Macroeconomics 10th Edition Colander Test Bank 1

Macroeconomics 10th Edition
Colander Test Bank

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File: Chapter 04 Supply and Demand
True/False
[Question]
1. If cigar prices tripled while sales of cigars rose 30 percent, this would likely be due to a shift
in demand.
Ans: True
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 04-01
Topic: Demand
Feedback: The most likely explanation for the data is that a shift out in demand resulted in both
rising prices and sales.
[Question]
2. According to the law of demand, only the price of a good influences the amount people will
choose to purchase.
Ans: False
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Demand
Feedback: When stating the law of demand, it is necessary to assume other things constant.
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However, this does not imply that other things do not influence demand.
[Question]
3. A demand curve is downward sloping because as the price of a good falls, demanders will
substitute some other good for that good whose price has fallen.
Ans: False
Topic: Demand
Feedback: The law of demand does depend upon individual's ability to substitute, but as the
price of a good falls, demanders will substitute away from some other good toward the good
whose price has fallen.
[Question]
4. A change in the price of carrots will cause a movement along the demand curve for carrots
and a shift in the demand for substitute vegetables.
Ans: True
Topic: Demand
Feedback: This statement correctly illustrates the distinction between a movement along and a
shift in the demand curve.
[Question]
5. Movements down the rows (A to E) in the demand table are represented by movements up
along a demand curve.
Ans: True
Topic: Demand
Feedback: A demand curve can be constructed from a demand table by plotting the quantity
demanded at various prices given in a demand table. Rows A through E show various quantities
demanded as price increases, thus showing a movement up along a demand curve.
[Question]
6. The law of supply states that more of a good will be supplied the lower its price, other things
constant.
Ans: False
Bloom’s: Remember
Difficulty: 01 Easy
Topic: A Limitation of Supply/Demand Analysis
Feedback: The law of supply states that the amount of a good supplied is positively related to a
good's price.
[Question]
7. Suppliers will supply more of a good when the price of that good rises because the
opportunity cost of not producing that good has risen.
Ans: True
Feedback: The law of supply depends upon opportunity cost. Higher prices mean higher profits.
The opportunity cost of not producing that good (for instance, producing another good. has risen
by the amount of the increased expected profits. Suppliers will switch production to capture
those higher profits.
[Question]
8. An increase in the number of firms causes the price firms are able to charge to fall, which
results in a movement along the market supply curve.
Ans: False
Topic: Supply
Feedback: An increase in the number of firms in a market will cause the market supply curve to
shift rightward resulting in a movement along the market demand curve.
[Question]
9. An improvement in the technology for producing a good will shift the supply curve for that
good to the left.
Ans: False
Topic: Supply
Feedback: An improvement in the technology for producing a good will lower the cost of
production. Suppliers would be willing to supply more at every price, so there will be a shift of
the supply curve for that good to the right.
[Question]
10. At a price of $3.50, the quantity supplied by the market will be 14.
Price Ann’s Barry’s Charlie’s Market

