Chapter 2.

The buyer side of the market is known as the:

a) income side.
b) demand side.
c) supply side.
d) seller side.

Graphically, a decrease in advertising will cause the demand curve to:

a) become steeper.
b) shift rightward.
c) become flatter.
d) shift leftward.

The law of supply states that, holding all else constant, as the price of a good falls:
a) quantity demanded rises.
b) quantity supplied falls.
c) quantity supplied rises.
d) quantity demanded falls.

The maximum legal price that can be charged in a market is:

a) a price floor.
b) an ad valorem tax.
c) the market equilibrium price.
d) a price ceiling.

The law of demand states that if the price of a good falls and all other things remain the same,
the
a) quantity demanded of the good falls.
b) quantity demanded of the good rises.
c) demand of the good rises.
d) all of the statements associated with this question are correct.

Which of the following are least likely to be complements?

a) Peanut butter and jelly.
b) Bread and butter.
c) Sports coats and dress slacks.
d) Cars and trucks.

Suppose the demand for X is given by Qxd = 100 - 2PX + 4PY + 10M + 2A, where PX
represents the price of good X, PY is the price of good Y, M is income and A is the amount of
advertising on good X. Based on this information, we know that good Y is
a) a substitute for good X.
b) a complement for good X.
c) an inferior good.
d) a normal good.
An excise tax shifts the supply curve
a) down by the amount of the tax.
b) up by the amount of the tax.
c) by rotating it counter-clockwise.
d) by rotating it clockwise.

In a competitive market, the market demand is Qd = 70 - 3P and the market supply is Qs = 6P.
A price ceiling of $4 will result in a
a) shortage of 24 units.
b) shortage of 34 units.
c) surplus of 58 units.
d) surplus of 34 units.

An excise tax of $1.00 per gallon of gasoline placed on the suppliers of gasoline would shift
the supply curve
a) down by $1.00.
b) down by more than $1.00.
c) up by $1.00.
d) up by less than $1.00.

Suppose the market supply for good X is given by QXS = -100 + 5PX. If the equilibrium price
of X is $100 per unit then producers' revenue from X is
a) $100.
b) $20,000.
c) $40,000.
d) cannot be determined from the information contained in the question.

Suppose both supply and demand increase. What effect will this have on the equilibrium
quantity?
a) It will fall.
b) It will rise.
c) It may rise or fall.
d) It will remain the same.

Consider a market characterized by the following demand and supply conditions: PX = 15 -

2QX and PX = 3 + 2QX. The equilibrium price and quantity are, respectively,
a) $3 and 9 units.
b) $9 and 3 units.
c) $12 and 4 units.
d) $4 and 12 units.
Consider a market characterized by the following inverse demand and supply functions: PX =
50 - 4QX and PX = 10 + 2QX. Compute the surplus producers receive when a $30 per unit price
floor is imposed on the market.
a) $75.
b) $25.
c) $35.
d) $50.
Which of the following would not shift the demand for good A?
a) Drop in price of good A.
b) Drop in price of good B.
c) Consumer income.
d) Change in the level of advertising of good A.

Which of the following can explain an increase in the demand for housing in retirement
communities?
a) A drop in real estate prices.
b) An increase in the population of the elderly.
c) A drop in the average age of retirees.
d) Mandatory government legislation.

For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve
to:
a) become flatter.
b) shift to the left.
c) shift to the right.
d) become parallel to the price axis.

Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If a price
ceiling of $15 is imposed, what will be the resulting full economic price?
a) $19.
b) $21.
c) $6.
d) $25.

Changes in the price of other goods lead to

a) a change in quantity demanded.
b) a change in demand.
c) no change in the demand curve.
d) a movement along the demand curve.

Advertising provides consumers with information about the underlying existence or quality
of a product. These types of advertising messages are called
a) persuasive advertising.
b) informative advertising.
c) green advertising.
d) influential advertising.

Suppose the demand for X is given by Qxd = 100 - 2PX + 4PY + 10M + 2A, where
PX represents the price of good X, PY is the price of good Y, M is income and A is the amount
of advertising on good X. If advertising on good X increases by $10,000, then the demand for
X will
a) decrease by $20,000.
b) decrease by $100,000.
c) increase by $100,000.
d) increase by $20,000.
If firms expect prices to be higher in the future and the product is not perishable, then
a) the current supply curve shifts to the left.
b) the current supply curve shifts to the right.
c) producers produce more output to hold back for the future.
d) none of the statements associated with this question are correct.

When an effective price ceiling is in place

a) every consumer is better off.
b) every consumer is worse off.
c) some consumers are better off and others are worse off.
d) on average the net change in consumer surplus is zero.

Which of the following is probably not a normal good?

a) Designer jeans.
b) Diamond rings.
c) Intercity passenger bus travel.
d) New automobiles.

Given a linear demand function of the form QXd = 100 - 0.5PX, find the inverse linear demand
function.
a) PX = 200 - 2QX.
b) PX = 100 - 0.5QX.
c) PX = 100 - 2QX.
d) PX = 100QX - 0.5PX.

Consider a market characterized by the following inverse demand and supply functions: PX =
10 - 2QX and PX = 2 + 2QX. Compute the equilibrium price and quantity in this market.
a) $24 and 24 units, respectively.
b) $4 and 4 units, respectively.
c) $2 and 6 units, respectively.
d) $6 and 2 units, respectively.

Suppose supply decreases and demand increases. What effect will this have on the quantity?
a) It will fall.
b) It will rise.
c) It may rise or fall.
d) It will remain the same.

In a competitive market, the market demand is Qd = 400 - 5P and the market supply is Qs =
10P - 80. A price ceiling of $32 will result in
a) a shortage of 80 units.
b) a shortage of 44 units.
c) a surplus of 26 units.
d) neither a shortage nor a surplus.

The demand curve for product X is given by QX = 50 - 2PX. How much consumer surplus do
consumers receive when PX = $5?
a) $400.
b) $200.
c) $100.
d) $500.