ch-4

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. In a market economy,

a. supply determines demand and demand, in turn, determines prices.
b. demand determines supply and supply, in turn, determines prices.
c. the allocation of scarce resources determines prices and prices, in turn, determine supply
and demand.
d. supply and demand determine prices and prices, in turn, allocate the economy’s scarce
resources.
____ 2. Which of the following statements is correct?
a. Buyers determine supply, and sellers determine demand.
b. Buyers determine demand, and sellers determine supply.
c. Buyers determine both demand and supply.
d. Sellers determine both demand and supply.
____ 3. A group of buyers and sellers of a particular good or service is called a(n)
a. coalition.
b. economy.
c. market.
d. competition.
____ 4. In a competitive market, the quantity of a product produced and the price of the product are determined by
a. a single buyer.
b. a single seller.
c. one buyer and one seller working together.
d. all buyers and all sellers.
____ 5. In competitive markets, buyers
a. are price takers, but sellers are price setters.
b. are price setters, but sellers are price takers.
c. and sellers are price takers.
d. and sellers are price setters.
____ 6. A monopoly is a market with one
a. seller, and that seller is a price taker.
b. seller, and that seller sets the price.
c. buyer, and that buyer is a price taker.
d. buyer, and that buyer sets the price.
____ 7. An increase in quantity demanded
a. results in a movement downward and to the right along a demand curve.
b. results in a movement upward and to the left along a demand curve.
c. shifts the demand curve to the left.
d. shifts the demand curve to the right.
____ 8. An increase in the price of a good will
a. increase demand.
b. decrease demand.
 c. increase quantity demanded.
d. decrease quantity demanded.
____ 9. A decrease in the price of a good will
a. increase demand.
b. decrease demand.
c. increase quantity demanded.
d. decrease quantity demanded.
____ 10. When the price of a good or service changes,
a. the supply curve shifts in the opposite direction.
b. the demand curve shifts in the opposite direction.
c. the demand curve shifts in the same direction.
d. there is a movement along a given demand curve.

Figure 4-1
price

A
P

B
P'