Supply Supply Supply Supply
$0.00 0 0 0 0
0.50 1 0 0 1
1.00 2 1 0 3
1.50 3 2 0 5
2.00 4 3 0 7
2.50 5 4 0 __
3.00 6 5 0 __
3.50 7 5 2 __
4.00 8 5 2 __
Ans: True
Feedback: The market supply is constructed by summing the quantities supplied by each
supplier.
[Question]
11. When quantity demanded is greater than quantity supplied, the resulting shortage causes the
price to fall.
Ans: False
Topic: The Interaction of Supply and Demand
Feedback: A shortage causes the price to rise.
[Question]
12. An increase in demand causes equilibrium price and quantity to rise, other things constant.
Ans: True
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: When the demand curve shifts to the right, supply and demand intersect at a higher
price and quantity.
Multiple Choice
[Question]
13. The law of demand states that the quantity demanded of a good is inversely related to the
price of that good. Therefore, as the price of a good goes:
A. up, the quantity demanded also goes up.
B. up, the quantity demanded goes down.
C. down, the quantity demanded goes down.
D. down, the quantity demanded stays the same.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Demand
Feedback: The law of demand states that more of a good will be demanded the lower its price,
other things constant, and less of a good will be demanded the higher its price, other things
constant.
[Question]
14. The law of demand states that consumers buy more of a good when its price declines:
A. because their income increases at the same time.
B. only if their income increases at the same time.
C. even if other demand determinants change at the same time.
D. provided all else remains constant.
Ans: D
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Demand
Feedback: The law of demand states that more of a good will be demanded the lower its price,
other things constant, and less of a good will be demanded the higher its price, other things
constant.
[Question]
15. According to the law of demand, an increase in the price of baseball trading cards causes:
A. people to buy fewer trading cards.
B. people to buy more trading cards.
C. the scarcity of baseball trading cards to increase.
D. baseball trading cards to grow in abundance.
Ans: A
Topic: Demand
Feedback: The law of demand is the inverse relationship between price and quantity demanded,
as illustrated by the correct response.
[Question]
16. Which of the following situations best demonstrates the law of demand?
A. Movie-goers react to an increase in the price of a theater ticket by seeing fewer movies per
year.
B. Movie-goers see fewer movies per year due to an overall decrease in the quality of newly
released motion pictures.
C. A drought causes a decrease in the availability of pumpkins, resulting in fewer jack-o-
lanterns displayed on Halloween.
D. An increase in the number of people writing Economics textbooks results in a decrease in
average textbook prices.
Ans: A
Topic: Demand
Feedback: The correct answer focuses on the relationship between price and quantity demanded
so it is the best demonstration of the law of demand.
Topic:
[Question]
17. Refer to the graphs shown. The curve that best demonstrates the law of demand is:
A. I.
B. II.
C. III.
D. IV.
Ans: D
Topic: Demand
Feedback: The law of demand states that price and quantity demanded are inversely related. An
inverse relationship is shown graphically by a curve with a negative slope (downward sloping).
[Question]
18. Refer to the graphs shown. If the quantity demanded by consumers is the same for every
price, then the demand curve would look like:
A. I.
B. II.
C. III.
D. IV.
Ans: B
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Topic: Demand
Feedback: This describes a vertical or perfectly inelastic demand curve.
[Question]
19. Suppose that college tuition is higher this year than last year and that more students are
enrolled in college this year than last year. Based on this information, we can best conclude that:
A. the law of demand is invalid.
B. despite the increase in price, quantity demanded rose due to some other factor changing.
C. this situation has nothing to do with the law of demand.
D. the demand for a college education is positively sloped.
Ans: B
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Topic: Demand
Feedback: Some factor such as an increase in income could have caused the demand to increase,
resulting in a higher equilibrium price and quantity.
[Question]
20. The explanation for the law of demand involves:
A. suppliers' ability to substitute inputs.
B. consumers' ability to substitute different goods.
C. the government's ability to set prices.
D. the market's ability to equate supply and demand.
Ans: B
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Topic: Demand
Feedback: The explanation for the law of demand, as stated in the text, involves demanders'
ability to substitute some other good for the good whose price has risen.
[Question]
21. If the price of movies on DVD rises while the price of movies purchased on demand through
the Internet remains the same, the law of demand predicts that consumers will:
A. substitute movies on DVD for movies on the Internet.
B. substitute movies on the Internet for movies on DVD.
C. buy only movies on DVD.
D. buy only movies on the Internet.
Ans: B
Topic: Demand
Feedback: The law of demand is based on the principle that consumers will substitute away
from products that have become relatively more expensive; this does not mean that they will
necessarily stop buying more expensive products.
[Question]
22. If the price of chicken rises and the price of beef does not rise, consumers will respond by:
A. substituting beef for chicken.
B. substituting chicken for beef.
C. reducing purchases of beef and chicken.
D. increasing purchases of beef and chicken.
Ans: A
Topic: Demand
Feedback: If the price of chicken has risen but the price of beef has not, the quantity of chicken
demanded will fall as demanders substitute beef for chicken.
[Question]
23. According to the law of demand an increase in the price of gasoline will:
A. increase the quantity demanded of gasoline, other things constant.
B. decrease the quantity demanded of gasoline, other things constant.
C. increase the demand for gasoline.
D. decrease the demand for gasoline.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Demand
Feedback: The law of demand states that less of a good will be demanded the higher its price,
other things constant.
[Question]
24. The distinction between demand and the quantity demanded is best made by saying that:
A. demand is represented graphically by a curve and quantity demanded is a point on that curve.
B. the quantity demanded is represented graphically by a curve and demand is a point on that
curve.
C. the quantity demanded is in a direct relation with prices, whereas demand is in an inverse
relation.
D. the quantity demanded is in an inverse relation with prices, whereas demand is in a direct
relation.
Ans: A
Topic: Demand
Feedback: Demand refers to a schedule of quantities that will be bought per unit of time at
various prices. It refers to the entire demand curve. Quantity demanded refers to a specific
amount that will be demanded per unit of time at a specific price. It refers to a point on a demand
curve.
[Question]
25. The use of the phrase "other things constant" in supply and demand analysis indicates that:
A. an equilibrium price has been reached.
B. an equilibrium quantity has been reached.
C. we are considering changes in just one factor.
D. we are considering all the changes which might take place in actual markets.
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Demand
Feedback: Other things constant means that all other factors that could affect the analysis remain
constant whether they actually do or not. It does not indicate when equilibrium has been reached.
[Question]
26. Three hurricanes, combined with the already high real-estate prices, have made people
reconsider whether to retire to Florida. The cost of homeownership has increased due to stricter
building codes. The influx of retirees is not expected to change because the baby boom
generation is approaching retirement age and Florida has long attracted many retirees. Which of
the following factors is tending to move the demand curve for Florida housing to the right?
A. The aging of the baby boomers, increasing the number of people who are retiring
B. The increase in the cost of insurance
C. The already high real-estate prices
D. The current high construction costs
Ans: A
Topic: Demand
Feedback: An increase in the number of buyers moves the demand curve right.
[Question]
27. Sometimes price cuts can have an unintended result of consumers waiting for deeper
discounts. What does this waiting suggest about supply and demand?
A. The demand curve slopes the wrong way because price cuts have lead to smaller sales.
B. If buyers are buying less when price falls, the supply curve must have moved left.
C. If buyers are buying less when price falls, the supply curve must have moved right.
D. Price cuts have changed buyers' expectations, and the change in expectations has moved the
demand curve left.
Ans: D
Topic: Demand
Feedback: A shift to the left of the supply curve would be associated with an increase in price
and a shift to the right of the supply curve would be associated with an increase in quantity
purchased. Expectations can play a significant role in markets, often resulting in unanticipated
consequences.
[Question]
28. Tuition and fees for four year colleges in the United States have risen over five percent per
year in the recent past. One cause for the increase in price has been an increase in demand for
college education. In the standard model, what could be a possible explanation for the increase in
the demand for college education?
A. More colleges have been established
B. The cost of two-year colleges has declined over the same period
C. Income in the United States has risen
D. The price of all other goods in the economy has risen 3 percent over the same period
Ans: C
Topic: Demand
Feedback: An increase in income shifts the demand curve to the right. More colleges shift the
supply curve. A decrease in the price of substitutes would have the opposite effect as the one
described. The fact that all other goods has risen by less than the rise in college tuition means
that the price of college tuition has still increased relative to most other goods.
[Question]
29. The growing popularity of a commercial weight-loss diet that includes reducing the amount
of carbohydrates consumed will cause:
A. an increase in the demand for bread.
B. a decrease in the demand for bread.
C. a movement down and to the right along the demand for bread curve.
D. a movement up and to the left along the demand for bread curve.
Ans: B
Topic: Demand
Feedback: Followers of a low-carb diet with little or no bread will decrease the demand for
bread.
[Question]
30. Given that diesel cars get much better gas mileage than the typical car, an increase in the
price of gasoline would be expected to:
A. increase the demand for diesel cars.
B. decrease the demand for gasoline.
C. decrease the demand for diesel cars.
D. increase the demand for gasoline.
Ans: A
Topic: Demand
Feedback: The change in the price of gasoline causes a movement along the demand for
gasoline curve, not a shift. Higher gasoline prices lead to an increase in the demand for diesel
cars as consumers seek to take advantage of better gas mileage.
[Question]
31. The effect of higher gasoline prices is most likely to:
A. increase the demand for hybrid cars and increase the demand for the gas guzzler Hummer.
B. decrease the demand for hybrid cars and decrease the demand for the gas guzzler Hummer.
C. increase the demand for hybrid cars and decrease the demand for the gas guzzler Hummer.
D. decrease the demand for hybrid cars and increase the demand for the gas guzzler Hummer.
Ans: C
Topic: Demand
Feedback: The demand for hybrids likely increases when gas prices rise. Since the short run
supply is inelastic, the increased demand causes these cars to sell for markups over sticker price.
The demand for Hummers, which are gas-guzzlers, will.
[Question]
32. Which of the following would likely result in an increase in the demand for beef?
A. A decrease in the supply of beef
B. An increase in family incomes
C. An increase in the price of feed grains for cattle
D. A decrease in the price of pork
Ans: B
Topic: Demand
Feedback: A decrease in the supply of beef would result in a movement along a demand curve
as the market price of beef rose. An increase in family incomes would increase the demand for
beef. An increase in the price of feed grains would shift the supply curve for beef to the left,
resulting in higher market price for beef and a movement along the demand curve for beef. A
decrease in the price of pork would decrease the demand for beef.
[Question]
33. Which of the following would cause quantity demanded to change without changing the
demand curve?
A. A change in income
B. A change in the price of the good
C. Achange in tastes and preferences
D. Achange in the price of a substitute good
Ans: B
Topic: Demand
Feedback: A change in the sales price of the good results in an increase in quantity of that good
demanded, not a shift in demand.
Topic:
[Question]
34. Refer to the graphs shown. The effect of an increase in price is best shown by which arrow?
A. A
B. B
C. C
D. D
Ans: D
Topic: Demand
Feedback: A change in price causes a movement along the demand curve. When price increases,
the movement is upward and to the left.
[Question]
35. Refer to the graphs shown. If consumers began purchasing more of this product due to a
decrease in price, this would be shown by arrow:
A. A.
B. B.
C. C.
D. D.
Ans: C
Topic: Demand
Feedback: A change in price causes a movement down along the demand curve. When price
falls, the movement is downward and to the right.
[Question]
36. Which of the following is not held constant as you move along the demand curve?
A. The price of that good
B. The price of other goods
C. The incomes of consumers
D. The preferences of consumers for the good
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Demand
Feedback: A movement along a demand curve shows the effect of a change in the price of that
good. Anything else will shift the entire demand curve.
[Question]
37. Refer to the graphs shown. What arrow shows the effect of an increase in the number of
consumers in the market on the demand for CDs?
A. A
B. B
C. C
D. D
Ans: C
Topic: Demand
Feedback: An increase in the number of consumers causes demand to shift to the right.
[Question]
38. Refer to the graphs shown. The effect of an increase in the price of CDs on consumers is
best shown by arrow:
A. A.
B. B.
C. C.
D. D.
Ans: B
Topic: Demand
Feedback: The price of CDs has risen, so there is movement up along a demand curve. Only
arrow B shows the response of quantity demanded resulting from an increase in price.
Topic:
[Question]
39. Refer to the graph shown. The quantity demanded when price is $16.00 per week is:
A. 2 CDs per week.

