has decreased.
d. there has been a movement down along the demand curve.
e. there has been a movement up along the demand curve.
ANS: C PTS: 1

25. Which of the following would not cause a change in the demand for cheese?
a. an increase in the price of crackers, which are consumed with cheese
b. an increase in the income of cheese consumers
c. an increase in the population of cheese lovers
d. an increase in the price of cheese
e. a decrease in the price of crackers, which are consumed with cheese
ANS: D PTS: 1

26. Which of the following would not cause an increase in the demand for cheese?
a. a decrease in the price of crackers, which are consumed with cheese
b. an increase in the income of cheese consumers, assuming that cheese is a normal good
c. an increase in the population of cheese lovers
d. a technological advance that makes it cheaper to produce cheese
ANS: D PTS: 1

27. Based on widespread reaction to the threat of the H1N1 virus, the likely effect on the demand curve for
hand sanitizers would be
a. a shift of the demand curve to the right.
b. a movement downward along the demand curve to the right.
c. a shift of the demand curve to the left.
d. a movement upward along the demand curve to the left.
ANS: A PTS: 1

28. A demand curve shows the relationship between price and quantity demanded, "other things remaining
constant." The other things that remain constant include all of the following except the:
a. price of the product.
b. price of complementary products.
c. price of substitute products.
d. number of consumers in the demographic group purchasing the product.
 e. preferences of consumers.
ANS: A PTS: 1

29. According to the income effect, an increase in the price of oranges will:
a. cause consumers to consume more apples because of greater savings on that good.
b. cause consumers to spend more on oranges because a higher price signals that oranges are
better than apples.
c. cause consumers to replace some oranges with other fruit that is now relatively cheaper
than oranges.
d. leave consumers with less money to spend on all goods.
ANS: D PTS: 1

30. All of the following would shift a product's demand curve except a(n):
a. increase in the price of the product.
b. decrease in consumer income.
c. increase in the price of a substitute.
d. increase in the price of a complement.
e. change in consumer preferences.
ANS: A PTS: 1

31. Which of the following will not increase the demand for iced tea?
a. an increase in advertising that makes drinking iced tea more appealing
b. an increase in the price of iced coffee, a substitute product
c. an increase in the income of consumers (assume that iced tea is a normal good)
d. a decrease in the price of iced tea
e. a decrease in the price of lemons, a complement to iced tea
ANS: D PTS: 1

32. If the price of tennis rackets were to increase, we would expect:

a. the demand for tennis balls to increase.
b. the demand for tennis balls to decrease.
c. the supply of tennis balls to increase, leading to a movement along the demand curve for
tennis balls.
d. the supply of tennis balls to decrease.
e. both b. and d. to occur.
ANS: B PTS: 1

Figure 4-1
33. Refer to Figure 4-1. Using the graph and beginning on D1, a shift to D0 would indicate a(n):
a. increase in demand.
b. decrease in demand.
c. increase in quantity demanded.
d. decrease in quantity demanded.
e. increase in supply.
ANS: B PTS: 1

34. Refer to Figure 4-1. Using the graph and beginning on D1, a shift to D2 would indicate a(n):
a. increase in demand.
b. decrease in demand.
c. increase in quantity demanded.
d. decrease in quantity demanded.
e. increase in supply.
ANS: A PTS: 1

35. Other things constant, an increase in the price of beef will:

a. encourage consumers to buy more beef.
b. discourage consumers from buying as much beef.
c. shift the demand curve for beef to the right.
d. shift the demand curve for beef to the left.
e. cause both b. and d. to occur.
ANS: B PTS: 1

36. Suppose the price of gasoline and other petroleum products decline sharply. Which of the following
will most likely occur as a result of the lower petroleum prices?
a. an increase in demand for solar heating systems
b. an increase in demand for larger, more powerful automobiles
c. an increase in demand for home insulation products
d. an increase in demand for gasoline
e. both b. and d.
ANS: B PTS: 1

37. Assuming that Chinese food and Thai food are substitutes, if P. F. Chang's Chinese Restaurant reduces
its prices:
a. the sales of the nearby Bahn Thai restaurant will increase.
 b. demand for meals at P. F. Chang's will increase.
c. the demand for meals at the Bahn Thai restaurant will decrease.
d. the quantity of food demanded from P. F. Chang's will decrease.
ANS: C PTS: 1

38. For a given good, the market demand curve is generally ____ than the demand curves for the
individual consumers.
a. Taller
b. Shorter
c. Narrower
d. wider.
e. both a. and d.
ANS: D PTS: 1

