Faculty of Economics & Political Science Introduction to Macroeconomics

Cairo University Dr Iman ElShair

Fall Semester 2024/2025 TA: Noha Magdy

Sheet 3
Chapter 3: Basic Elements of Supply & Demand

Question One: MCQ:

1. As the price of airline tickets increases, the:
a. demand for airline tickets increases.
b. supply of airline tickets decreases.
c. quantity of tickets demanded decreases.
d. quantity of tickets supplied decreases.

Use Figure 1 to answer questions 3 through 6.

Figure 1

2. A patient must purchase some exact quantity of a particular drug (no less, no more) and will pay any
price in order to obtain it. Which of the diagrams best illustrates this demand curve?
a. (a)
b. (b)
c. (c)
d. (d)

3. The government declares that it is prepared to purchase any and all gold supplied to it by domestic
gold mines at a price of $410 an ounce. Which of the diagrams best illustrates this demand curve?
a. (a)
b. (b)
c. (c)
d. (d)

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4. An increase in consumers’ money incomes prompts them to demand a greater quantity of good X at
any price. Which of the diagrams best illustrates this demand curve?
a. (a)
b. (b)
c. (c)
d. (d)

5. I can buy any amount of sugar in my local supermarket at a fixed price of 40 cents per pound. No
matter how much I buy, I always pay the same price per pound. Which of the diagrams best illustrates
this supply curve?
a. (a)
b. (b)
c. (c)
d. (d)

6. Suppose that the demand curve for commodity X shifts to the left. One reasonable explanation for
this shift would be:
a. the supply of X has decreased for some reason.
b. the price of X has increased, so people have decided to buy less of it than they did before.
c. consumer tastes have shifted in favor of this commodity, and they want to buy more of it than
they did before at any given price.
d. the price of X has fallen, so people have decided to buy more of it than they did before.
e. none of these events.

7. When applied to the demand for commodity X the phrase “other things equal,” or “other things
constant,” means that:
a. the price of X is held constant.
b. both buyer incomes and the price of X are held constant.
c. buyer incomes, tastes, and the price of X are held constant.
d. all factors that might influence the demand for X including the price of X are held constant.
e. none of the above.

8. If HP and Dell computers are substitutes, a decrease in the price of HP computers will cause:
a. a decrease in the demand for Dell computers.
b. an increase in the demand for HP computers.
c. an increase in the supply of HP computers.
d. an increase in the supply of Dell computers.

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9. An increase in the cost of materials needed to produce snow skis causes the following change in the
snow ski market:
a. the demand curve shifts to the right.
b. the supply curve shifts to the left.
c. both the demand and supply curves shift to the left.
d. neither curve shifts.

10. Consider the producer who makes leather wallets and leather purses. An increase in the price of
leather wallets would cause:
a. a decrease in the supply of leather purses.
b. movement along the supply curve for purses.
c. a shift in the demand curve for leather wallets.
d. the supply curve for leather wallets and the supply curve for purses to shift to the left.

11. An increase in the supply of commodity X for any given price of X could be caused by:
a. an increase in price of X
b. an increase in the prices of factors of production important to this commodity.
c. a decrease in the prices of factors of production important to this commodity.
d. none of the above.

12. In prosperous times, both the equilibrium price and the quantity of some commodity X may go up
simultaneously. Such a situation:
a. is one of the few recognized exceptions to the law of downward-sloping demand.
b. is precisely what the law of downward-sloping demand says is to be expected.
c. is the consequence of a demand curve running from southwest to northeast.
d. cannot be explained by means of ordinary supply-curve and demand-curve analysis.
e. is caused by a rightward-shifting demand curve and a stable supply curve.

13. Beef supplies are sharply reduced because of drought in the beef-raising states, and consumers turn to
chicken as a substitute for beef because they believe there are health benefits. In the beef market,
these two phenomena would be described in terms of supply and demand as:
a. a leftward shift in the demand curve.
b. a leftward shift in the supply curve.
c. a rightward shift in the demand curve.
d. a rightward shift in the supply curve.
e. both the supply curve and the demand curve will shift to the left.

14. Which alternative in question 13 would be correct with respect to the events described had that
question asked about the chicken market?
a. a leftward shift in the demand curve.
b. a leftward shift in the supply curve.
c. a rightward shift in the demand curve.
d. a rightward shift in the supply curve.
e. both the supply curve and the demand curve will shift to the left.

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15. Let the initial price of a good be $5. If buyers wish to purchase 4000 units per week at that price
while sellers wish to sell 5000 units per week, then:
a. price will tend to increase in the future.
b. firm output will tend to increase in the future.
c. price and output will tend to remain the same in the future.
d. price will tend to decrease in the future.
e. something is wrong—this could not happen.

Figure 2 shows conditions in the market for home heating oil last year. The initial equilibrium position in
the market is shown by price Pl and quantity Ql. Please use the diagram to answer questions 17 and 18.

Figure 2
16. This winter has been unusually cold and snowy in the northeast, with a record number of snowstorms.
The new equilibrium in the market for home heating oil is best represented by point:
a. A.
b. B.
c. C.
d. D.

17. At the old equilibrium price, there now exists a(n):

a. shortage.
b. surplus.
c. equilibrium.
d. excess supply.