B. 4 CDs per week.
C. 6 CDs per week.
D. 8 CDs per week.
Ans: A
Topic: Demand
Feedback: The demand curve tells you how much is demanded at each price. To determine the
quantity demanded, find $16.00 on the vertical axis and read across until you meet the demand
curve. Then read the quantity from the horizontal axis.
[Question]
40. Refer to the graph shown. If the price is changed from $12.00 to $4.00, the quantity
demanded increases by:
A. 2 CDs per week.
B. 4 CDs per week.
C. 6 CDs per week.
D. 8 CDs per week.
Ans: B
Topic: Demand
Feedback: The demand curve tells you how much is demanded at each price. To determine the
quantity demanded, find $12.00 on the vertical axis and read across until you meet the demand
curve. Then read the quantity from the horizontal axis. Quantity demanded rises from 4 CDs per
week to 8 CDs per week, an increase of 4 CDs per week.
[Question]
41. Refer to the graph shown. A movement from point E to point D is caused by:
A. an increase in the price of CDs from $12.00 to $16.00.
B. a decrease in the price of CDs from $16.00 to $12.00.
C. an increase in consumer income.
D. an increase in the price of DVDs.
Ans: B
Topic: Demand
Feedback: A movement downward along the demand curve is caused by a decrease in price. A
change in income or a change in the price of a substitute would cause the demand curve to shift.
[Question]
42. Given the graph, the quantity that would be associated with the price of $4 in a demand table
would be:
A. 1.
B. 2.
C. 3.
D. 4.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Demand
Feedback: To find the quantity demanded at a price of $4, extend a horizontal line from $4 to
the demand curve and drop a vertical line down to the quantity axis. It will intersect it at 2. This
is the quantity that will be associated with a price of $4 on a demand table.
[Question]
43. Given the graph, the quantity that would be associated with the price of $1 in a demand table
would be:
A. 6.
B. 5.
C. 4.
D. 3.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Demand
Feedback: To find the quantity demanded at a price of $1, extend a horizontal line from $1 to
the demand curve and drop a vertical line down to the quantity axis. It will intersect it at 5. This
is the quantity that will be associated with a price of $1 on a demand table.
[Question]
44. Consider the following demand table and the graph.
Which of the demand curves best reflects the demand table?

A. A
B. B
C. C
D. D
Ans: C
Topic: Demand
Feedback: To translate a demand table to a demand curve, plot the price, quantity combinations
and connect the points. Graph C correctly reflects the information in the demand table.
Topic:
[Question]
45. Refer to the graphs shown. Assume the graph reflects demand in the egg market. Which
arrow best captures the impact of increased consumer concern about cholesterol on the egg
market?
A. A
B. B
C. C
D. D
Ans: C
Topic: Demand
Feedback: Consumer concern about cholesterol is a shift factor of demand, which shifts the
demand curve to the left, as consumers want fewer eggs at each price level.
[Question]
46. Assume the graph shown reflects demand in the automobile market. Which arrow best
captures the impact of increased consumer income on the automobile market?
A. A
B. B
C. C
D. D
Ans: D
Topic: Demand
Feedback: Income is a shift factor of demand. An increase in income increases the number of
automobiles demanded at each price. Therefore demand has shifted to the right.
[Question]
47. Refer to the graphs shown. Assume the graph reflects demand in the automobile market.
Which arrow best captures the impact of increased gasoline prices on the automobile market?
A. A
B. B
C. C
D. D
Ans: C
Topic: Demand
Feedback: Price of a related good is a shift factor of demand. An increase in gasoline prices will
increase the cost of running a car. Demand for cars will shift in as the number of automobiles
demanded at each price declines.
Topic:
[Question]
48. Refer to the graphs shown. The arrow that would best illustrate the impact on consumers of
reducing sales tax on a good paid by suppliers is:
A. A.
B. B.
C. C.
D. D.
Ans: C
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Topic: Demand
Feedback: Reducing the sales tax on suppliers shifts the supply curve to the right. Equilibrium
price falls and consumers move down along their demand curve.
[Question]
49. Refer to the graphs shown. An increase in quantity demanded is best shown by which
arrow?
A. A
B. B
C. C
D. D
Ans: C
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Topic: Demand
Feedback: Quantity demanded refers to a specific amount that will be demanded per unit of time
at a specific price. It refers to a point on a demand curve. An increase in quantity demanded is a
movement along a demand curve as shown by arrow C.
[Question]
50. To derive a market demand curve from individual demand curves, it would be necessary to:
A. take the maximum quantity of each demand curve as the market quantity demanded at each
price.
B. sum the curves horizontally, adding quantities demanded at each price.
C. take the demand curve that is the furthest to the right as the market demand curve.
D. multiply the quantities demanded on each demand curve at each price to find the market
quantity demanded at each price.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Demand
Feedback: The market demand is the sum of the individual quantities demanded at each price.
[Question]
51. Refer to the following graphs:
Which curve depicts the market demand from the following individual demand tables?
A. I
B. II
C. III
D. IV
Ans: C
Topic: Demand
Feedback: A market demand table is the sum of the individual quantities demanded at each
price. Curve III shows the total quantity demanded at each price using the data provided in the
table.
[Question]
52. Refer to the table that presents Mike and Janet's demand for apples by the peck. If they are
the only two in the market, which of the following represents a point on the market demand
curve?
A. price = $1, quantity = 18

B. price = $2, quantity = 21
C. price = $4, quantity = 0
D. price = $4, quantity = 21
Ans: B
Topic: Demand
Feedback: Market demand is the sum of all individual quantities demanded at every price.
[Question]
53. Refer to the table that presents Mike and Janet's demand for apples by the peck. If they are
the only two in the market, a market demand curve derived from this data would show quantity
demanded is:
A. 22 at price = $1 and 18 at price = $2.