39. If an increase in the price of Product X causes an increase in the demand for Product Y, we can
conclude that:
a. Products X and Y are complements.
b. Products X and Y are substitutes.
c. Products X and Y are normal goods.
d. The price of Product Y will decrease.
e. Products X and Y are inferior goods.
ANS: B PTS: 1

40. If the price of ice cream increases and the quantity demanded decreases, economists would describe
this as:
a. a change in demand.
b. a change in quantity demanded.
c. a change in consumer income.
d. a change in one of the variables that shift demand.
e. an inferior good.
ANS: B PTS: 1

41. Which of the following is not a valid relationship?

a. For a normal good: Income Demand
b. For a normal good: Income Demand
c. For an inferior good: Income Demand
d. For an inferior good: Income Demand
ANS: A PTS: 1

42. Whenever the price of Good A decreases, the demand for Good B increases. Good A and B appear to
be:
a. complements.
b. substitutes.
c. inferior goods.
d. normal goods.
e. inverse goods.
 ANS: A PTS: 1

43. Whenever the price of Good A increases, the demand for Good B increases as well. Good A and B
appear to be:
a. complements.
b. substitutes.
c. inferior goods.
d. normal goods.
e. inverse goods.
ANS: B PTS: 1

Figure 4-2

44. Refer to Figure 4-2. Two donut chains in your town are battling for customers. The manager of the
Yum Yum Donut Shop, facing demand curve D1, has changed donut prices from P0 to P1. As a result,
customers:
a. increase purchases at Yum Yum to Q1.
b. decrease purchases at Yum Yum to Q0.
c. buy the same quantity of Yum Yum donuts as before the price change.
d. decrease demand to D0.
ANS: A PTS: 1

45. Refer to Figure 4-2. As a result of the decrease in donut prices at Yum Yum Donuts, Krispy Kreme
managers discover that the demand for their donuts has:
a. increased from D0 to D1.
b. increased from D1 to D0.
c. decreased from D1 to D0.
d. not changed.
ANS: C PTS: 1

46. If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude
that:
 a. Goods X and Y are complements.
b. Goods X and Y are substitutes.
c. Goods X and Y are normal goods.
d. the price of Good Y will increase.
e. the quantity supplied of Good Y will increase.
ANS: A PTS: 1

47. The difference between a change in quantity demanded and a change in demand is that a change in:
a. quantity demanded is caused by a change in a good's own current price, while a change in
demand is caused by a change in some other variable, such as income, tastes, or
expectations.
b. demand is caused by a change in a good's own current price, while a change in quantity
demanded is caused by a change in some other variable, such as income, tastes, or
expectations.
c. quantity demanded is a change in the amount people actually buy, while a change in
demand is a change in the amount they want to buy.
d. A change in demand and a change in quantity demanded are the same thing.
ANS: A PTS: 1

48. Which of the following will not cause a change in the demand for a product?
a. a change in consumer income
b. a change in consumer preferences
c. a change in the price of the product
d. a change in the price of a substitute product
e. As a result of a news report, consumers form expectations that the product's price will fall
in the future.
ANS: C PTS: 1

49. Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists
would expect:
a. Andy's demand for pizza to increase.
b. Andy's demand for pizza to decrease.
c. Andy's quantity of pizza demanded to decrease.
d. Andy's demand for beer to increase.
e. Andy's demand for beer to decrease.
ANS: D PTS: 1

50. The price of automobiles has increased sharply lately. As a result, automobile dealers have noticed
that:
a. demand has increased.
b. demand has decreased.
c. quantity demanded has increased.
d. quantity demanded has decreased.
ANS: D PTS: 1

51. When the price of automobile insurance increases sharply, the likely impact on the market for
automobiles is:
 a. an increase in demand.
b. an increase in quantity demanded.
c. a decrease in demand.
d. a decrease in quantity demanded.
e. no change in automobile sales.
ANS: C PTS: 1

52. CNN announces that bad weather in Central America has greatly reduced the number of cocoa bean
plants, and, as a result, it is expected that the price of chocolate will rise in the near future. As a result:
a. the current market demand for chocolate will decrease.
b. the current market demand for chocolate will increase.
c. the current quantity demanded for chocolate will decrease.
d. there is no change in the current market for chocolate, but there will be after the current
crop of cocoa bean plants is processed into chocolate.
ANS: B PTS: 1

Figure 4-3

53. Refer to Figure 4-3. The University Theater faces market demand curve D 0 and has begun charging
$10, up from $5, for tickets for Friday and Saturday night shows. As a result, students have:
a. increased their demand for tickets to Q4.
b. increased their quantity of tickets demanded to Q4.
c. decreased their demand for tickets to Q1.
d. decreased their quantity of tickets demanded to Q1.
ANS: D PTS: 1

