Demand and Supply

Quiz
1. A decrease in the price of pizza will

• a. decrease the quantity of pizza demanded.

• b. increase the quantity of pizza demanded.
• c. decrease the demand for pizza.
• d increase the demand for pizza.
2. A supply schedule shows

• a. the various supply curves that are possible.

• b. a timetable for production.
• c. different combinations of resources that could be used to produce a given set of output.
• d. a positive or direct relationship between the price of a good and quantities supplied.
3 When income increases, purchases of homes increase. This means

• a. the demand curve for housing has shifted rightward.

• b. there has been a movement down the demand curve for housing.
• c. the demand curve for housing has shifted leftward.
• d .there has been a movement up the demand curve for housing.
 4. Refer to the supply and demand curves. If the market is competitive
and the current price is $50,

• a. the price will rise.

• b. the price will fall.
• c. the price of $50 will stabilize.
• d.the equilibrium price will rise to $60.
5. Any situation where quantity supplied does not equal quantity
demanded indicates:

• a. a market equilibrium.
• b. a situation in which the actions of buyers do not match the actions of sellers.
• c. a place where the laws of supply and demand do not hold.
• d. a point where quantity demanded is equal to quantity supplied.
 6. Suppose oranges are currently selling for $2.00 per pound. The
equilibrium price of oranges is $1.56 per pound. We would expect

• a. a shortage to exist and the market price of oranges to increase.

• b. a shortage to exist and the market price of oranges to decrease.
• c. a surplus to exist and the market price of oranges to increase.
• d. a surplus to exist and the market price of oranges to decrease.
7. If VCRs and rental videos are complementary goods, then a decrease
in the price of VCRs would:

• a. decrease the demand for VCRs.

• b. decrease the demand for rental videos.
• c. increase the demand for VCRs.
• d. increase the demand for rental videos.
 8. Other things equal, which of the following would NOT shift the
supply curve for gasoline?

• a. Fall in the price of crude oil (from which gasoline is refined)

• b.an increase in the price of gasoline.
• c. an improvement in refining techniques that allows more gasoline to be squeezed
• out of a barrel of crude oil
• d. an increase in the wages paid to people working in oil refineries
 9. Suppose the price of Coke increases. What would happen to the
equilibrium price and quantity of Pepsi?

• a. Both the equilibrium price and quantity of Pepsi would increase.

• b.Both the equilibrium price and quantity of Pepsi would decrease.
• c.The equilibrium price of Pepsi would increase, and the equilibrium quantity of
• Pepsi would decrease.
• d. The equilibrium price of Pepsi would decrease, and the equilibrium quantity of
 10. The law of demand

• a. applies to final consumer goods but not to the productive resources purchased by business firms.
• b. tells us how much of a good people want, but not necessarily how much of that
• good they are willing to pay for.
• c. tells us that when the price of a good falls, quantity demanded will increase.
• d. applies only to goods that are not absolute necessities.
 11. Which of the following would decrease the demand for butter (i.e.,
shift the demand curve to the left)?

• a. an increase in the price of margarine (a substitute for butter)

• b. a medical study finding that butter contributes to heart disease
• c. a decrease in the price of bread (a complement to butter)
• d. an increase in the price of butter
 12. Suppose there is an advance in technology that allows the
automobile industry to manufacture automobiles more cheaply. We
would expect
• a. an increase in both the equilibrium price and the equilibrium quantity of automobiles.
• b. a decrease in both the equilibrium price and the equilibrium quantity of automobiles.
• c. an increase in the equilibrium price and a decrease in equilibrium quantity of automobiles.
• d. a decrease in the equilibrium price and an increase in the equilibrium quantity of automobiles.
 13. The shift in the supply curve from S1 to S is

• a. an increase in supply.
• b. a decrease in supply.
• c. an increase in quantity supplied.
• d. a decrease in quantity supplied.
 14. The shift in the supply curve from S to S1 might be explained by