B. 21 at price = $1 and 17 at price = $2.
C. 28 at price = $1 and 21 at price = $2.
D. 21 at price = $1 and 28 at price = $2.
Ans: C
Topic: Demand
Feedback: Market demand is the sum of all individual quantities demanded at every price.
[Question]
54. The law of supply states that, other things equal, as the price of a good goes:
A. up, the quantity supplied goes up.
B. up, the supply goes down.
C. down, the quantity supplied goes up.
D. down, the supply goes down.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Supply
Feedback: The law of supply states that, other things constant as the price of a good goes up, the
quantity supplied goes up and as the price of a good goes down, the quantity supplied goes
down.
[Question]
55. Which statement is not consistent with the law of supply?
A. More of a good will be supplied, the higher the price, other things constant.
B. Less of a good will be supplied, the lower the price, other things constant.
C. Quantity supplied of a good is directly related to the good's price.
D. Quantity supplied of a good is inversely related to the good's price.
Ans: D
Topic: Supply
down. Price and quantity supplied are directly related.
[Question]
56. According to the law of supply:
A. supply curves slope upward.
B. supply curves slope downward.
C. price and quantity supplied are negatively related.
D. price and quantity supplied are inversely related.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Supply
down. This is shown graphically by a curve that slopes upward.
[Question]
57. The law of supply states that, other things constant, there is:
A. an inverse relation between price and the quantity supplied.
B. an inverse relation between price and supply.
C. a direct relation between price and the quantity supplied.
D. a direct relation between price and supply.
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Supply
Feedback: The law of supply states that more of a good will be supplied the higher its price,
other things constant, and less of a good will be supplied the lower its price, other things
constant. That is, there is a direct relationship between price and quantity supplied. The
relationship is between quantities supplied, not supply.
[Question]
58. Suppose farmers can use their land to grow either wheat or corn. The law of supply predicts
that an increase in the market price of wheat will cause:
A. farmers to substitute wheat for the production of corn.
B. farmers to substitute corn for the production of wheat.
C. farmers to lower the production of corn and wheat.
D. farmers to raise the production of wheat and corn.
Ans: A
Topic: Supply
Feedback: The increase in the price of wheat causes a movement along the supply curve for
wheat (change in quantity supplied), not a shift.
[Question]
59. According to the law of supply, what will motivate firms to increase their quantity supplied
of a product?
A. Production cost
B. Fixed cost
C. Price
D. Supply
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Supply
Feedback: The law of supply refers to a firms' ability to substitute production toward those
goods whose price has risen. Increased cost causes a reduction in supply.
Topic:
[Question]
60. Refer to the graphs shown. The curve that best illustrates the law of supply is:
A. I.
B. II.
C. III.
D. IV.
Ans: C
Topic: Supply
Feedback: The law of supply states that price and quantity demanded are directly related. A
direct relationship is shown graphically by a curve with a positive slope.
[Question]
61. Refer to the graphs shown. If quantity supplied is a fixed amount that does not vary with
price, then the supply curve looks like:
A. I.
B. II.
C. III.
D. IV.
Ans: B
Topic: Supply
Feedback: This describes a vertical or perfectly inelastic supply curve.
[Question]
62. The theory that quantity supplied and price are positively related, other things constant, is
referred to as the law of:
A. opportunity cost.
B. profit maximization.
C. supply.
D. demand.
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Supply
Feedback: The law of supply states that more of a good will be supplied the higher its price,
other things constant, and less of a good will be supplied the lower its price, other things
constant.
[Question]
63. If the price of steel rises, the law of supply predicts that, other things constant, the:
A. supply of steel will increase.
B. supply of steel will decrease.
C. quantity supplied of steel will increase.
D. quantity supplied of steel will decrease.
Ans: C
Topic: Supply
Feedback: The law of supply states that an increase in price will cause an increase in quantity
supplied or a movement along the supply curve, not a shift of the supply curve.
[Question]
64. An upward sloping supply curve implies that:
A. quantity supplied increases when price decreases.
B. quantity supplied increases when price increases.
C. the law of supply is invalid.
D. there is no relationship between price and quantity supplied.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Supply
Feedback: The supply curve slopes upward because at higher prices, suppliers increase quantity
supplied.
[Question]
65. When applied to labor markets, the law of supply suggests that:
A. an increase in the wages earned by nurses will cause the quantity of nurses supplied to
increase.
B. a decrease in the wages earned by nurses will cause the quantity of nurses supplied to
increase.
C. an increase in the wages earned by nurses will cause the quantity of nurses demanded to
increase.
D. a decrease in the wages earned by nurses will cause the quantity of nurses demanded to
increase.
Ans: A
Topic: Supply
Feedback: The law of supply states that as the price of a good rises, the quantity of it supplied
will rise. The law of supply does not address the relationship between price and quantity
demanded.
[Question]
66. Suppose when you are offered $7.00 per hour to work in the campus library, you choose not
to work, but when you are offered $10.00 per hour, you accept a part-time position. Your
behavior can best be explained by the fact that your supply of labor curve is:
A. horizontal.
B. vertical.
C. downward-sloping.
D. upward-sloping.
Ans: D
Topic: Supply
Feedback: When the wage rate rose, the quantity of labor hours supplied rose, so the labor
supply curve slopes upward.
[Question]
67. If the law requires apartment building owners to lower rent, the law of supply predicts that,
other things constant, the:
A. supply of apartment units will shift leftward.
B. supply of apartment units will shift rightward.
C. quantity of apartment units supplied will rise.
D. quantity of apartment units supplied will fall.
Ans: D
Topic: Supply
Feedback: The decrease in price resulting from rent controls causes a movement along the
supply curve downward and to the left rather than a shift of the supply curve.
[Question]
68. The distinction between supply and the quantity supplied is best made by saying that:
A. the quantity supplied is represented graphically by a curve and supply as a point on that
curve.
B. supply is represented graphically by a curve and quantity supplied as a point on that curve.
C. the quantity supplied is in a direct relation with prices, whereas supply is in an inverse
relation.
D. the quantity supplied is in an inverse relation with prices, whereas supply is in a direct
relation.
Ans: B
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Topic: Supply
Feedback: Supply refers to a schedule of quantities that will be sold per unit of time at various
prices. It refers to the entire supply curve. Quantity supplied refers to a specific amount that will
be supplied per unit of time at a specific price. It refers to a point on a supply curve.
Topic:
[Question]
69. Refer to the graphs shown. The arrow that best shows an increase in supply is:
A. W
B. X
C. Y
D. Z
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Supply
Feedback: An increase in supply refers to the rightward shift in the entire supply curve.
[Question]
70. Refer to the graphs shown. The arrow that best captures the impact of a decline in price on
quantity supplied is:
A. W
B. X
C. Y
D. Z
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Supply
Feedback: The effect of a decline in price is shown as a movement down along a supply curve.
This is shown by arrow X.
[Question]
71. Assume the graphs shown reflect the egg market. The arrow that would best capture the
impact of cheaper, prefabricated henhouses on the egg market is:
A. W
B. X
C. Y
D. Z
Ans: C
Topic: Supply
Feedback: A cheaper, prefabricated henhouse is a shift factor of supply. Specifically it reduces
the cost of production, which would shift the supply curve to the right.
[Question]
72. Graphically, a change in price causes:
A. both supply and demand to shift.
B. the demand curve to shift.
C. a movement along a given supply curve, not a shift.
D. the supply curve to shift.
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Supply Curve
Feedback: A change in price causes a movement along supply or demand curves; neither curve
will shift as a result of a price change when other things are held constant.
[Question]
73. Suppose OPEC announces that it will increase production. Using supply and demand
analysis to predict the effect of increased production on equilibrium price and quantity, the first
step is to show the:
A. demand curve shifting to the right.
B. demand curve shifting to the left.
C. supply curve shifting to the right.
D. supply curve shifting to the left.
Ans: C
Topic: Supply
Feedback: Increased production is associated with an increase in supply, so the supply curve
shifts to the right.
[Question]
74. Moore's Law states that the processing power of the latest computer chips doubles about
every eighteen months. Assuming the graphs demonstrate the market for the latest computer
chips, which of the following diagrams describe this situation?
A. a
B. b
C. c
D. d
Ans: B
Topic: Supply
Feedback: A technological improvement shifts the supply curve to the right.
[Question]
75. If Argentina imposes a 20 percent tax on natural gas exports to be paid by suppliers. Other
things equal, this causes the:
A. supply of natural gas exports to shift to the right.
B. supply of natural gas exports to shift to the left.
C. quantity of natural gas exports produced to increase.
D. demand for natural gas exports to shift to the right.
Ans: B
Topic: Supply
Feedback: The tax shifts the supply curve to the left because it increases the cost of supplying
natural gas. As a result, the equilibrium quantity of natural gas falls.
[Question]
76. Which of the following would not move either the supply or the demand curve in the market
for housing?
A. An increase in the number of people who are retiring
B. An increase in the cost of home insurance
C. An increase in real-estate prices
D. A possibility of higher construction costs
Ans: C
Topic: Supply
Feedback: A change in price does not move either the supply or demand curve.
[Question]
77. Which of the following will move the supply curve for housing in Florida, a popular
retirement state, to the left?
A. Increasing the number of people who are retiring
B. Increase in the cost of insurance
C. Higher real-estate prices
D. Higher construction costs
Ans: D
Topic: Supply
Feedback: Higher costs affect the sellers and move the supply curve. Higher construction costs
will definitely shift the supply curve to the left.
[Question]
78. Which of the following would be expected to cause the quantity of wool supplied to
decrease?
A. A decrease in the price of wool
B. Adecrease in the number of wool producers
C. An increase in the cost of raising sheep
D. An increase in wages paid to workers in the wool industry
Ans: A
Topic: Supply Curve
Feedback: A decrease in the price of wool causes the quantity supplied to decrease,
corresponding to a movement along the supply curve and not a shift.
[Question]
79. Refer to the graph shown. A shift from S0 to S1 would most likely occur for what reason?
A. Adecrease in the number of suppliers in the market

B. An increase in taxes levied on producers of CDs
C. An increase in the price of CDs
D. Adecrease in the cost of producing CDs
Ans: D
Topic: Supply
Feedback: An increase in the number of suppliers causes supply to shift rightward. Higher taxes
and higher production costs cause supply to shift leftward. A change in price causes a movement
along supply, not a shift.
[Question]
80. Refer to the graph shown. A shift from S1 to S0 would most likely occur for what reason?
A. An increase in the number of suppliers in the market

B. A decrease in taxes levied on producers of CDs
C. An increase in the price of CDs
D. An increase in the cost of producing CDs
Ans: D
Topic: Supply
Feedback: An increase in the cost of producing the good causes supply to shift leftward. An
increase in the number of firms and a decrease in taxes cause supply to shift rightward. A change
in price causes a movement along supply, not a shift.
[Question]
81. Refer to the graph shown. If the quantity supplied increases from 2 to 4 when the price of
CDs increases from $2.00 to $5.00, the response by producers would be shown by:
A. a shift from S0 to S1.