54. Refer to Figure 4-3. Everyone has been raving about the newest summer blockbuster film. Since your
Aunt Finola just sent you a nice letter with $20 enclosed, you decide to see the movie even though
ticket prices have risen to $10 per ticket. You are not alone, as many students are waiting in line at the
theater, shifting the demand curve to D1. The theater owners are now selling:
a. Q1 tickets.
b. Q2 tickets.
c. Q3 tickets.
 d. Q4 tickets.
e. Given the above information, it is not possible to identify the number of tickets sold.
ANS: B PTS: 1

55. According to the substitution effect, an increase in the price of oranges will:
a. cause consumers to consume fewer apples because more money is spent on oranges.
b. cause consumers to spend more on oranges because a higher price signals that oranges are
better than apples.
c. cause consumers to replace some oranges with other fruit that is now relatively cheaper
than oranges.
d. leave consumers with less money to spend on all goods.
ANS: C PTS: 1

56. Skateboards International of Long Beach, California, was able to sell 20,000 skateboards at a price of
$60 in 2008. In 2009, it is able to sell only 12,000 of the same skateboards at a price of $60. Evidently,
Skateboard International has experienced a(n):
a. increase in quantity supplied.
b. increase in demand.
c. increase in supply.
d. decrease in demand.
e. increase in quantity demanded.
ANS: D PTS: 1

57. Vodka and whiskey are considered by consumers to be substitutes. The likely economic impact of a
decrease in the price of whiskey is a:
a. movement up along the demand curve for vodka.
b. movement down along the demand curve for vodka.
c. decrease in the supply of whiskey.
d. rightward shift of the demand curve for vodka.
e. leftward shift of the demand curve for vodka.
ANS: E PTS: 1

58. Roxanne views movie tickets and DVD rentals to be substitute forms of entertainment. An increase in
the price of a DVD rental will probably result in an increase in the:
a. supply of movie tickets.
b. quantity of movie tickets demanded.
c. quantity of DVD rentals demanded.
d. demand for movie tickets.
ANS: D PTS: 1

Figure 4-4
59. Refer to Figure 4-4. A change from Point A to Point B represents a(n):
a. increase in demand.
b. decrease in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
ANS: C PTS: 1

60. Refer to Figure 4-4. A change from Point A to Point C represents a(n):
a. increase in demand.
b. decrease in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
ANS: D PTS: 1

61. Refer to Figure 4-4. A change from Point A to Point D represents a(n):
a. increase in demand.
b. decrease in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
ANS: A PTS: 1

62. Refer to Figure 4-4. A change from Point A to Point E represents a(n):
a. increase in demand.
b. decrease in demand.
c. decrease in quantity demanded.
d. increase in quantity demanded.
ANS: B PTS: 1

63. Which of the following would not cause an increase in demand for tennis balls?
a. a reduction in the price of tennis racquets
b. a decrease in the price of tennis balls
c. an unusually sunny fall and winter
d. an increase in the popularity of tennis
 ANS: B PTS: 1

64. Which of the following would be most likely to cause an outward shift of the demand curve for
electricity?
a. a decrease in the price of electricity
b. an increase in the price of air conditioners
c. an increase in the price of heating oil
d. a decrease in the price of natural gas
ANS: C PTS: 1

65. Along a supply curve:

a. supply changes as price changes.
b. quantity supplied changes as price changes.
c. supply changes as technology changes.
d. quantity supplied changes as technology changes.
ANS: B PTS: 1

66. The supply curve shows:

a. the same basic information as a demand curve.
b. how the average cost of production varies with price.
c. how the quantity produced varies with price.
d. how the quantity demanded varies with price.
ANS: C PTS: 1

67. An upward-sloping supply curve shows that:

a. buyers are willing to pay more for particularly scarce products.
b. suppliers expand production as the product price falls.
c. suppliers are willing to increase production of their goods if they receive higher prices for
them.
d. buyers are willing to buy more as the product price falls.
e. buyers are not affected either directly or indirectly by the sellers' costs of production.
ANS: C PTS: 1

68. A supply schedule shows:

a. projected sales as ad spending varies.
b. how many units producers are willing and able to sell at various prices.
c. possible combinations of output as input prices vary.
d. how many units consumers would like to buy at various prices.
ANS: B PTS: 1