D
Q Q' quantity

____ 11. Refer to Figure 4-1. The movement from point A to point B on the graph shows
a. a decrease in demand.
b. an increase in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.
____ 12. The law of demand states that, other things equal, when the price of a good
a. falls, the demand for the good rises.
b. rises, the quantity demanded of the good rises.
c. rises, the demand for the good falls.
d. falls, the quantity demanded of the good rises.
____ 13. Which of the following is not held constant in a demand schedule?
a. income
b. tastes
c. price
d. expectations
____ 14. The market demand curve
a. is the sum of all individual demand curves.
b. is the demand curve for every product in an industry.
 c. shows the average quantity demanded by individual demanders at each price.
d. is always flatter than an individual demand curve.
____ 15. If buyers today become more willing and able than before to purchase larger quantities of Vanilla Coke at
each price of Vanilla Coke, then
a. we will observe a movement downward and to the right along the demand curve for
Vanilla Coke.
b. we will observe a movement upward and to the left along the demand curve for Vanilla
Coke.
c. the demand curve for Vanilla Coke will shift to the right.
d. the demand curve for Vanilla Coke will shift to the left.
____ 16. When the price of hot dogs changes, the demand curve for hot dogs
a. shifts because the price of hot dogs is measured on the vertical axis of the graph.
b. shifts because the quantity demanded of hot dogs is measured on the horizontal axis of the
graph.
c. does not shift because the price of hot dogs is measured on the vertical axis of the graph.
d. does not shift because the price of hot dogs is measured on the horizontal axis of the
graph.
____ 17. Which of the following changes would not shift the demand curve for a good or service?
a. a change in income
b. a change in the price of the good or service
c. a change in expectations about the future price of the good or service
d. a change in the price of a related good or service
____ 18. Which of the following would not shift the demand curve for mp3 players?
a. a decrease in the price of mp3 players
b. a fad that makes mp3 players more popular among 12-25 year olds
c. an increase in the price of digital music downloads, a complement for mp3 players
d. a decrease in the price of satellite radio, a substitute for mp3 players
____ 19. Each of the following is a determinant of demand except
a. tastes.
b. production technology.
c. expectations.
d. the prices of related goods.
____ 20. You lose your job and, as a result, you buy fewer iTunes music downloads. This shows that you consider
iTunes music downloads to be a(n)
a. luxury good.
b. inferior good.
c. normal good.
d. complementary good.
____ 21. Pizza is a normal good if the demand
a. for pizza rises when income rises.
b. for pizza rises when the price of pizza falls.
c. curve for pizza slopes upward.
d. curve for pizza shifts to the right when the price of burritos rises, assuming pizza and
burritos are substitutes.
____ 22. Suppose that when income rises, the demand curve for doctor’s visits shifts to the right. In this case, we
know doctor’s visits are
a. inferior goods.
b. normal goods.
c. perfectly competitive goods.
d. durable goods.
____ 23. Which of the following would shift the demand curve for gasoline to the right?
a. a decrease in the price of gasoline
b. an increase in consumer income, assuming gasoline is a normal good
c. an increase in the price of cars, a complement for gasoline
d. a decrease in the expected future price of gasoline
____ 24. Soup is an inferior good if the demand
a. for soup falls when the price of a substitute for soup rises.
b. for soup rises when the price of soup falls.
c. curve for soup slopes upward.
d. for soup falls when income rises.
____ 25. Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies
that X and Y are
a. complementary goods.
b. normal goods.
c. inferior goods.
d. substitute goods.
____ 26. Good X and good Y are substitutes. If the price of good Y increases, then the
a. demand for good X will decrease.
b. quantity demanded of good X will decrease.
c. demand for good X will increase.
d. quantity demanded of good X will increase.
____ 27. A likely example of substitute goods for most people would be
a. peanut butter and jelly.
b. tennis balls and tennis rackets.
c. televisions and subscriptions to cable television services.
d. pencils and pens.
____ 28. If muffins and bagels are substitutes, a higher price for bagels would result in a(n)
a. increase in the demand for bagels.
b. decrease in the demand for bagels.
c. increase in the demand for muffins.
d. decrease in the demand for muffins.
____ 29. A movement along the supply curve might be caused by a change in
a. production technology.
b. input prices.
c. expectations about future prices.
d. the price of the good or service that is being supplied.
____ 30. Which of the following events would cause a movement upward and to the right along the supply curve for
mangos?
a. The number of sellers of mangos increases.
 b. There is an advance in technology that reduces the cost of producing mangos.
c. The price of fertilizer decreases, and fertilizer is an input in the production of mangos.
d. The price of mangos rises.
____ 31. Suppose an increase in the price of rubber coincides with an advance in the technology of tire production. As
a result of these two events, the demand for tires
a. decreases, and the supply of tires increases.
b. is unaffected, and the supply of tires decreases.
c. is unaffected, and the supply of tires increases.
d. None of the above is necessarily correct.
____ 32. A improvement in production technology will shift the
a. supply curve to the right.
b. supply curve to the left.
c. demand curve to the right.
d. demand curve to the left.
____ 33. If suppliers expect the price of their product to fall in the future, then they will
a. decrease supply now.
b. increase supply now.
c. decrease supply in the future but not now.
d. increase supply in the future but not now.
____ 34. If sellers expect higher basket prices in the near future, the current
a. supply of baskets will increase.
b. supply of baskets will decrease.
c. supply of baskets will be unaffected.
d. demand for baskets will decrease.
____ 35. Today's supply curve for gasoline could shift in response to a change in
a. today's price of gasoline.
b. the expected future price of gasoline.
c. the number of buyers of gasoline.
d. All of the above are correct.
____ 36. The unique point at which the supply and demand curves intersect is called
a. market harmony.
b. coincidence.
c. equivalence.
d. equilibrium.
____ 37. At the equilibrium price, the quantity of the good that buyers are willing and able to buy
a. is greater than the quantity that sellers are willing and able to sell.
b. exactly equals the quantity that sellers are willing and able to sell.
c. is less than the quantity that sellers are willing and able to sell.
d. Either a) or c) could be correct.
____ 38. If the demand for a product increases, then we would expect equilibrium price
a. to increase and equilibrium quantity to decrease.
b. to decrease and equilibrium quantity to increase.
c. and equilibrium quantity both to increase.
d. and equilibrium quantity both to decrease.
____ 39. If the supply of a product increases, then we would expect equilibrium price
a. to increase and equilibrium quantity to decrease.
b. to decrease and equilibrium quantity to increase.
c. and equilibrium quantity to both increase.
d. and equilibrium quantity to both decrease.
____ 40. When the price of a good is higher than the equilibrium price,
a. a shortage will exist.
b. buyers desire to purchase more than is produced.
c. sellers desire to produce and sell more than buyers wish to purchase.
d. quantity demanded exceeds quantity supplied.