B. a shift from S1 to S0.
C. a movement upward and to the right along S0.
D. a movement upward and to the right along S1.
Ans: C
Topic: Supply
Feedback: A change in price causes a change in quantity supplied, not a shift in supply. The
quantity figures indicate that the movement is along S0, not S1.
[Question]
82. Refer to the graph shown. Suppose that at a price of $5.00, firm A is willing and able to
supply 4 units and firm B is willing and able to supply 4 units. Which of the following
statements is then true?
A. Curve S0 shows the quantity supplied of firm A and firm B combined.
B. Curve S1 shows the quantity supplied of firm A and firm B combined.
C. The addition of firm B to the market causes a movement upward and to the right along S0.
D. The addition of firm B to the market causes a movement upward and to the right along S1.
Ans: B
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Topic: Supply
Feedback: A change in the number of sellers in the market causes supply to shift. On curve S1,
the quantity supplied is 8 when price is $5.00, which is the quantities supplied by firm A and
firm B combined.
[Question]
83. The supply of leather jackets would be expected to increase as a result of:
A. a decrease in the cost of producing leather jackets.
B. an increase in the price of leather jackets.
C. an increase in the popularity of leather jackets.
D. the expectation that the price of leather jackets will rise in the future.
Ans: A
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Topic: Supply
Feedback: A decrease in the cost of producing leather jackets will cause supply to increase or
shift rightward. A change in price causes a movement along supply, not a shift. Increased
popularity affects the demand for leather jackets. The expectation of a higher future price will
motivate suppliers to store some of today's supply in order to sell it later and reap higher profits,
so the current supply decreases.
[Question]
84. Which of the following is not likely to change the supply of personal computers?
A. An increase in consumers' incomes
B. A technological breakthrough that makes it much less costly to produce computer chips
C. A decrease in the wage paid to electrical engineers
D. An increase in taxes on computer chips paid by producers
Ans: A
Topic: Supply
Feedback: An increase in consumers' incomes will shift the demand curve for personal
computers, not the supply curve. All the other options clearly shift the supply curve for
computers.
[Question]
85. Which of the following would best explain a decrease in the supply of squash?
A. An increase in the price of other vegetables
B. An increase in the price of squash
C. A decrease in the price of squash
D. A decrease in the cost of growing squash
Ans: A
Topic: Supply
Feedback: Farmers will choose to supply vegetables that command a higher price, thereby
reducing their supply of squash. A change in price causes a movement along the supply of
squash curve, not a shift. Decreased cost will increase supply.
[Question]
86. Which of the following would be expected to cause an increase in the supply of fax
machines?
A. An increase in the number of business firms demanding fax machines
B. An increase in the price of fax machines
C. A decrease in the cost of manufacturing fax machines
D. The expectation that the price of fax machines will increase in future
Ans: C
Topic: Supply
Feedback: If there are more firms demanding fax machines, the demand will increase, not the
supply. A change in price causes a change in quantity supplied, not a change in supply. Lower
costs cause supply to increase. If prices are expected to rise, the current supply will fall as
suppliers store machines for future sale at the higher price.
[Question]
87. Given the graph shown, the quantity that would be associated with the price of $4 in a
supply table would be:
A. 2.
B. 4.
C. 6.
D. 8.
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Supply
Feedback: To find the quantity supplied at a price of $4, extend a horizontal line from $4 to the
supply curve and drop a vertical line down to the quantity axis. It will intersect it at 6. This is the
quantity that will be associated with a price of $4 on a supply table.
[Question]
88. Given the graph shown, the quantity that would be associated with the price of $1 in a
supply table would be:
A. 3.
B. 2.
C. 1.
D. 0.
Ans: D
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Supply
Feedback: Since the supply curve intersects the vertical axis at a price of $1, the quantity
supplied is zero when the price is $1.
[Question]
89. Given the following supply table, an increase in the price of pants from $30 to $50 per pair
will increase the:
A. supply of pants by 200 pairs.

B. quantity of pants supplied by 200 pairs.
C. supply of pants by 700 pairs.
D. quantity supplied of pants by 500 pairs.
Ans: B
Topic: Supply
Feedback: A supply table tells you the quantity of goods supplied at various prices. To read the
table, find the price on the left and read the corresponding quantity supplied on the right. At $30
quantity supplied is 500 pairs per week. At $50 a pair, quantity supplied is 700 pairs per week.
Quantity supplied increases by 200 pairs.
[Question]
90. Which curve shown below represents the market supply given the following individual
supply tables?
A. A
B. B
C. C
D. D
Ans: C
Topic: Supply
Feedback: To derive market supply from individual supply curves, find the sum of the quantities
supplied at each price. Plot those prices and quantities on a coordinate system.
[Question]
91. Refer to the graph shown. At a price of $4.00, what is the quantity supplied by each of the
producers?
A. Charlie: 4, Barry: 5, Ann: 15 CDs per week

B. Charlie: 0, Barry: 4, Ann: 14 CDs per week
C. Charlie: 1, Barry: 5, Ann: 8 CDs per week
D. Charlie: 3, Barry: 6, Ann: 7 CDs per week
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Supply
Feedback: To read a supply curve, read the price on the horizontal axis and find where it
intercepts each supply curve; and then read down on the horizontal axis for quantity supplied.
[Question]
92. Refer to the graph shown. What is the market quantity that would be supplied at a price of
$2.00?
A. 2 CDs per week
B. 3 CDs per week
C. 4 CDs per week
D. 7 CDs per week
Ans: D
Topic: Supply
Feedback: Market quantity is the sum of individual quantities supplied at each price. At price of
$2.00, Ann supplies 4, Barry supplies 3, and Charlie supplies 0. Market supply is 7.
[Question]
93. Refer to the graph shown. If price changes from $0.50 to $2.00, what will be the change in
the market quantity supplied?
A. 1 CDs per week

B. 6 CDs per week
C. 7 CDs per week
D. 8 CDs per week
Ans: B
Topic: Supply
$0.50, Ann supplies 1, Barry supplies 0, and Charlie supplies 0. Market supply is 1. At price of
$2.00, Ann supplies 4, Barry supplies 3, and Charlie supplies 0. Change in market supply is 6.
[Question]
94. Refer to the graph shown. If price changes from $4.00 to $2.00 then:
A. market quantity supplied will increase by 7.

