Case/Fair Macroeconomics MyPHLIP web site Chapter 3 -- Multiple Choice

Chapter 3: Demand, Supply, and Market Equilibrium
Multiple Choice

Refer to the graph below. Which arrow represents supply in input markets in this simple circular flow of the economy?

The law of demand states that:

When demand for a good increases, beyond some point, the price will necessarily begin to increase.

Goods that are more scarce tend to be more expensive.

When a good or service is less available, people don't consume as much of it; therefore, the price will fall.

There is a negative (or inverse) relationship between the price and the quantity demanded of a good or service.

Refer to the graph below. Which move illustrates the impact of a decrease in market price on market demand, all else the same?

The move from A to B.

The move from A to C.

Both moves show the same result on demand.

None of the above.

A decrease in the preference of consumers for a good or service will result in lower demand for that good or service. This means that:

There is a positive relationship between preferences and demand for the good.

There is a negative relationship between preferences and demand for the good.

There is no relationship between preferences and demand for a good or service.

A negative relationship between preferences and demand exists, but the relationship could be positive some of the time.

Refer to the graph below. Assume that TVs and VCRs are two complement goods and that the diagram below represents the demand for VCRs. Which move would best describe the impact of a decrease in the price of TVs on this diagram?

The move from A to B.

The move from A to C.

Both moves. Demand first moves from A to B, then from B to C.

None of the above. Since this is the demand for VCRs, changes in the price of other goods would have no impact on it.

Factors that quickly and directly affect the market demand for a good or service do not include:

The price of related goods.

The number of sellers.

The number of buyers.

The tastes and preferences of consumers.

Taxes.

Refer to the graphs below. Which one shows the impact of a decrease in income, assuming that the good in question is a normal good?

Both C and D.

In a graph of supply and demand, can you describe more optimistic expectations on the part of business firms in the market?

Yes, by shifting the supply curve to the left.

Yes, by shifting the supply curve to the right.

Yes, by a move from one point to another along the supply curve.

No, optimism is not a determinant of supply or demand.

Refer to the graphs below. In 1973, the Arab oil embargo resulted in a severe shortage of oil in the United States, and long lines at the gas pump. Which of the graphs below would best describe the impact of the oil embargo on gas prices?

None of the above. The model of supply and demand cannot illustrate real-life events.

10.

Refer to the graph below. Only one of the statements below is entirely correct. Which one?

This graph shows a surplus of soybeans, which is the result of an imposed price floor of $1.75.

This graph shows a shortage of soybeans, which is the result of an imposed price floor of $1.75.

This graph shows a surplus of soybeans, which is the result of an imposed price ceiling of $1.75.

This graph shows a shortage of soybeans, which is the result of an imposed price ceiling of $1.75.

At a price of $2.50, the shortage of output is maximized.

11.

A price floor:

Is a price above equilibrium price.

Guarantees consumers a price below equilibrium price in the market.

Results in a shortage of output.

Benefits buyers at the expense of sellers.

All of the above.

12.

Refer to the graph below. Assuming that this is a free market and that the supply and demand lines contain all the information, present and future, about market conditions, which price level is more likely to prevail in this market in the long run?

$3.25, because market prices usually tend to rise over time.

$2.50, because a market has the tendency to always move toward equilibrium.

$1.75, because a free market is usually tougher to compete in, and prices are usually low.

It is impossible, in fact, to predict what the price will be based on the information given.

13.

Refer to the graph below. Start at point A. As an assistant to Alan Greenspan, you are asked to predict the direction of gas prices. This is today's news: An oil shortage, caused mostly by OPEC cutbacks, appears to be being compensated for by a reduced preference for driving. Analysts now attribute the recent fall in oil stocks to this new trend in the driving habits of Americans.

You'll tell Alan Greenspan that the market is headed for point E.

You'll tell Alan Greenspan that the market is headed for point F.

You'll tell Alan Greenspan that the market is headed for point G.

You'll tell Alan Greenspan that the market is headed for point H.

You'll tell Alan Greenspan that the market will remain at point A.

14.

Which of the following situations leads to a lower equilibrium price?

An increase in demand, without a change in supply.

A decrease in supply accompanied by an increase in demand.

A decrease in supply, without a change in demand.

A decrease in demand accompanied by an increase in supply.

An increase in demand accompanied by an increase in supply.

15.

Refer to the graph below. Start at point A. When the magnitude of an increase in supply is greater than the magnitude of an increase in demand:

Equilibrium price will increase, and quantity will increase. The market moves to point B.

Equilibrium price will decrease, and quantity will increase. The market moves to point C.

Equilibrium price will increase, and quantity will increase. The market moves to point D.

Equilibrium price will increase, and quantity will increase. The market moves to point B.

16.

When the magnitude of a decrease in supply is greater than the magnitude of a decrease in demand:

Both equilibrium quantity and price will increase.

Both equilibrium quantity and price will decrease.

Equilibrium quantity will increase, and equilibrium price will decrease.

Equilibrium quantity will decrease, and equilibrium price will increase.

17.

Consider the demand equation Q_d = 100 - 20P. The rate at which quantity demanded changes when price changes equals:

100 units increase in quantity demanded for every $20 decrease in price.

20 units increase in quantity demanded for every $100 decrease in price.

100 units increase or decrease in quantity demanded for every dollar change in price.

20 units decrease in quantity demanded for each dollar increase in price.

100 units increase in quantity demanded for each dollar increase in price.

18.

Only one statement below is correct. The supply equation, Q_s = 10 + 40P, states that producers are willing and able to supply:

Forty more units of output for ten-dollar decrease in price.

Ten units of output for each forty-dollar increase in price.

One more unit of output for each forty-dollar increase in price.

Forty more units of output for each one-dollar increase in price.

No output at all unless price is above forty dollars.

19.

Use the information on the graph below to determine the slopes of the supply and demand lines.

There is insufficient information to determine the slopes of supply and demand.

The slopes of the supply and demand lines are 1.67 and 25.00 respectively.

The supply and demand lines have the same slope value: +0.196.

The slopes of the supply and demand curves are +6 and -4, respectively.

The slopes of the supply and demand lines are +0.166 and -0.25, respectively.

20.

Use the information on the graph below to write the algebraic expression of the supply and demand lines.

Q_d = 25 - 56P and Q_s = 1.67 + 0.166P

Q_d = 100 - 4P and Q_s = �10 + 6P

Q_d = 25 - 0.25P and Q_s = 1.67 + 0.166P

The demand line equals P = 25 - 0.25Q_d, and the supply line equals P = 1.67 + 0.166Q_s.

There is insufficient information on the graph to construct the supply and demand lines from it.