Table 4-7
Price Quantity Quantity
Demanded Supplied
$10 10 60
$8 20 45
$6 30 30
$4 40 15
$2 50 0

____ 41. Refer to Table 4-7. The equilibrium price and quantity, respectively, are
a. $2 and 50 units.
b. $6 and 30 units.
c. $6 and 60 units.
d. $12 and 30 units.
____ 42. Refer to Table 4-7. If the price were $8, a
a. shortage of 20 units would exist, and price would tend to rise.
b. surplus of 25 units would exist, and price would tend to fall.
c. shortage of 25 units would exist, and price would tend to rise.
d. surplus of 45 units would exist, and price would tend to fall.
____ 43. Refer to Table 4-7. If the price were $4, a
a. surplus of 15 units would exist, and price would tend to fall.
b. shortage of 25 units would exist, and price would tend to rise.
c. surplus of 25 units would exist, and price would tend to fall.
d. shortage of 40 units would exist, and price would tend to rise.

Figure 4-14
 Price
S
10

1
D

1 2 3 4 5 6 7 8 9 10 Quantity

____ 44. Refer to Figure 4-14. At a price of

a. $2, there is a surplus of 6 units.
b. $5, there is a surplus of 25 units.
c. $5, there is a shortage of $25.
d. $7, there is a surplus of 4 units.
____ 45. Refer to Figure 4-14. At a price of
a. $2, there is a shortage of 6 units.
b. $5, there is a surplus of 25 units.
c. $5, there is a shortage of $25.
d. $7, there is a shortage of 4 units.
____ 46. Refer to Figure 4-14. At a price of
a. $8, there is a surplus of 6 units.
b. $5, there is neither a shortage nor a surplus.
c. $2, there is a shortage of 6 units.
d. All of the above are correct.
____ 47. If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and
quantity of lattés if the price of cappuccinos rises?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.
____ 48. If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and
quantity of lattés if the price of cappuccinos falls?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.
____ 49. If scientists discover that steamed milk, which is used to make lattés, prevents heart attacks, what would
happen to the equilibrium price and quantity of lattés?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
 c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.
____ 50. Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music
compact discs if musicians accept lower royalties, compact disc players become cheaper, more firms start
producing music compact discs, and music lovers experience an increase in income?
a. Price will fall, and the effect on quantity is ambiguous.
b. Price will rise, and the effect on quantity is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
d. Quantity will rise, and the effect on price is ambiguous.
____ 51. Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises,
consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of
pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-
makers increase?
a. Price will rise.
b. Price will fall.
c. Price will stay exactly the same.
d. The price change will be ambiguous.
____ 52. Adam Smith suggested that an invisible had guides market economies. In this analogy, what is the baton that
the invisible hand uses to conduct the economic orchestra?
a. the government
b. prices
c. subsidies
d. the Federal Reserve
ch-4
Answer Section