B. market quantity supplied will decrease by 12.
C. Charlie will stop supplying any of this product.
D. Charlie, Barry, and Ann will proportionally reduce the quantity that they each supply.
Ans: C
Topic: Supply
$4.00, Ann supplies 8, Barry supplies 5, and Charlie supplies 1. Market supply is 14. At price of
$2.00, Ann supplies 4, Barry supplies 3, and Charlie supplies 0. Market supply is 7. Quantity
supplied by the market falls by 7 and Charlie stops supplying any.
[Question]
95. When the going rate is $2.00 per hour, Ann wants to babysit 6 hours each week and Pat
wants to babysit 4 hours each week. If the rate goes up to $4.00, Ann and Pat both double the
number of hours they are willing to babysit each week. Based on this information, a combined
supply curve will pass through the points:
A. price = $2.00, quantity supplied = 20 and price = $4.00, quantity supplied = 10.
B. price = $2.00, quantity supplied = 10 and price = $4.00, quantity supplied = 20.
C. price = $2.00, quantity supplied = 6 and price = $4.00, quantity supplied = 4.
D. price = $2.00, quantity supplied = 4 and price = $4.00, quantity supplied = 6.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Topic: Supply
Feedback: Ann and Pat together will supply 10 hours at the $2.00 rate and 20 hours at the $4.00
rate.
[Question]
96. The more the current price exceeds the equilibrium price, the:
A. greater the resulting shortage will be.
B. smaller the resulting shortage will be.
C. greater the resulting surplus will be.
D. smaller the resulting surplus will be.
Ans: C
Feedback: At a higher price, quantity supplied is greater and quantity demanded is smaller,
leading to a larger surplus.
[Question]
97. In the early 2000s car sales in China had slowed in part caused by the government's actions
to limit businesses from lending funds to consumers. Assuming the car market in China can be
analyzed with demand and supply curves, what best reflects the change in the market?
A. Demand curve shifts to the left with no change in supply.
B. Supply curve shifts to the left with no change in demand.
C. Both the supply and demand curves shift to the left.
D. Both the supply and demand curves shift to the right.
Ans: A
Topic: Demand
Feedback: The impact is from the buyers. The demand curve has moved left. Sellers are now
reacting to that change, but their reaction is a movement along their supply curves, not a change
in the curve. (It is not clear that this market has a supply curve because it is not all that
competitive a market.).
[Question]
.Bloom’s: Learning Objective: 98 When the wage rate paid to labor is above equilibrium, the:
A. supply of labor increases.
B. demand for labor decreases.
C. number of workers seeking jobs exceeds the number of jobs available.
D. number of jobs available exceeds the number of workers seeking jobs.
Ans: C
Feedback: Supply and demand do not shift when price changes. A price above equilibrium
means there will be a surplus, or more workers than jobs.
[Question]
99. Suppose a market has an excess demand and price starts to rise. What will the rise in price
cause?
A. A fall in both quantity supplied and quantity demanded.
B. A rise in both quantity supplied and quantity demanded.
C. A rise in quantity supplied and a fall in quantity demanded.
D. A fall in quantity supplied and a rise in quantity demanded.
Ans: C
Feedback: This is an application of the law of demand and the law of supply.
[Question]
100. If the price in a market is above its equilibrium level, there will be a:
A. surplus and downward pressure on price.
B. surplus and upward pressure on price.
C. shortage and downward pressure on price.
D. shortage and upward pressure on price.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: When quantity demanded is greater than quantity supplied, prices tend to rise. When
quantity supplied is greater than quantity demanded, prices tend to fall.
[Question]
101. When quantity supplied is greater than quantity demanded, prices tend to:
A. fall.
B. rise.
C. stay the same.
D. remain constant until the next season.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: When quantity supplied is greater than quantity demanded, prices tend to fall.
[Question]
102. Price tends to be in equilibrium where supply and demand intersect because when quantity
supplied:
A. equals quantity demanded, prices don't change.
B. exceeds quantity demanded, prices have a tendency to rise.
C. is less than quantity demanded, prices tend to fall.
D. equals quantity demanded, prices will fall.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: When quantity supplied equals quantity demanded, prices don't change. When prices
are not changing, the market is said to be in equilibrium.
[Question]
103. If supply and demand intersect at a price of $5.00, then a reduction in price from $6.00 to
$5.00 will cause an increase in quantity:
A. supplied, a decrease in quantity demanded, and the alleviation of a shortage.
B. demanded, a decrease in quantity supplied, and the alleviation of a shortage.
C. supplied, a decrease in quantity demanded, and the alleviation of a surplus.
D. demanded, a decrease in quantity supplied, and the alleviation of a surplus.
Ans: D
Feedback: A lower price causes quantity demanded to rise and quantity supplied to fall
according to the law of demand and the law of supply. If price is initially above equilibrium,
then there is a surplus initially. As price falls, the surplus disappears.
[Question]
104. If quantity supplied exceeds quantity demanded, there is a tendency for:
A. price to fall to restore equilibrium.
B. price to rise to restore equilibrium.
C. the demand curve to shift to the left to restore equilibrium.
D. the demand curve to shift to the right to restore equilibrium.
Ans: A
Feedback: When quantity supplied exceeds quantity demanded, there is a surplus. If there is a
surplus, some suppliers cannot sell their goods. They will lower their prices. At lower prices, the
quantity demanded will rise. Price will fall until quantity demanded equals quantity supplied.
None of the curves will shift.
Topic:
[Question]
Bloom’s: Learning Objective: Bloom’s: Learning Objective: Bloom’s: Learning Objective:
105. Suppose the given supply and demand tables reflect the supply and demand for milk per
week. At a price of $1, there is a:
A. surplus of 500 gallons per week.

B. surplus of 1,000 gallons per week.
C. shortage of 2,500 gallons per week.
D. shortage of 1,000 gallons per week.
Ans: D
Feedback: At a price of $1, quantity demanded is 2,000 gallons per week and quantity supplied
is 1,000 gallons per week. There is a shortage of 1,000 gallons per week.
[Question]
106. Suppose the supply and demand tables shown reflect the supply and demand for milk per
week. At a price of $4, there is a:
A. surplus of 1,000 gallons per week.

B. surplus of 2,000 gallons per week.
C. shortage of 1,000 gallons per week.
D. shortage of 2,000 gallons per week.
Ans: B
Feedback: At a price of $4, quantity demanded is 500 gallons per week and quantity supplied is
2,500 gallons per week. There is a surplus of 2,000 gallons per week.
[Question]
107. Suppose the supply and demand tables shown reflect the supply and demand for milk per
week. What is the equilibrium price and quantity of milk?
A. $1 per gallon and 2,000 gallons per week.