69. Each point on the supply curve shows the:

a. amount that people want to buy at that price.
b. quantity supplied at that price.
c. productive capacity of an individual producer.
d. the amount producers want to sell to buyers of different income levels.
ANS: B PTS: 1
70. As a result of an increase in a product's price:
a. product supply increases.
b. product supply decreases.
c. product supply does not change, but quantity supplied increases.
d. the impact on product supply is uncertain. Economic theory has no answer to this
question.
ANS: C PTS: 1

71. If a product's price increases, quantity:

a. supplied increases.
b. supplied decreases.
c. supplied does not change, but supply does increase.
d. demanded increases.
ANS: A PTS: 1

72. According to the law of supply, when the price of a good increases we would predict that:
a. less will be produced.
b. less will be consumed.
c. more will be produced.
d. more will be consumed.
ANS: C PTS: 1

73. Which of the following scenarios would prompt producers to supply less now than they otherwise
would have?
a. Producers expecting a higher price in the future
b. Producers expecting prices to remain unchanged
c. Producers expecting a lower price in the future
d. Producers expecting prices to be volatile
ANS: A PTS: 1

74. The difference between a change in quantity supplied and a change in supply is that a change in:
a. quantity supplied is caused by a change in a good's own, current price, while a change in
supply is caused by a change in some other variable, such as input prices, prices of related
goods, expectations, or taxes.
b. supply is caused by a change in a good's own, current price, while a change in the quantity
supplied is caused by a change in some other variable, such as input prices, prices of
related goods, expectations, or taxes.
c. quantity supplied is a change in the amount people want to sell, while a change in supply
is a change in the amount they actually sell.
d. supply and a change in the quantity supplied are the same thing.
ANS: A PTS: 1

75. Which of the following will cause a change in the supply of a product?
a. a change in the price of suppliers' inputs
b. a change in the price of alternative goods that could be produced with the same resources
 c. a natural disaster
d. a change in the expected future price of the product
e. all of the above
ANS: E PTS: 1

76. Steel producers offer to sell steel to U.S. auto producers at a much lower price than in the past. As a
result one would expect:
a. no change in the supply of automobiles.
b. an increase in the demand for automobiles.
c. an increase in the supply of automobiles.
d. a decrease in the supply of automobiles.
ANS: C PTS: 1

77. Antonio's makes the greatest pizza and delivers it hot to all the dorms around campus. Last week
Antonio's supplier of pepperoni informed him of a 25% increase in price. Which variable determining
the position of the supply curve has changed and what effect does it have on supply?
a. future expectations; supply decreases
b. future expectations; supply increases
c. input prices; supply decreases
d. input prices; supply increases
e. technology; supply increases
ANS: C PTS: 1

78. If new manufacturers enter the computer industry, then (ceteris paribus):
a. some established manufacturers must exit the industry.
b. the equilibrium price of computers must rise.
c. the supply curve shifts to the right.
d. the supply curve shifts to the left.
ANS: C PTS: 1

79. A severe freeze has once again damaged the Florida orange crop. The impact on the market for oranges
will be a leftward shift of:
a. the demand curve, as consumers try to economize because of the shortage.
b. the demand curve and a rightward shift of the supply curve.
c. the supply curve.
d. the supply curve and a rightward shift of the demand curve, resulting in a higher
equilibrium price.
ANS: C PTS: 1

80. All of the following factors will affect the supply of shoes except one. Which will not affect the supply
of shoes?
a. higher wages for shoe factory workers
b. higher prices for leather
c. a technological improvement that reduces waste of leather and other raw materials in shoe
production
d. an increase in consumer income
 ANS: D PTS: 1

81. Other things constant, a decrease in the price of fertilizer will:

a. increase the supply of wheat.
b. decrease the supply of wheat.
c. increase the demand for wheat.
d. decrease the demand for wheat.
e. do none of the above.
ANS: A PTS: 1

Figure 4-5

82. Refer to Figure 4-5. A change from Point A to Point B represents a(n):
a. increase in supply.
b. decrease in supply.
c. increase in quantity supplied.
d. decrease in quantity supplied.
ANS: C PTS: 1

83. Refer to Figure 4-5. A change from Point A to Point C represents a(n):
a. increase in supply.
b. decrease in supply.
c. increase in quantity supplied.
d. decrease in quantity supplied.
ANS: D PTS: 1

84. Refer to Figure 4-5. A change from Point A to Point D represents a(n):
a. increase in supply.
b. decrease in supply.
c. increase in quantity supplied.
d. decrease in quantity supplied.
ANS: A PTS: 1
85. Refer to Figure 4-5. A change from Point A to Point E represents a(n):
a. increase in supply.
b. decrease in supply.
c. increase in quantity supplied.
d. decrease in quantity supplied.
ANS: B PTS: 1