• a. an increase in income.
• b. a decrease in the price of equipment used to produce the product.
• c. an increase in population.
• d. a change in consumer tastes.
 15. Suppose the price of land increases. At the same time, income
increases. What would happen to the equilibrium price and quantity of
housing?
• a. Equilibrium price will decrease. We cannot predict what will happen to equilibrium quantity.
• b. equilibrium price will increase. We cannot predict what will happen to equilibrium
• quantity.
• c. Equilibrium quantity will decrease. We cannot predict what will happen to equilibrium price.
• d. Equilibrium quantity will increase. We cannot predict what will happen to equilibrium price.
 16. An increase in the price of gasoline will:

• a. increase the supply of gasoline.

• b. increase the quantity of gasoline supplied.
• c. decrease the supply of gasoline.
• d. decrease the quantity of gasoline supplied.
17. Because cars and gasoline are complements, an increase in the price
of gasoline will

• a increase the demand for cars.

• b. decrease the demand for cars.
• c. increase the demand for gasoline.
• d. decrease the demand for gasoline.
18. An increase in the equilibrium price of CDs accompanied by a
decrease in the equilibrium quantity of CDs could be caused by

• a. an increase in the demand for CDs.

• b. an increase in the supply of CDs.
• c. a decrease in the demand for CDs.
• d. a decrease in the supply of CDs.
19. Suppose the equilibrium price of bagels is $2.25. Currently, bagels
are selling for $1.75. We know that the market for bagels is
experiencing:
• a. shortage and the price of bagels will rise.
• b. a shortage and the price of bagels will fall.
• c. a surplus and the price of bagels will rise.
• d. a surplus and the price of bagels will fall.
20. An increase in the price of a complementary good will result in:

• a. an increase in equilibrium price and a decrease in equilibrium quantity of the related good.
• b. decrease in both the equilibrium price and the equilibrium quantity of the related good.
• c. an increase in both the equilibrium price and the equilibrium quantity of the related good.
• d. a decrease in equilibrium price and an increase in equilibrium quantity of the related good.
1. A decrease in the price of pizza will

• a. decrease the quantity of pizza demanded.

• Incorrect. The law of demand is a negative relationship.

• b. increase the quantity of pizza demanded.

• Correct. The phrase quantity demanded implies movement along the supply curve.

• c. decrease the demand for pizza.

• Incorrect. The price would change only the quantity demanded.

• d. increase the demand for pizza.

• Incorrect. The price would affect the quantity demanded.
2. A supply schedule shows

• a. the various supply curves that are possible.

• Incorrect. It shows the relationship between price and quantity supplied.

• b. a timetable for production.

• Incorrect. The supply curve is about price not time.

• c. different combinations of resources that could be used to produce a given set of output.
• Incorrect. This is the definition of a production function.

• d. a positive or direct relationship between the price of a good and quantities supplied.
• Correct. This implies that price and quantity supplied move in the same direction.
 3 When income increases, purchases of homes increase. This means

a. the demand curve for housing has shifted rightward.

• Correct. Income is one of the variables that shift demand.

a. there has been a movement down the demand curve for housing.
• Incorrect. Movement along the curve is changed only by price.

• c. the demand curve for housing has shifted leftward.

• Incorrect. This would represent a decrease in demand.

• d. there has been a movement up the demand curve for housing.

• Incorrect. This could only be caused by a change in price.
 4. Refer to the supply and demand curves. If the market is competitive
and the current price is $50,

a. the price will rise.

• Incorrect. The price will fall because $50 is above equilibrium.

• b. the price will fall.

• Correct. This price is above equilibrium.

• c. the price of $50 will stabilize.

• Incorrect. This is not the equilibrium price.

• d. the equilibrium price will rise to $60.

• Incorrect. The equilibrium price will be below $50.
5. Any situation where quantity supplied does not equal quantity
demanded indicates:

a. a market equilibrium.
• Incorrect. Equilibrium implies equality between quantities demanded and supplied.

• b. a situation in which the actions of buyers do not match the actions of sellers.
• Correct. This is the definition of a disequilibrium situation.