B. $2 per gallon and 1,500 gallons per week.
C. $3 per gallon and 2,000 gallons per week.
D. $4 per gallon and 2,000 gallons per week.
Ans: B
Feedback: Equilibrium is where quantity supplied equals quantity demanded. This occurs at $2
per gallon and 1,500 gallons per week.
[Question]
108. Suppose that the table shown shows the demand and supply schedules for pork bellies.
There is a shortage of 15,000 pounds at a price of:
A. $0.25.
B. $0.50.
C. $0.75.
D. $0.95.
Ans: A
Feedback: At $0.25 a pound, quantity demanded is 25,000 and quantity supplied is 10,000, so
there is a shortage of 15,000.
[Question]
Which of the following statements is true?
A. There would be a surplus of pork bellies if the price were $0.50 per pound.
B. There would be a shortage of pork bellies if the price were $0.50 per pound.
C. There would be a shortage of pork bellies if the price were $0.25 per pound.
D. There would be a surplus of pork bellies if the price were $0.25 per pound.
Ans: C
Feedback: At $0.50 per pound, quantity demanded equals quantity supplied. At $0.25 per pound
quantity demanded exceeds quantity supplied.
[Question]
Based on the table, the equilibrium price of pork bellies is:
A. $0.10/lb.
B. $0.25/lb.
C. $0.50/lb.
D. $0.75/lb.
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: Equilibrium occurs where quantity demanded equals quantity supplied. This occurs at
$0.50 per pound.
[Question]
111. Suppose that the following table shows the supply and demand schedules for Arabian light
crude oil on the free market:
Given the information in the table, the only price at which there is neither shortage nor surplus is:
A. $26 per barrel.
B. $27 per barrel.
C. $28 per barrel.
D. $29 per barrel.
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: Equilibrium occurs where quantity demanded equals quantity supplied. This occurs at
a price of $28 per barrel. When the market is in equilibrium, there is neither a shortage nor a
surplus.
[Question]
112. The point at which the supply curve and the demand curve intersect is called:
A. equilibrium, because quantity demanded equals quantity supplied so there is no tendency for
price to change.
B. equilibrium, because quantity demanded exceeds quantity supplied so there is a shortage.
C. equilibrium, because quantity supplied exceeds quantity demanded so there is a surplus.
D. irrelevant, because real-world prices never reach this point.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: Equilibrium price occurs at the intersection of demand and supply. Prices have no
tendency to change when quantity demanded equals quantity supplied.
[Question]
113. In a market where there are strong social and political forces:
A. quantity demanded will be expected to equal quantity supplied.
B. quantity demanded might not equal quantity supplied.
C. the market will be in disequilibrium.
D. the invisible hand will overcome all other forces.
Ans: B
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: Where the invisible hand is the only force, equilibrium is likely to be where quantity
demanded equals quantity supplied. But, in the real world, political and social forces are likely to
exist so that equilibrium can be where quantity demanded doesn't equal quantity supplied.
[Question]
114. If you observe a market where quantity demanded doesn't equal quantity supplied, a logical
conclusion is that:
A. the law of demand and supply do not hold in the market.
B. the fallacy of composition is not operative in the market.
C. the invisible hand is the only force at work in the market.
D. social and political forces are likely to exist.
Ans: D
Feedback: Where the invisible hand is the only force, equilibrium is likely to be where quantity
demanded equals quantity supplied. But, in the real world, political and social forces are likely to
exist so that equilibrium can be where quantity demanded doesn't equal quantity supplied.
[Question]
115. When the number of Alaskan fishermen increased, salmon prices fell to record lows. This
could be shown graphically by a shift in:
A. the demand curve right.
B. the supply curve left.
C. the demand curve left.
D. the supply curve right.
Ans: D
Feedback: An increase in catch of fish is an increase in supply independent of price. This is a
shift in the supply curve to the right.
[Question]
116. In the early 2000s, the number of Eastern Europeans moving to England to join the labor
force increased. This has led to fears by British citizens that Eastern Europeans will steal jobs
from Western Europeans. What best describes their fear?
A. Wages in Britain will fall as the demand for immigrants increases.
B. Cost of living in Britain will increase as the demand for goods increases.
C. Wages in Britain will fall since the quantity of labor supplied is increasing.
D. Wages in Britain will fall since the supply of labor is increasing.
Ans: D
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: An increase in immigration causes the supply curve to shift to the right, putting
downward pressure on wages. Although the cost of living may rise, the fear expressed is based
on labor market conditions, not goods market condition.
[Question]
117. Using the supply and demand model, what is the best way to show the effects on the
plywood market of households preparing for a hurricane? (Note: people use plywood to board up
their homes to protect them from damage from a hurricane.)
A. Supply curve shifted to the right, demand curve did not shift.
B. Demand curve shifted to the right, supply curve did not shift.
C. Both supply and demand curves shifted to the right.
D. Supply curve moved right and demand curve shifted to the left.
Ans: B
Feedback: The buyers are directly affected, and sellers respond in hopes of making a profit.
Hence we shift the demand curve to the right along the supply curve.
[Question]
118. Demand for healthy kidneys is high in both India in Nepal. But it is also illegal to buy or
sell organs. Despite the legal and social disapproval, there is an illegal market for organs.
Assuming the legal and social disapproval does not influence buyers but discourages sellers from
offering organs, the disapproval will:
A. raise price and raise quantity.
B. raise price but lower quantity.
C. lower price but raise quantity.
D. lower price and lower quantity.
Ans: B
Feedback: Supply moves left, raising price and lowering quantity.
[Question]
119. When gasoline prices fall, the demand for alternative fuel cars likely:
A. falls, lowering their equilibrium price and raising equilibrium quantity.
B. rises, raising their equilibrium price and quantity.
C. falls, raising their equilibrium price and lowering equilibrium quantity.
D. falls, lowering their equilibrium price and quantity.
Ans: D
Feedback: Demand moves left lowering both price and quantity.
[Question]
120. The increase in the availability of organic foods likely:
A. lowers equilibrium quantity and raises equilibrium price for organic foods.
B. raises equilibrium quantity and price for organic foods.
C. raises equilibrium quantity and lowers equilibrium price for organic foods.
D. lowers equilibrium quantity and price for organic foods.
Ans: C
Feedback: An increase in the availability of organic foods shifts its supply curve to the right,
lowering equilibrium price but raising equilibrium quantity.
[Question]
121. The model of supply and demand leads to the prediction that low interest rates cause:
A. an increase in housing prices, especially in cities with plenty of room for expansion.
B. an increase in housing prices, especially in cities with limited land.
C. a decrease in housing prices, especially in cities with plenty of room for expansion.
D. a decrease in housing prices, especially in cities with limited land.
Ans: B
Feedback: An increase in demand causes an increase in both equilibrium price and equilibrium
quantity. With limited land, the supply is more price-inelastic (steeper), so the increase in
equilibrium price is relatively larger in this case.
[Question]
122. Given that diesel cars get much better gas mileage than the typical car, an increase in the
price of gasoline would be expected to:
A. decrease the equilibrium price and increase the equilibrium quantity of diesel cars.
B. increase the equilibrium price and decrease the equilibrium quantity of diesel cars.
C. decrease the equilibrium price and quantity of diesel cars.
D. increase the equilibrium price and quantity of diesel cars.
Ans: D
Feedback: An increase in the price of gasoline causes the demand for fuel-efficient cars to
increase; an increase in demand causes equilibrium price and quantity to increase.
[Question]
123. In Operation Desert Storm, oil facilities in Iraq were attacked amid strong demand for oil.
In response, political pressure motivated OPEC to increase the daily quota by 2 million barrels a
day. Assuming demand did not change, which of the following series of prices most likely
matches how the price of a barrel of oil changed from (1) before the attack, to (2) just after the
attack, to (3) after OPEC increased the quota?
A. $42, $38, $40
B. $38, $40, $42
C. $42, $40, $38
D. $40, $42, $38
Ans: D
Feedback: Events in Iraq initially caused the price to rise from $40 to $42; increased production
by OPEC then lowered the price to $38.
[Question]
124. The model of supply and demand leads to the prediction that high interest rates cause:
A. an increase in the price of housing and a decrease in the number of homes purchased.
B. a decrease in the price of housing and an increase in the number of homes purchased.
C. an increase in both housing prices and the number of homes purchased.
D. a decrease in both housing prices and the number of homes purchased.
Ans: D
Feedback: A decrease in demand causes equilibrium price and quantity to fall.
[Question]
125. When the drug Vioxx was pulled from the market by pharmaceutical company Merck due
to its association with heart problems, the demand for other pain medications:
A. increased, putting upward pressure on their price.
B. increased, putting downward pressure on their price.
C. decreased, putting upward pressure on their price.
D. decreased, putting downward pressure on their price.
Ans: A
Feedback: Since Vioxx was pulled from the market, arthritis sufferers had to turn to other
medications, causing the demand for those other medications to increase. There have been
problems reported with Celebrex and Bextra since then, but the immediate effect was to increase
the demand for these substitutes, putting upward pressure on equilibrium price.
[Question]
Bloom’s: Learning Objective: Bloom’s: Learning Objective: 126. The price of a ticket to the
Maroon 5 concert is set at $35. All the tickets for the concert sell out one hour after they go on
sale and there are still 1,000 fans who want to buy tickets. It follows that:
A. the equilibrium price of tickets to the concert is $35.
B. the equilibrium price of tickets to the concert is more than $35.
C. the equilibrium price of tickets to the concert is less than $35.
D. the quantity of tickets demanded is equal to the quantity supplied at the $35 price.
Ans: B
Feedback: At $35 per ticket, quantity demanded exceeds quantity supplied, so $35 cannot be
equilibrium price. To eliminate the shortage, price would have to rise.
[Question]
127. Refer to the graphs shown. The relevant market is corn. The impact of a poor corn harvest
on the market for corn would most likely be demonstrated by which graph?
A. a
B. b
C. c
D. d
Ans: C
Feedback: A poor harvest would shift the supply curve to the left. This is shown by graph c.
[Question]
128. Refer to the graphs shown. The market is computers. Which graph best represents the
impact of cheaper memory chips on the computer market?
A. a
B. b
C. c
D. d
Ans: D
Feedback: A cheaper memory chip would lower the cost of producing computers, shifting the
supply curve for computers to the right. Graph d shows this.
[Question]
129. Refer to the graphs shown. The market is fat-free potato chips that contain olestra. Which