86. The supply curve of books (which are produced using paper made from trees) will shift to the left in
response to:
a. a decline in college tuition.
b. a sharp increase in the demand for and construction of wood-frame homes.
c. an increase in the supply of lumberjacks.
d. an end to government regulations that limit timber harvesting in national forests.
ANS: B PTS: 1

87. The quantity of newspapers sold will decline if:

a. newsprint becomes more expensive.
b. the printers' union makes wage concessions.
c. newspaper prices are reduced.
d. magazine prices rise.
ANS: A PTS: 1

88. Which of the following would not cause a change in the supply of milk?
a. an increase in government subsidies to dairy farmers
b. an increase in the price of milk
c. the discovery of growth hormones to stimulate the milk production of cows
d. an increase in the cost of feed for cows
e. All of the above will cause a change in the supply of milk.
ANS: B PTS: 1

89. Refer to the table below. If these three firms represented the entire market, how many mid-sized autos
would be supplied at a price of $30,000?

Price for Mid- GM Ford Chrysler Market

Sized Auto
$22,000 10,000 8,000 4,000
$24,000 12,000 10,000 5,000
$26,000 15,000 12,000 7,000
$28,000 19,000 14,000 10,000
$30,000 24,000 16,000 14,000

a. 43,000
b. 54,000
c. 126,000
d. 158,000
e. 180,000
ANS: D PTS: 1
90. To an economist, a decrease in supply means a:
a. rightward shift of the supply curve.
b. movement up along a supply curve.
c. downward shift of the supply curve.
d. movement down along the supply curve.
e. none of the above
ANS: E PTS: 1

91. Which of the following would not shift the supply curve for swordfish?
a. a reduction in the number of available fishing boats
b. unusually stormy weather during fishing season
c. the development of innovative new fishing equipment that makes it easier to catch
swordfish
d. an increase in the price of swordfish
e. an increase in the wages of fishermen
ANS: D PTS: 1

92. Technological advances in recycling make it possible to produce a greater quantity of paper from a
given quantity of recycled newspapers. Predict the likely impact on the supply curve for paper.
a. There is a movement down along the supply curve.
b. There is a movement up along the supply curve.
c. The supply curve shifts to the left.
d. The supply curve shifts to the right.
e. The supply curve for paper does not change. Instead, there is a change in the demand for
paper.
ANS: D PTS: 1

93. A supply curve illustrates a(n) ____ relationship between ____ and ____.
a. direct; price; supply
b. direct; price; quantity demanded
c. direct; price; quantity supplied
d. introverted; price; quantity demanded
e. inverse; price; quantity supplied
ANS: C PTS: 1

94. Which of the following reflects the law of supply?

a.
b.
c.
d.

ANS: D PTS: 1

95. According to the law of supply:

a. there is an inverse relationship between price and quantity demanded.
b. there is a direct relationship between price and quantity demanded.
 c. there is an inverse relationship between price and the quantity supplied.
d. there is a direct relationship between price and the quantity supplied.
e. there is a direct relationship between quantity demanded and quantity supplied.
ANS: D PTS: 1

96. Which of the following would be least likely to affect the supply of automobiles?
a. higher prices for steel and other resources used in producing automobiles
b. a successful physical fitness plan encouraging Americans to walk rather than drive to their
destinations
c. a technological improvement reducing the production costs of automobiles
d. increased wages for members of the United Auto Workers union
ANS: B PTS: 1

97. A technological improvement that lowers production costs for Good A will shift:
a. the supply curve for A to the left.
b. the demand curve for A to the left.
c. the demand curve for A to the right.
d. the supply curve for A to the right.
e. both the demand and supply curves for A to the right.
ANS: D PTS: 1

98. Which of the following would be most likely to cause a reduction in the supply of Nintendo video
games?
a. a decrease in the price of Nintendo video games
b. a decrease in the price of computer chips used to make Nintendo games
c. an increase in the demand for Nintendo video games
d. a decrease in the demand for Nintendo video games
e. an increase in the price of computer chips used to make Nintendo games
ANS: E PTS: 1

99. Which of the following would reduce the supply of computers?

a. higher wage rates for the workers that assemble the computers
b. a technological improvement that lowers the cost of producing the computers
c. a reduction in the price of computer chips used to produce the computers
d. All of the above would reduce the supply of computers.
ANS: A PTS: 1

