POST TEST WEEK 3

1. The law of demand states that:

price and quantity demanded are inversely related

2. An increase in the price of a product will reduce the amount of it purchased because
Consumers will substitute other products for the one whose price has risen

3. When the price of a product rises, consumers shift their purchases to other products whose
prices are now relatively lower. This statement describes:
the substitution effect

4. When the price of a product falls, the purchasing power of our money income rises and
permits consumers to purchase more of the product. This statement describes:
Income effect

5. Which of the following would not shift the demand curve for beef?
A reduction in the price of cattle feed

6. A surplus of a product will arise when price is:

above equilibrium with the result that quantity supplied exceeds quantity demanded.

7. Which of the following statements is correct?

If supply increases and demand decreases, equilibrium price will fall.

8. If two good are complements:

a decrease in the price of one will increase the demand for the other.

9. A normal good is one:

The consumption of which varies directly with incomes

10. When the price of a product increases, a consumer is able to buy less of it with a given
money income. This describes the:
income effect.

11. An increase in consumer incomes will:

Increase the demand for a normal good

12. By an increase in demand we mean that:

the quantity demanded at each price in a set of prices is greater

13. An improvement in production technology will:

shift the supply curve to the right.

14. The location of the product supply curve of a product depends on:
All of the above

15. One reason that the quantity of a good demanded increases when its price falls is that the:
lower price increases the real incomes of buyers, enabling them to buy more

16. A firm's supply curve is upsloping because:

beyond some point the production costs of additional units of output will rise

17. Which of the following statements is correct?

An increase in the price of C will decrease the demand for complementary product D
18. A shift to the right in the demand curve for product A can be most reasonably explained by
saying that:
consumer preferences have changed in favor of A so that they now want to buy more at each
possible price

19. In 2003 the price of oil increased, which in turn caused the price of natural gas to rise. This
can best be explained by saying that oil and natural gas are:
substitute goods and the higher price for oil increased the demand for natural gas

20. A rightward shift in the demand curve for product C might be caused by:
A decrease in the price of a product that is complementary to C

21. Which of the following will cause the demand curve for product A to shift to the left?
an increase in money income if A is an inferior good.

22. Other things equal, which of the following might shift the demand curve for gasoline to the
left?
the development of a low-cost electric automobile

23. A leftward shift of a product supply curve might be caused by:

some firms leaving an industry

24. In moving along a stable supply curve which of the following is not held constant?
the price of the product for which the supply curve is relevant

25. A government subsidy to the producers of a product:

increases product supply

26. If a product is in surplus supply, its price:

Is above the equilibrium level

27. In which of the following instances will effect on equilibrium price be dependent on the
magnitude of the shifts in supply and demand?
demand rises and supply rises.

28. If demand increases and supply simultaneously decreases, equilibrium price will rise
True

29. An increase in demand accompanied by an increase in supply will increase the equilibrium
quantity but the effect on equilibrium price will be indeterminate
True

30. A government subsidy per unit of output increases supply

True

31. Consumers buy more of normal goods as their incomes rise

True

32. An increase in demand with no change in supply will increase equilibrium price and reduce
equilibrium quantity.
False

33. Equal decreases in demand and supply will leave equilibrium price unchanged and reduce
equilibrium quantity
True
34. When both the demand for a good increases and the supply of the good increases, the
equilibrium quantity definitely increases.
True

35. An increase in the incomes of baseball fans in New York leads to a rightward movement
along the demand curve but does not shift the demand curve for Yankees tickets.
False

36. If house purchases and renting an apartment are substitutes, then an increase in the price
of a new house results in a rise in the rent charged for apartments
True

37. If the demand and supply curves are described by the following equations P = a – bQ and P
= c + dQ, respectively, the equilibrium quantity is Q*=(a-c)/(b+d).
True

38. Surpluses drive market prices up; shortages drive them down.
False

39. If market demand increases and market supply decreases, the change in equilibrium price is
unpredictable without first knowing the exact magnitudes of the demand and the supply
changes
False

40. For consumers, chocolate chip cookies and doughnuts are substitutes. So, an increase in
the price of chocolate chip cookies will lead to a rightward shift in the demand curve for
doughnts.
True

41. A supply curve is also a maximum-supply-price curve.

False