Ch.3 Demand & Supply Test Questions & Answers Stock

Chapter 3: Demand & Supply

Learning Objective Guide

LO-1: Describe the relationship between price and quantity demanded

LO-2: Describe the relationship between price and quantity supplied

LO-3: Diagram demand and supply relationships and identify market equilibrium

LO-4: Describe factors that shift demand and supply

LO-5: Illustrate how changes in demand or supply affect market equilibrium

1. A market
   1. describes the decision making process of suppliers only
   2. describes the decision making process of consumers only
   3. brings together the interactions of consumers and suppliers
   4. brings together the interactions of businesses and the government

Learning Objective: LO-1

Level: Easy

1. Demand shows the relationship between
   1. price and transaction costs
   2. quantity consumed and income
   3. price and the quantity of the good that buyers are willing and able to buy at that price, ceteris paribus
   4. tastes and preferences and quantity demanded

Learning Objective: LO-1

Level: Easy

1. This represents the buyers' side of the market and describes the relationship between the price of a good and the quantity of the good that buyers are willing and able to buy at that price.
   1. Supply
   2. Quantity Supplied
   3. Quantity Demanded
   4. Demand

Learning Objective: LO-1

Level: Easy

1. The inverse relationship between price and quantity demanded is
   1. The Law of Diminishing Returns
   2. The Income Effect
   3. The Law of Demand
   4. The Substitution Effect

Learning Objective: LO-1

Level: Easy

1. Of the following which does not contribute to the inverse relationship between price and quantity demanded?
   1. The scale effect
   2. The income effect
   3. The substitution effect
   4. The Law of Diminishing Marginal Utility

Learning Objective: LO-1

Level: Easy

1. The demand curve illustrates the relationship between
   1. income and cost of the good
   2. quantity demanded and consumer preferences
   3. price and quantity demanded
   4. production costs and size of the market

Learning Objective: LO-1

Level: Easy

1. Changes in the price of a good resulting in a change in quantity demanded is known as
   1. The scale effect
   2. The income effect
   3. The substitution Effect
   4. The Law of Diminishing Marginal Utility

Learning Objective: LO-1

Level: Easy

1. A movement along an existing demand curve caused by a change in price is known as
   1. A change in Demand
   2. A change in Quantity Demanded
   3. A change in the scale effect
   4. A change in total utility

Learning Objective: LO-1

Level: Easy

1. Which of the following would not result in a change in Demand?
   1. An increase in the number of consumers
   2. A decrease in income
   3. An increase in price
   4. A change in consumer expectations

Learning Objective: LO-4

Level: Easy

1. If the demand for memory cards increases when the price of digital cameras decreases, memory cards and digital cameras are
   1. Inferior goods
   2. Complementary goods
   3. Substitute goods
   4. Normal goods

Learning Objective: LO-4

Level: Easy

1. Supply is
   1. The relationship between the price of a good and the quantity supplied, ceteris paribus.
   2. The amount of a good that sellers are willing and able to sell at a given price and time, ceteris paribus.
   3. The relationship between profit and the quantity supplied, ceteris paribus.
   4. The quantity of a good available to a market at a given period of time.

Learning Objective: LO-2

Level: Easy

1. The Law of Supply
   1. States there is a positive relationship between price and quantity supplied
   2. States there is a negative relationship between price and quantity supplied
   3. States there is a positive relationship between consumer income and supply
   4. States there is a negative relationship between consumer income and supply

Learning Objective: LO-2

Level: Easy

1. Ceteris paribus, the Law of Supply states that
   1. When the price of a good decreases, a firm’s costs of production increases
   2. When the price of a good decreases, firms are able and willing to produce less of the good
   3. When the price of a good increases, supply increases
   4. When the price of a good decreases, supply decreases

Learning Objective: LO-2

Level: Easy

1. Factors that explain the Law of Supply include all of the following except
   1. The scale effect
   2. The substitution effect
   3. The Law of Increasing Marginal Costs
   4. The Law of Diminishing Marginal Utility