18. Nike sneakers are rather popular among young adults. This trend has had a big impact on the market
for NB sneakers, a substitute for Nike. In NB market, we would expect the equilibrium:
a. price of NB to fall and the equilibrium quantity exchanged to increase.
b. price and quantity of NB exchanged to increase.
c. price and quantity of NB exchanged to decrease.
d. price of NB to increase and the equilibrium quantity exchanged to decrease.

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19. Suppose imported and domestic cars are substitutes. If the price of imported cars rises, the
equilibrium price of domestic cars will ______ and the equilibrium quantity produced will ______.
a. fall; fall
b. fall; rise
c. rise; fall
d. rise; rise
e. rise; change in an ambiguous manner

20. A demand curve for cars shows:

a. how people’s spending patterns change as their income changes.
b. that people spend more money on cars as the price of cars increases.
c. the quantity of cars that would be purchased per unit of time at each alternative price, holding
other factors influencing demand fixed.
d. that firms are willing to supply more output, per unit of time, as prices increase.

21. The law of downward-sloping demand holds that:

a. a surplus of goods will cause price to fall.
b. people normally buy more of a good as their incomes rise.
c. the quantity of a good that consumers willingly purchase increases as the price of the good falls.
d. the quantity of a good purchased will decrease as it goes out of style or is replaced by something
of better quality.

22. The income and substitution effects account for:

a. the upward sloping supply curve
b. the downward sloping demand curve.
c. movements along a given supply curve.
d. the "other things equal" assumption.

23. The relationship between quantity supplied and price is _____ and the relationship between quantity
demanded and price is _____.
a. direct, inverse
b. inverse, direct
c. inverse, inverse
d. direct, direct

24. Four of the five events described below might reasonably explain why the demand for beef has
shifted to a new position. Which one is not a suitable explanation?
a. The price of some good which consumers regard as a substitute for beef has risen.
b. The price of beef has fallen.
c. Money incomes of beef consumers have increased.
d. A widespread advertising campaign is undertaken by the producers of beef.
e. There is a change in people’s tastes with respect to beef.

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25. Equilibrium in a market indicates:
a. the price at which quantity supplied equals quantity demanded.
b. that every buyer who wants to buy can buy at the equilibrium price, and every seller who wants to
sell can sell at the equilibrium price.
c. there is no tendency for price to change.
d. all of the above.
e. none of the above.

26. The demand for snowboards has increased recently as more people have taken up the sport. This will
cause the supply curve for snowboards to:
a. shift to the left.
b. shift to the right.
c. remain the same.
d. decrease next year.

27. Which of the following will not help to determine the position of the supply curve?
a. Technology
b. Resource costs.
c. Consumer income.
d. Government taxes.

28. If a commodity such as peanuts becomes overstocked, sellers will:

a. raise their prices in order to make up for the fact that sales are lower.
b. raise their prices in order to increase the demand for peanuts.
c. lower their prices hoping to attract more buyers into the marketplace.
d. lower their prices in order to encourage competition from rival firms.
e. grow more peanuts next year to make up for losses this year.

Question Two: True or False:

1. The substitution effect tells us that people will buy more as prices fall because their purchasing power
is increasing.
2. The demand for cars has increased in the past 50 years because the price has fallen.
3. When demand decreases, the price falls, so supply shifts to the left.
4. Over the past few years, the price of compact disc players has fallen, and at the same time firms are
supplying many more compact disc players. The law of supply is invalid in this case.
5. If the wages of autoworkers increase, the supply of automobiles will shift to the left.
6. An improvement in technology will cause the supply curve to shift to the right.
7. Markets for goods are defined by the behavior of suppliers who determine prices and output levels.
8. If the actual price in a market is above the equilibrium price, we would expect to see downward
pressure on output and price.

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Question Three: Problems:
1. Consider the market for Toyotas and Fords sold in the United States. Using demand and supply
analysis, explain what will happen to the equilibrium price and quantity of both cars if the United
States government imposes a tariff (tax) on Toyotas sold in the United States (consumers treat Ford
as a substitute for Toyota).

2. This problem deals with the market for used-cars. Table 1 illustrates price, quantity supplied, and
quantity demanded in the economy.
3.

Table 1
Price ($) Quantity Supplied Quantity Demanded
500 100 400
600 150 300
700 200 200
800 250 100
900 300 0
a. Plot the supply and demand curves in this market.
b. Suppose the prevailing price is $800. Is there a surplus or shortage? By how much?
c. Suppose the prevailing price is $500. Is there a surplus or shortage? By how much?
d. Determine the equilibrium price and output.
e. What are the slopes of the supply and demand curves?
f. At what price would the quantity supplied fall to zero?
g. What is the price axis intercept of the supply curve?

3. The following table focuses on the factors that will shift either the demand curve or the supply curve.
In each case, determine which curve will shift, and write in demand or supply as appropriate; then
write in whether the shift will be to the right or the left. In addition, determine whether equilibrium
price and output will be higher or lower.

Demand Left Price Output

Shift Factor Shifts
or Supply or Right will be will be
Population increases
Input prices go up
Tariffs are removed
Average income falls
Technology improves
Product becomes more desirable/popular
Clothing that has gone out of style
Pollution tax on supplier
Opening of market to foreign buyers
Price of substitute good falls
Market structure requires more advertising

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A 10% income-tax cut
Robot makes production more efficient