100. How will a decrease in price tend to affect supply?

a. Supply will increase.
b. Supply will decrease.
c. Supply will not change.
d. It is uncertain.
ANS: C PTS: 1

101. What is the most likely effect of deregulation on the supply curve?
a. Supply curve will shift to the left
 b. Quantity supplied will reduce
c. Supply curve will shift to the right
d. Supply curve will not be effected
ANS: C PTS: 1

102. Which of the following would shift a supply curve to the right?
a. Taxes
b. Import restrictions
c. Duties
d. Subsidies
ANS: D PTS: 1

103. Which of the following would cause the quantity of wheat bread demanded to increase, but not the
demand for wheat?
a. a reduction in the price of rye, used to produce rye bread
b. a new scientific study demonstrating that wheat bread reduces the risk of colon cancer
c. a decrease in the price of rye bread
d. an increase in the number of farmers growing wheat
e. an increase in the price of wheat flour
ANS: D PTS: 1

104. Identify the scenario that will cause the supply curve to shift to the left.
a. Producer expects now that the price will be lower later
b. Price decreases for a substitute in production
c. Input price increases
d. Increase in number of suppliers
ANS: C PTS: 1

105. How do orange growers react to the news of medical research findings that suggest that eating oranges
leads to greater health benefits than were previously known?
a. They increase the supply of oranges.
b. They increase the quantity of oranges supplied.
c. They decrease the supply of oranges.
d. They decrease the quantity of oranges supplied.
ANS: B PTS: 1

106. Which of the following would increase the supply of childcare services?
a. An increase number of childcare facilities
b. An increase in the cost of certification for workers in this field
c. An increase in the price of childcare
d. both a. and c. are true.
ANS: A PTS: 1

107. Which of the following is true?

a. The market demand curve for a product is the vertical summation of the demand curves of
the individuals in the market.
 b. A fall in a good's price leads to a decrease in quantity demanded, illustrated by moving
along a demand curve.
c. According to the law of demand, other things equal, when the price of a good or service
falls, demand increases.
d. A change in demand for chocolate bars is caused by a change in the price of chocolate
bars.
e. None of the above is true.
ANS: E PTS: 1

108. Which of the following is not held constant when moving along a product's demand curve?
a. The price of the product itself.
b. The expected price of the product in the near future.
c. Income.
d. Prices of complementary goods.
e. Prices of substitutes.
ANS: A PTS: 1

109. A demand curve will shift in the same direction as:

a. a change in income, for an inferior good.
b. a change in the price of complementary goods.
c. a change in the price of substitutes.
d. a change in the expected future price of the good.
e. either c. or d.
ANS: E PTS: 1

110. If peanut butter and jelly are complements, but peanut butter and tuna fish are substitutes,
a. an increase in the price of peanut butter will increase the demand for jelly.
b. an increase in the price of peanut butter will decrease the demand for jelly.
c. an increase in the price of peanut butter will decrease the demand for tuna fish.
d. an increase in the price of peanut butter will increase the demand for tuna fish.
e. b. and d. are true.
ANS: E PTS: 1

111. Which of the following is true?

a. Because personal tastes differ, what are substitutes for one person may not be substitutes
for another person.
b. Two goods are substitutes if an increase in the price of one good causes an increase in the
demand for the other good.
c. Those goods for which rising income leads to decreased demand are called inferior goods.
d. Either an increase in the number of buyers or an increase in tastes or preferences for a
good or service will increase the market demand for a good or service.
e. All of the above are true.
ANS: E PTS: 1

112. Which of the following best represents the effects of a decrease in the price of tea?
a. A leftward shift in the demand for tea.
b. A downward movement along the demand curve for tea.
 c. A rightward shift in the demand for tea.
d. An upward movement along the demand curve for tea.
ANS: B PTS: 1

113. Assuming that coffee and tea are substitutes, a decrease in the price of coffee will result in
a. A leftward shift in the demand for tea.
b. A downward movement along the demand curve for tea.
c. A rightward shift in the demand for tea.
d. An upward movement along the demand curve for tea.
ANS: A PTS: 1

114. Buyers who were originally willing to buy 800 units of a good at $4 per unit are now willing to buy
1200 units at $4 per unit. That change would be described as:
a. an increase in demand.
b. a decrease in demand.
c. an increase in quantity demanded.
d. a decrease in quantity demanded.
ANS: A PTS: 1

115. The market supply schedule reflects the total quantity:

a. supplied at market price.
b. supplied by all of the producers at the equilibrium price.
c. supplied at each price by all of the producers.
d. the vertical summation of the supply curves for individual firms.
ANS: C PTS: 1