MULTIPLE CHOICE

1. ANS: D PTS: 1 DIF: 1 REF: 4-0

NAT: Analytic LOC: Supply and demand TOP: Market economies
MSC: Definitional
2. ANS: B PTS: 1 DIF: 1 REF: 4-1
NAT: Analytic LOC: Supply and demand TOP: Demand | Supply
MSC: Definitional
3. ANS: C PTS: 1 DIF: 1 REF: 4-1
NAT: Analytic LOC: Supply and demand TOP: Markets
MSC: Definitional
4. ANS: D PTS: 1 DIF: 2 REF: 4-1
NAT: Analytic LOC: Supply and demand TOP: Competitive markets
MSC: Interpretive
5. ANS: C PTS: 1 DIF: 1 REF: 4-1
NAT: Analytic LOC: Supply and demand TOP: Competitive markets
MSC: Definitional
6. ANS: B PTS: 1 DIF: 1 REF: 4-1
NAT: Analytic LOC: Monopoly TOP: Monopoly MSC: Definitional
7. ANS: A PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Quantity demanded
MSC: Interpretive
8. ANS: D PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Quantity demanded
MSC: Interpretive
9. ANS: C PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Quantity demanded
MSC: Interpretive
10. ANS: D PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Quantity demanded
MSC: Interpretive
11. ANS: D PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Quantity demanded
MSC: Interpretive
12. ANS: D PTS: 1 DIF: 1 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Law of demand
MSC: Definitional
13. ANS: C PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Demand schedule
MSC: Interpretive
14. ANS: A PTS: 1 DIF: 1 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Market demand
MSC: Definitional
15. ANS: C PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Demand curve
 MSC: Applicative
16. ANS: C PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Demand curve | Quantity demanded
MSC: Applicative
17. ANS: B PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Demand curve | Quantity demanded
MSC: Interpretive
18. ANS: A PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Demand curve | Quantity demanded
MSC: Applicative
19. ANS: B PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Determinants of demand
MSC: Interpretive
20. ANS: C PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Normal goods
MSC: Applicative
21. ANS: A PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Normal goods
MSC: Applicative
22. ANS: B PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Normal goods
MSC: Applicative
23. ANS: B PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Normal goods
MSC: Applicative
24. ANS: D PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Inferior goods
MSC: Applicative
25. ANS: D PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Substitutes
MSC: Interpretive
26. ANS: C PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Substitutes
MSC: Interpretive
27. ANS: D PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Substitutes
MSC: Applicative
28. ANS: C PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Substitutes
MSC: Applicative
29. ANS: D PTS: 1 DIF: 2 REF: 4-3
NAT: Analytic LOC: Supply and demand TOP: Quantity supplied
MSC: Interpretive
30. ANS: D PTS: 1 DIF: 2 REF: 4-3
NAT: Analytic LOC: Supply and demand TOP: Supply curve | Quantity supplied
MSC: Applicative
31. ANS: D PTS: 1 DIF: 3 REF: 4-3
NAT: Analytic LOC: Supply and demand TOP: Input prices | Technology
MSC: Analytical
32. ANS: A PTS: 1 DIF: 2 REF: 4-3
NAT: Analytic LOC: Supply and demand TOP: Technology
MSC: Interpretive
33. ANS: B PTS: 1 DIF: 2 REF: 4-3
NAT: Analytic LOC: Supply and demand TOP: Expectations
MSC: Interpretive
34. ANS: B PTS: 1 DIF: 2 REF: 4-3
NAT: Analytic LOC: Supply and demand TOP: Expectations
MSC: Applicative
35. ANS: B PTS: 1 DIF: 2 REF: 4-3
NAT: Analytic LOC: Supply and demand TOP: Expectations
MSC: Applicative
36. ANS: D PTS: 1 DIF: 1 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Equilibrium
MSC: Definitional
37. ANS: B PTS: 1 DIF: 1 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Equilibrium
MSC: Definitional
38. ANS: C PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Equilibrium
MSC: Interpretive
39. ANS: B PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Equilibrium
MSC: Interpretive
40. ANS: C PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Surpluses
MSC: Interpretive
41. ANS: B PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Equilibrium
MSC: Applicative
42. ANS: B PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Surpluses
MSC: Applicative
43. ANS: B PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Shortages
MSC: Applicative
44. ANS: D PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Surpluses
MSC: Applicative
45. ANS: A PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Shortages
MSC: Applicative
46. ANS: D PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Shortages
MSC: Applicative
47. ANS: A PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Equilibrium | Substitutes
MSC: Analytical
48. ANS: B PTS: 1 DIF: 2 REF: 4-4
 NAT: Analytic LOC: Supply and demand TOP: Equilibrium | Substitutes
MSC: Analytical
49. ANS: A PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Equilibrium | Input prices
MSC: Analytical
50. ANS: D PTS: 1 DIF: 3 REF: 4-4
NAT: Analytic LOC: Supply and demand
TOP: Equilibrium | Normal goods | Number of sellers MSC: Analytical
51. ANS: A PTS: 1 DIF: 3 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Equilibrium
MSC: Analytical
52. ANS: B PTS: 1 DIF: 1 REF: 4-5
NAT: Analytic LOC: Supply and demand TOP: Market economies
MSC: Interpretive