Practice Questions 3
1. In a market economy, who determines the price and quantity demanded of goods and services that are sold?
a. Consumers
b. The Government
c. Producers
d. Both consumers and producers
e. None of the above
2. If a good is "inferior" then a decrease in income will result in:
a. an increase in the demand for the good
b. a decrease in the demand for the good
c. a higher market price
d. a lower market price
e. a lower demand for complementary goods
3. Suppose a decrease in the price of good X leads to more of good Y being sold. Then X and Y are:
a. Substitutes
b. Complements
c. Normal Goods
d. Inferior Goods
e. Unrelated goods
4. The law of demand tells us that when price
a. when price falls, quantity demanded rises
b. when price falls, quantity demanded falls
c. when price rises, quantity demanded rises
d. when price rises, quantity demanded falls
e. both a and d satisfy the law of demand
5. Which of these would not cause a shift in the demand curve for a good or service?
a. A change in the price of a substitute good
b. A change in tastes towards the good
c. An increase in population
d. A decrease in the price of the good
e. A change in expectations regarding prices
6. Consider the following table of demands for Potatoes by Paddy, Sean and Seamus.
| Price, $ |
Paddy |
Sean |
Seamus |
|
0
|
12
|
7
|
2
|
|
1
|
10
|
6
|
2
|
|
2
|
8
|
5
|
2
|
|
3
|
6
|
4
|
2
|
|
4
|
4
|
3
|
2
|
|
5
|
2
|
2
|
2
|
|
6
|
0
|
1
|
2
|
- Use the data above to plot the demand curve for each person individually. Is there something unusual about the shape of Seamus' demand curve?
- Find the market demand curve (horizontally sum the individual demand curves).
- Find the expressions for all the individual and market demand equations over a price range from 0 to 6.
7. Consider the following data regarding the market for pizzas.
|
Price $
|
Qty Dem
|
Qty Sup
|
|
0
|
20
|
5
|
|
1
|
18
|
8
|
|
2
|
16
|
11
|
|
3
|
14
|
14
|
|
4
|
12
|
17
|
|
5
|
10
|
20
|
|
6
|
8
|
23
|
- Given the information above, find the equation for the demand and supply curves.
- Plot the Demand and Supply curves and find the point of intersection graphically.
- Suppose the price is currently $4. Explain in words what you expect to happen to price.
- Suppose the price is currently $2. Explain in words what you expect to happen to price.
- Suppose that the demand and supply equations change to :
Qd = 20 - 4P Qs = 5 + P
What is the new equilibrium?
8. Consider the supply of Pizza. Which of the following wil cause a movement along the supply curve?
a. An increase in the price of cheese
b. A decrease in the price of cheese
c. An increase in the price of pizza
d. An increase in the number of pizza sellers
e. An improvement in pizza making technology
9. Use a diagram to illustrate the difference between the concepts of a change in supply and a change in quantity supplied. Explain whether each of the following will change supply or quantity supplied.
Consider the supply of Pizza. Which of the following wil cause a movement along the supply curve?
a. An increase in the number of sellers
b. A decrease in the price of inputs
c. An improvement in technology
d. A change in the price of the good
e. A change in producer expectations
10. What would happen to the equilibrium price and quantity of bread if the price of wheat goes up, fewer firms decide to produce wheat, it is proven that eating bread makes you live longer and also the price of butter (a complementary good) decreases?
a. Price will increase and the effect on Quantity is ambiguous
b. Price will fall and the effect on Quantity is ambiguous
c. Quantity will increase and the effect on Price is ambiguous
d. Quantity will fall and the effect on Price is ambiguous
e. The overall effect on both Price and Quantity is ambiguous
11. Everybody loves Potato Chips. Illustrate the effects of each of the following changes using a separate qualitative graph for each.
- The income of everybody in the economy increases (assume potato chips are a normal good)
- The price of dip increases
- A potato famine destroys the crop
- The government announces that potato chips cure cancer
- A new fertilizer increases the potato crop and the population of the economy increases
- There is a potato famine and the government announces that potato chips cure cancer