116. Which of the following is expected to happen if import restrictions are removed for a particular
industry?
a. Supply will increase
b. Supply curve will shift to the left
c. Demand curve will shift to the left
d. Prices will increase
ANS: A PTS: 1

117. Which of the following is most likely to be an inferior good?

a. Porsches.
b. Lobster.
c. Used clothing.
d. An Ivy League education.
ANS: C PTS: 1

118. A decrease in consumer incomes will:

a. decrease the demand for an inferior good.
b. decrease the supply of an inferior good.
c. increase the demand for a normal good.
d. increase the supply of a normal good.
 e. do none of the above.
ANS: E PTS: 1

119. Which of the following is not likely to be an inferior good for most Americans?
a. Thrift store clothing.
b. Wine in a box.
c. Intercity bus travel.
d. Store brand canned vegetables.
e. All of the above are likely to be inferior goods for most Americans.
ANS: E PTS: 1

120. Which of the following would most likely cause a decrease in the current demand for a normal good?
a. An increase in the price of the good.
b. An increase in incomes.
c. An increase in the expected future price of the good.
d. A decrease in the price of a complement for the good.
e. None of the above would be likely to cause a decrease in current demand for a normal
good.
ANS: E PTS: 1

121. If bad weather destroyed half of the current coffee crop, ceteris paribus, it would:
a. increase the demand for coffee.
b. decrease the demand for coffee.
c. increase the demand for tea.
d. decrease the demand for tea.
e. increase the supply of tea.
ANS: C PTS: 1

122. Which of the following is most likely to be an example of a normal good?

a. lottery tickets
b. generic peanut butter
c. public transportation
d. a large SUV
ANS: B PTS: 1

123. Which of the following is true?

a. According to the law of supply, the higher the price of the good, the greater the quantity
supplied.
b. An individual supply curve is a graphical representation that shows the negative
relationship between the price and the quantity an individual is willing and able to supply.
c. The market supply curve is the vertical summation of the individual firm supply curves.
d. An increase in supply is illustrated by an upward shift in the supply curve.
e. Both a. and d. are true.
ANS: A PTS: 1

124. Which of the following would lead to a decrease in the supply of watches?
 a. An increase in the price of watches
b. A decrease in the price of watches
c. A decrease in the expected future price of watches
d. None of the above
ANS: D PTS: 1

125. Upward shifts are

a. increases in both demand and supply.
b. decreases in both demand and supply.
c. increases in demand and decreases in supply.
d. increases in supply and decreases in demand.
ANS: C PTS: 1

126. Downward shifts are

a. increases in both demand and supply.
b. decreases in both demand and supply.
c. increases in demand and decreases in supply.
d. increases in supply and decreases in demand.
ANS: D PTS: 1

127. A decrease in demand and an increase in supply are indicated by

a. Upward shifts in both curves.
b. Downward shifts in both curves.
c. Rightward shifts in both curves.
d. Leftward shifts in both curves.
ANS: B PTS: 1

128. Which of the following is true?

a. If input prices fall, this will lower the costs of production, causing the supply curve to shift
to the right.
b. The expectation of higher prices in the future will increase current supply.
c. A decrease in the number of suppliers will shift a supply curve upward.
d. An increase in the price of a good does increases the supply of that good.
e. None of the above is true.
ANS: A PTS: 1

129. Which of the following is true?

a. A decrease in the price of ice cream would cause a decrease in the demand for frozen
yogurt, a substitute.
b. Just as demanders will demand more now if the price of a good is expected to rise in the
near future, sellers will supply more now if the price of a good is expected to rise in the
near future.
c. An increase in supply leads to a movement up along the supply curve.
d. Both technological progress and cost-increasing regulations will increase supply.
e. None of the above is true.
ANS: A PTS: 1
130. Which of the following is not a determinant of supply?
a. input prices
b. Technology
c. Tastes
d. Expectations
e. the prices of related products
ANS: C PTS: 1

131. Sellers who were originally willing to supply 800 units of a good at $4 per unit are now willing to
supply 600 units at $4 per unit. That change would be described as:
a. an increase in supply.
b. a decrease in supply.
c. an increase in quantity supplied.
d. a decrease in quantity supplied.
ANS: B PTS: 1

132. A leftward shift in supply could be caused by:

a. an improvement in productive technology.
b. a decrease in income.
c. some firms leaving the industry.
d. a fall in the price of inputs to the industry.
e. either a. or d.
ANS: C PTS: 1