graph best represents the impact of increased consumer concern about the effects of olestra on
long-term health?
A. a
B. b
C. c
D. d
Ans: B
Feedback: Concern for olestra would shift the demand for potato chips with olestra to the left.
Graph b shows this.
[Question]
130. Refer to the graphs shown. The market is caviar. Which graph best represents the impact of
an increase in consumer incomes on the market for caviar?
A. a
B. b
C. c
D. d
Ans: A
Feedback: Income is a shift factor of demand. An increase in income would shift the demand
curve to the right.
[Question]
131. Refer to the graphs shown. The market is salmon steaks. Which graph best represents the
impact of increased concern that salmon is becoming endangered?
A. a
B. b
C. c
D. d
Ans: B
Feedback: The concern over the low numbers of salmon would reduce the demand for salmon
steaks shifting it to the left.
[Question]
132. A decrease in the number of consumers in a market causes market demand to:
A. decrease, resulting in a surplus which will be eliminated as price rises.
B. decrease, resulting in a surplus which will be eliminated as price falls.
C. increase, resulting in a shortage which will be eliminated as price rises.
D. increase, resulting in a shortage which will be eliminated as price falls.
Ans: B
Feedback: As demand shifts to the left, quantity supplied will exceed quantity demanded at the
original price. Price will fall until the surplus is eliminated and a lower equilibrium quantity is
reached.
[Question]
133. If supply and demand both shift to the right, equilibrium quantity:
A. rises, but the equilibrium price may rise, fall, or stay the same.
B. falls, but the equilibrium price may rise, fall, or stay the same.
C. may rise, fall, or stay the same, but equilibrium price will rise.
D. may rise, fall, or stay the same, but equilibrium price will fall.
Ans: A
Feedback: Whether equilibrium price rises, falls, or stays the same depends on the magnitude of
the supply shift versus the demand shift.
[Question]
134. If market supply increases, equilibrium price will:
A. fall and demand will shift to the right.
B. fall, causing a movement along the demand curve.
C. rise and demand will shift to the left.
D. rise, causing a movement along the demand curve.
Ans: B
Feedback: When supply shifts rightward, equilibrium price falls. As price falls, the quantity
demanded rises. This is shown as a movement along the demand curve.
[Question]
135. An increase in equilibrium price and a decrease in equilibrium quantity is most likely the
result of:
A. an increase in demand.
B. a decrease in demand.
C. an increase in supply.
D. a decrease in supply.
Ans: D
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: If supply shifts to the left, equilibrium price rises and equilibrium quantity falls.
[Question]
136. If both buyers and sellers expect the price of a commodity to rise in the future, it is likely
that equilibrium:
A. price will fall with little change in equilibrium quantity.
B. price will rise with little change in equilibrium quantity.
C. quantity will fall with little change in equilibrium price.
D. quantity will rise with little change in equilibrium price.
Ans: B
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: Buyers, expecting to have to pay higher prices in future, will likely attempt to buy
more of the commodity now. Sellers, expecting greater profits in future, will likely store the
commodity rather than sell at the current low price. With demand shifting right and supply
shifting left, equilibrium price will rise. The change in equilibrium quantity is indeterminate, but
is likely to be small.
[Question]
137. Honey and jam are substitute products. If the price of honey increases, the demand for:
A. honey will increase.
B. honey will decrease, causing its price to fall.
C. jam will increase, causing the price of jam to increase as well.
D. jam will decrease, causing the price of jam to fall.
Ans: C
Feedback: A change in the price of honey causes a movement along the demand for honey
curve, not a shift. The demand for jam will increase and cause equilibrium price to rise.
[Question]
138. When workers are paid higher wages, production costs:
A. rise, supply shifts leftward, and product prices fall.
B. fall, supply shifts rightward, and product prices fall.
C. rise, supply shifts leftward, and product prices rise.
D. rise, supply shifts rightward, and product prices rise.
Ans: C
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: Higher input prices cause supply to decrease, which causes equilibrium price to
increase.
Topic:
[Question]
139. Refer to the graphs shown. The consequences of improved technology combined with an
increase in the number of consumers can best be illustrated by:
A. a.
B. b.
C. c.
D. d.
Ans: A
Feedback: Improved technology causes supply to shift to the right. An increase in the number of
consumers causes demand to shift to the right.
[Question]
140. Refer to the graphs shown. Higher costs of production combined with an expectation on the
part of consumers of higher prices in the future would result in the shifts depicted in:
A. a.
B. b.
C. c.
D. d.
Ans: C
Feedback: Higher costs of production cause supply to shift to the left. If consumers expect
higher prices in the future, current demand will shift to the right.
[Question]
141. Refer to the graphs shown. Suppose the price of a good that is a substitute in both
consumption and production for the good depicted in the graph falls. The expected shifts in
supply and demand are shown in:
A. a.
B. b.
C. c.
D. d.
Ans: D
Feedback: The demand will shift to the left as consumers substitute away from this product in
order to buy the cheaper substitute. The supply will shift to the right as sellers produce this item
in place of the cheaper one.
[Question]
142. Refer to the graphs shown. The effect of increased consumer income and higher production
costs on a normal good is most likely shown in:
A. a.
B. b.
C. c.
D. d.
Ans: C
Feedback: Higher income causes demand to shift to the right. The increase in production costs
cause supply to shift to the left.
[Question]
143. People have become more concerned about the negative health effects of eating
carbohydrates and fat. Considering these effects only, which of the following best describes the
likely effect of this trend on the market for high-carb, high-fat snacks?
A. Demand shifted to the left leading to a decline in equilibrium price and quantity.
B. Quantity demanded fell leading to a decline in equilibrium price and quantity.
C. Supply shifted to the left leading to a rise in equilibrium price and a decline in equilibrium
quantity.
D. Demand and supply both shifted to the left leading to a decline in equilibrium price and
quantity.
Ans: A
Feedback: The trend to eat fewer carbs and fats is a change in consumer tastes, a shift factor of
demand. Fewer snacks are demanded at every price. Therefore, the entire demand curve shifts to
the left. As this occurs, equilibrium price declines, as does equilibrium quantity.
[Question]
144. How would a decline in demand for imported commodities by the Chinese affect the
market for cargo transportation to China?
A. Supply of cargo transportation shifts to the right causing an increase in quantity demanded
and decline in equilibrium price.
B. Supply of cargo transportation shifts to the right causing an increase in demand and
equilibrium quantity and a decrease in equilibrium price.
C. Demand for cargo transportation shifts to the left causing a decline in quantity supplied and
price.
D. Demand for cargo transportation shifts to the left causing a decline in supply and equilibrium
quantity and price.
Ans: C
Feedback: The decline in demand for imported commodities results in a reduced demand for
overseas shipping (shifting demand). As demand shifts to the left, the quantity supplied declined
(not a shift in supply). As this happened, equilibrium price and quantity declined. This question
requires students to be able to distinguish a movement along a curve from a shift in a curve.
[Question]
145. When airlines were deregulated, airfares declined by 30 percent. Deregulation is an
example of political forces:
A. letting the market move toward equilibrium, reducing excess supply.
B. letting the market move toward equilibrium, reducing excess demand.
C. making the market move away from equilibrium, creating excess supply.
D. making the market move away from equilibrium, creating excess demand.
Ans: A
Feedback: Deregulation allows the market to move toward equilibrium. In this case, prices fell.
This meant that initially there was an excess supply, which was greatly reduced by the Airline
Deregulation Act.
[Question]
146. The false assumption that what is true for a part will also be true for the whole is called the:
A. fallacy of composition.
B. paradox of thrift.
C. post hoc fallacy.
D. ceteris paribus assumption.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: By definition, the false assumption that what is true for a part will also be true for the
whole is called the fallacy of composition.
[Question]
147. The fallacy of composition refers to the false assumption:
A. that if A happens before B, then A caused B.
B. that what is true for a part will also be true for the whole.
C. that what is true for the whole must also be true for a part.
D. of all other things held constant.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Topic: A Limitation of Supply/Demand AnalysisFeedback: This is the textbook definition of
the fallacy of composition.
[Question]
148. The statement, "Assuming that if it is rational for one person to stand at a football game to
get a better view then it is rational for everyone to stand at a football game to get a better view"
is an example of:
A. economic reasoning.
B. the fallacy of division.
C. the fallacy of composition.
D. the ceteris paribus assumption.
Ans: C
Feedback: Such an assumption is a false assumption that what is true for a part will also be true
for the whole, known as the fallacy of composition.
[Question]
149. One reason economists distinguish between micro and macro is supply and demand are:
A. unrelated to one another.
B. more interdependent in the aggregate (macro).
C. more interdependent in individual markets (micro).
D. never interdependent.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: There is a separate macro because in the aggregate, demand is affected by supply.
[Question]
150. For which of the following markets would the fallacy of composition most likely apply?
A. Labor market
B. Orange market in Florida
C. Gasoline market
D. Poultry market
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: The fallacy of composition most likely applies to markets where there are
interdependencies. These are macroeconomic markets such as labor.
[Question]
151. For which of the following markets would the fallacy of composition least likely apply?
A. Labor market
B. Market for savings and investment
C. World market for oil
D. Poultry market
Ans: D
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: The more micro the market, the less is the fallacy of composition likely to apply. The
most micro example listed is the poultry market. In the other markets supply and demand are
likely to be interdependent.

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Price Ann’s Barry’s Charlie’s Market

A. 2 CDs per week.

A. an increase in the price of CDs from $12.00 to $16.00.

Which of the demand curves best reflects the demand table?

A. price = $1, quantity = 18

A. 22 at price = $1 and 18 at price = $2.

A. Adecrease in the number of suppliers in the market

A. An increase in the number of suppliers in the market

A. a shift from S0 to S1.

A. supply of pants by 200 pairs.

A. Charlie: 4, Barry: 5, Ann: 15 CDs per week

A. 1 CDs per week

A. market quantity supplied will increase by 7.

A. surplus of 500 gallons per week.

A. surplus of 1,000 gallons per week.

A. $1 per gallon and 2,000 gallons per week.

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