Learning Objective: LO-2

Level: Easy

1. This occurs when producers increase production and their quantity supplied of a good because a price increase generates increased incentives
   1. Scale effect
   2. Producer substitution effect
   3. Income effect
   4. Law of Increasing Marginal Costs

Learning Objective: LO-2

Level: Easy

1. Which of the following reflects a decrease in supply?
   1. A decrease in price
   2. A decrease in the cost of production for a good
   3. An increase in price
   4. An increase in the cost of production for a good

Learning Objective: LO-4

Level: Easy

1. Which of the following is a correct statement about an increase in supply?
   1. Quantity supplied at each price increases
   2. The supply curve shifts to the left, or inward
   3. Quantity supplied at each price decreases
   4. The position on an existing supply curve shifts to the right

Learning Objective: LO-4

Level: Easy

1. Market equilibrium occurs when
   1. Demand equals supply
   2. Quantity demanded equals quantity supplied
   3. The consumer expectations matches producer’s expectations
   4. Efficiency and equal distribution is achieved

Learning Objective: LO-3

Level: Easy

1. If a surplus exists in a market, then
   1. Price is above market equilibrium and quantity demanded is less than quantity supplied
   2. Price is below market equilibrium and quantity demanded is less than quantity supplied
   3. Price is above market equilibrium and quantity demanded is greater than quantity supplied
   4. Price is below market equilibrium and quantity demanded is greater than quantity supplied

Learning Objective: LO-3

Level: Easy

1. When price falls below market equilibrium
   1. A surplus occurs
   2. A shortage occurs
   3. There will be an increase in quantity supplied
   4. There will be a leftward shift of the supply curve

Learning Objective: LO-3

Level: Easy

1. Which of the following BEST explains the shortage of parking spaces at your college?
   1. Demand is greater than supply
   2. Supply is greater than demand
   3. Quantity of parking spaces demanded is greater than the quantity of parking spaces provided
   4. Quantity of parking spaces demanded is less than the quantity of parking spaces provided

Learning Objective: LO-3

Level: Easy

1. Which of the following best describes the concept of demand?
   1. The relationship between the price of a good and the quantity of the good that buyers are willing and able to buy at that price, ceteris paribus.
   2. The amount of a good that buyers are willing and able to buy at a given price, ceteris paribus.
   3. The tracking of changes in price and quantity supplied of a good
   4. The ability of consumers to shift the demand curve

Learning Objective: LO-1

Level: Medium

1. Due to the increase price of gasoline, consumers are increasingly more interested in fuel efficient vehicles. Because of this, economist can expect
2. The demand curve for fuel efficient vehicles to shift to the right.
3. The demand curve for fuel efficient vehicles to shift to the left.
4. The demand curve for large, gas-consuming SUV’s to shift to the right.
5. The demand curve for large, gas-consuming SUV’s to shift to the left.
6. “a” and “c” are both correct
7. “a” and “d” are both correct

Learning Objective: LO-4

Level: Medium

Reference: Consider the following graphs for number 24 and 25

1. Refer to the above graphs. Which of the following is represented by Graph B?
2. An increase in consumer income for a normal good.
3. An increase in income for an inferior good.
4. A decrease in price
5. An increase in price

Learning Objective: LO-1

Level: Medium

1. Which of the following is represented by Graph A?
2. An increase in quantity demanded
3. A decrease in quantity demanded
4. An increase in demand
5. A decrease in demand

Learning Objective: LO-1

Level: Medium

1. According to the Law of Supply, an increase in the price of laptops results in
2. An increase in the supply of laptops
3. An increase in the quantity of laptops supplied to the market
4. A decrease in the supply of laptops
5. A decrease in the quantity of laptops supplied to the market

Learning Objective: LO-2

Level: Medium

Reference: Use the following graphs for questions 27 and 28.