133. Sellers who were originally willing to supply 800 units of a good at $4 per unit are now willing to
supply 800 units at $3 per unit. That change would be described as:
a. an increase in supply.
b. a decrease in supply.
c. an increase in quantity supplied.
d. a decrease in quantity supplied.
ANS: A PTS: 1

134. Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for
the good. This will cause:
a. an increase in supply, or a rightward shift of the supply curve.
b. a decrease in supply, or a leftward shift of the supply curve.
c. an increase in quantity supplied, or a movement down the supply curve.
d. a decrease in quantity supplied, or a movement up the supply curve.
ANS: A PTS: 1

135. All of the following are likely to shift the demand for grapefruit to the left except:
a. a decrease in the price of oranges
b. a decrease in average household incomes
c. a rise in the price of grapefruit
d. the introduction and promotion of a processed breakfast drink.
 ANS: C PTS: 1

136. The quantity of hamburger that households are willing to purchase is predicted to rise if there is:
a. a fall in the price of hot dogs
b. a fall in the price of hamburger buns
c. a rise in the price of onion rings
d. a rise in the price of catsup
ANS: B PTS: 1

137. The price of peanut butter falls and as a result the demand for jelly increases. We can conclude that:
a. peanut butter and jelly are substitutes.
b. peanut butter and jelly are complements.
c. peanut butter and jelly are inferior goods.
d. the marginal value of jelly is greater than the marginal value of peanut butter.
e. peanut butter and jelly are normal goods.
ANS: B PTS: 1

Figure 4-6

138. Refer to Figure 4-6. A supply shift from S0 to S1 can be best explained by:
a. decrease in input prices.
b. price decreases for a substitute in production.
c. rise in taxes.
d. a technological advance.
ANS: C PTS: 1

139. Refer to Figure 4-6. A supply shift from S0 to S2 can be best explained by:
a. input price increases.
b. rise in taxes.
c. bad weather
d. a technological advance.
ANS: D PTS: 1

SHORT ANSWER
1. The federal government's "Cash For Clunkers" program provided consumers up to $4,500 towards
new, environmentally friendly automobiles when trading in a less fuel efficient vehicle. Discuss the
effect of this move on the industry's demand curve.

ANS:
The "Cash For Clunkers" program made consumers more interested in purchasing an auto. This
increased interest or change in preferences caused an increase in demand shifting the demand curve to
the right.

PTS: 1

2. Define what a market is and provide three examples of where a market can be found.

ANS:
A market is the process of buyers and sellers exchanging goods and services. Examples are abundant:
bookstores, corner grocery markets, stock markets such as the New York Stock Exchange,
barbershops, roadside markets, online auction markets, etc.

PTS: 1

3. In the three months before a $1 per pack cigarette tax took effect in Alaska, smokers bought 175
million more cigarettes than during the same period a year earlier. What explains this behavior by
consumers?

ANS:
The increase of $1 per pack is pretty significant given the price of cigarettes. Many smokers may have
decided that the best way to save money would be to stockpile cigarettes before the expected tax
increase took effect. So an expectation of a price increase in the near future caused the current demand
curve for cigarettes to shift to the right (an increase in demand).

PTS: 1

4. Differentiate between a change in quantity demanded and a change in demand.

ANS:
A change in a good's own, current price is said to lead to a change in quantity demanded. The
movement happens along the demand curve. Changes in factors other than price can shift the entire
demand curve. A change in demand happens due to changes in the prices of related goods, income,
number of buyers, tastes, and expectations.

PTS: 1

5. As the price of DVD players has fallen over the last two years, more DVD players have been sold by
consumer electronics firms. Is this a violation of the law of supply?

ANS:
 No. Very likely the reduction in price is due to an increase in supply (not an increase in quantity
supplied). As DVD technology has progressed, DVD players have become standardized and more
efficiently mass-produced, leading to an increase in supply. What has likely been observed is a
rightward shift of the supply curve, not a movement along the supply curve.

PTS: 1

6. An increase in the price of Product X leads to a decrease in demand for Product Y. The price increase
also increases the demand for Product Z, a related good. Discuss the relationship between these
products.

ANS:
Product X and Product Y: complements.
Product X and Product Z: substitutes.

PTS: 1

7. Beach resorts raise their prices during the summer months and yet more people book rooms at those
times. Is this a violation of the law of demand?

ANS:
No. During summer months, the demand for beach resort accommodations tends to increase, pushing
up both prices and occupancy for the duration. An increase in demand (a shift of the curve. occurs.
This does not violate the law of demand, which states that there is an inverse relationship between
price and quantity demanded, all other things being equal.

PTS: 1