Practice Problems #2

Objective 1: Identify the determinants of demand and supply and indicate how each must change for demand and supply to increase or decrease. (Q1-2)

Objective 2: Derive market demand and market supply curves from individual demand and supply schedules. (Q3-4)

Objective 3: Differentiate between a shift of demand curve or supply curve and a movement along a curve, and depict these cases correctly on a graph. (Q5-6)

Objective 4: Provide explanations for the slope of a typical demand curve. (Q7-8)

Objective 5: Distinguish between normal goods and inferior goods, substitute goods and complement goods. (Q9-10)

Questions:

1. Energizer and Duracell's Coppertop batteries are substitutes. The Energizer Bunny cuts supply and increases the price of its batteries. Equilibrium price will______ and quantity exchanged will _______ in the market for Duracell.

1. Rise; rise
2.  Fall; rise
3. Fall; fall
4. Rise; fall

2. As the price of oranges increases, orange growers will:

1. Use more-expensive methods of growing oranges.
2. Use less-expensive methods of growing oranges.
3.  Decrease the supply of oranges.
4. Increase the supply of Oranges.

3. If the firms producing fuzzy dice for cars must obtain a higher price than they did previously to produce the same level of output as before, then we can say that there has been:

a.     An increase in quantity supplied.

b.     An increase in supply.

c.     A decrease in supply.

d.     A decrease in quantity supplied.

4. The market supply curve for wheat depends on each of the following except:

a. The price of wheat-producing land.

b. The price of production alternatives for wheat.

c. The tastes and preferences of wheat consumers.

d. The number of wheat farmers in the market.

5. A "change in demand" means

1. The quantity demanded changes as price changes.
2. A movement along a given demand curve or schedule.
3. A shift in the position of the demand curve.
4. A change in the shape of a demand curve.

6. Which of the following will cause a decrease in the demand for tennis racquets?

1. A rise in the price of squash racquets.
2. A rise in the price of tennis racquets.
3. A rise in the price of tennis balls.
4. A fall in the price of tennis shoes.

7. The demand curve has:

a. "Price" on the vertical axis, "quantity demanded per time period" on the horizontal axis, and an upward sloping demand curve.

b. "Price" on the horizontal axis, "quantity demanded per time period" on the vertical axis, and an upward sloping demand curve.

c. "Price" on the vertical axis, "quantity demanded per time period" on the horizontal axis, and a downward sloping demand curve.

d. "Price" on the horizontal axis, "quantity demanded per time period" on the vertical axis, and a downward sloping demand curve.

8. We are trying to explain the law of demand. When the price of pretzels rises,

1. The opportunity cost of consuming pretzels increases along the demand curve.
2. Sellers switch production and increase the quantity supplied of pretzels.
3. Income rises for producers of pretzels.
4. The opportunity cost of other goods increases.

9. If the economy's income rises by 10% then, ceteris paribus, we would predict:

1. A decrease in demand for a normal good.
2. An increase in quantity demanded for a normal good.
3. An increase in quantity demanded for an inferior good.
4. A decrease in demand for an inferior good.

10. Good A and Good B are substitutes for one another. An increase in the price of A will:

1. Increase the demand for B
2. Reduce the quantity demanded of B
3. Increase the quantity demanded of B
4. Reduce the demand for B.