1. Which of the following best reflects Graph A
2. An increase in the costs of production
3. An increase in the relative price of another good
4. A decrease in quantity supplied
5. A decrease supply
6. A government subsidy to produce the good

Learning Objective: LO-2

Level: Medium

1. Which of the following would best reflect Graph B?
2. An decrease in the costs of production
3. A decrease in the price of an alternative good that could be produced by the firm.
4. A decrease in the price of the good
5. A decrease in the number of sellers in the market

Learning Objective: LO-4

Level: Medium

1. Which of the following would NOT increase the supply of laptops?
2. An increase in the number of suppliers of laptops
3. A decrease in the cost of production of laptops
4. A decrease in the price of laptops
5. A technological advancement in the production of laptops that allows for more efficient use of resources.

Learning Objective: LO-4

Level: Medium

1. Because of the increased importance of ethanol production as a source of gasoline, the price of corn has increased causing farmers to increase their acreage of corn away from other possible crops. This is known as
2. Income effect
3. The Law of Increasing Marginal Costs
4. Change in quantity supplied
5. The producer substitution effect

Learning Objective: LO-4

Level: Medium

1. Which of the following would cause a decrease in the quantity supplied of a good
2. An increase in the costs of production
3. An increase in the relative price of another good
4. A decrease in the price of the good
5. A government subsidy to produce the good

Learning Objective: LO-4

Level: Medium

1. The market equilibrium price for widgets is $18. The current price for a widget is $25. In the market for widgets there is
2. Surplus causing the price to fall and quantity demanded to decrease
3. Shortage causing the price to fall and quantity demanded to decrease
4. Surplus causing the price to fall and quantity demanded to increase
5. Shortage causing the price to fall and quantity demanded to increases

Learning Objective: LO-3

Level: Medium

1. Explain what occurs in a market when there is a surplus.

Learning Objective: LO-3

Level: Medium

Reference: Use the following schedule of data for numbers 34 and 35

1. Using the above data the equilibrium price and quantity is
   1. $25; 45
   2. $24; 30
   3. $22; 35
   4. $18: 45

Learning Objective: LO-3

Level: Difficult

1. Using the above data, if the price of a widget is $20, then a ___________________ of widgets exists and the quantity of widgets demanded _____ the quantity of widgets supplied.
2. Shortage; is greater than
3. Shortage; is less than
4. Surplus; is greater than
5. Shortage; is less than

Learning Objective: LO-3

Level: Difficult

1. Goods A and B are considered complement goods. If the price of A increases what are the effects on equilibrium price and quantity of Good B?
2. Equilibrium price increases, equilibrium quantity increases
3. Equilibrium price decreases, equilibrium quantity decreases
4. Equilibrium price increases, equilibrium quantity decreases
5. Equilibrium price decreases, equilibrium quantity increases

Learning Objective: LO-5

Level: Difficult

Reference: For questions 37 and 38 identify how the described changes will affect equilibrium price and equilibrium quantity

1. Widgets and Wadgets are considered substitute goods in the market for accessories. The price of Widgets falls at the same time there is an increase of suppliers of Wadgets.
2. Increase in equilibrium price; increase in equilibrium quantity
3. Decrease in equilibrium price; decrease in equilibrium quantity
4. Equilibrium price is indeterminate; increase in equilibrium quantity
5. Increase in equilibrium price; equilibrium quantity is indeterminate

Learning Objective: LO-5

Level: Difficult

1. There is an increase in the preference for a good that coincides with an increase in the wages for labor to produce the good.
2. Increase in equilibrium price; increase in equilibrium quantity
3. Decrease in equilibrium price; decrease in equilibrium quantity
4. Equilibrium price is indeterminate; increase in equilibrium quantity
5. Increase in equilibrium price; equilibrium quantity is indeterminate

Learning Objective: LO-5

Level: Difficult

1. Calculate the equilibrium quantity and price when the demand and supply for a good are given by the following equations.

Learning Objective: LO-3

Level: Difficult

1. Explain in terms of demand and supply why stores in locations that also house a college or university stock large quantities of macaroni and cheese and Ramen noodles.

Learning Objective: LO-5

Level: Difficult