• c. a place where the laws of supply and demand do not hold.

• Incorrect. The laws apply. There is just no equilibrium.

d. a point where quantity demanded is equal to quantity supplied.

• Incorrect. This situation represents an inequality.
 6. Suppose oranges are currently selling for $2.00 per pound. The
equilibrium price of oranges is $1.56 per pound. We would expect

a. a shortage to exist and the market price of oranges to increase.

• Incorrect. A shortage would occur if the price were below equilibrium.

• b. a shortage to exist and the market price of oranges to decrease.

• Incorrect. A shortage would occur if the price were below equilibrium.

• c. a surplus to exist and the market price of oranges to increase.

• Incorrect. Surpluses cause the market price to decrease.

• d. a surplus to exist and the market price of oranges to decrease.

• Correct. If the equilibrium price is lower, then a surplus exists.
7. If VCRs and rental videos are complementary goods, then a decrease
in the price of VCRs would:

• a. decrease the demand for VCRs.

• Incorrect. The demand for VCR's would not change.

• b. decrease the demand for rental videos.

• Incorrect. Cheaper VCR's mean more demand for complementary videos.
 
• c. increase the demand for VCRs.
• Incorrect. The demand for VCR's would not change.

• d. increase the demand for rental videos.

• Correct. This is a complementary good and the demand would increase.
 8. Other things equal, which of the following would NOT shift the
supply curve for gasoline?

• a. a fall in the price of crude oil (from which gasoline is refined)

• Incorrect. This resource price change would cause supply to change.
•  
b. an increase in the price of gasoline.
• Correct. This would only move along the supply curve.

• c. an improvement in refining techniques that allows more gasoline to be squeezed

• out of a barrel of crude oil
• Incorrect. This technological change would shift the supply curve.
•  
• d. an increase in the wages paid to people working in oil refineries
• Incorrect. This resource cost change would shift the supply curve.
 9. Suppose the price of Coke increases. What would happen to the
equilibrium price and quantity of Pepsi?

• a. Both the equilibrium price and quantity of Pepsi would increase.

• Correct. The demand for the substitute Pepsi would increase.
• b. Both the equilibrium price and quantity of Pepsi would decrease.
• Incorrect. The demand for Pepsi would increase.
• c. The equilibrium price of Pepsi would increase, and the equilibrium quantity of
• Pepsi would decrease.
• Incorrect. If Pepsi demand increases, then both price and quantity would increase.
• d.The equilibrium price of Pepsi would decrease, and the equilibrium quantity of
• Pepsi would increase.
• Incorrect. If Pepsi demand increases, then both price and quantity would increase
 10. The law of demand

• a. applies to final consumer goods but not to the productive resources purchased by business firms.
• Incorrect. The law of demand applies to all products and resources.
• b. tells us how much of a good people want, but not necessarily how much of that
• good they are willing to pay for.
• Incorrect. The price variable is what people are willing and able to pay.
• c. tells us that when the price of a good falls, quantity demanded will increase.
• Correct. This is the definition of the negative relationship in the law of demand.
• d. applies only to goods that are not absolute necessities.
• Incorrect. It applies to all goods, services, and resources.
 11. Which of the following would decrease the demand for butter (i.e.,
shift the demand curve to the left)?

a. an increase in the price of margarine (a substitute for butter)

• Incorrect. This would cause demand for butter to increase.
a. a medical study finding that butter contributes to heart disease
• Correct. This would cause fewer people to buy butter at any price.
• c. a decrease in the price of bread (a complement to butter)
• Incorrect. If more bread is purchased, more butter will be demanded.
• d. an increase in the price of butter
• Incorrect. This will cause a decrease in the quantity demanded.
 12. Suppose there is an advance in technology that allows the
automobile industry to manufacture automobiles more cheaply. We
would expect
• a. an increase in both the equilibrium price and the equilibrium quantity of automobiles.
• Incorrect. An increase in supply would reduce the price.
• b. a decrease in both the equilibrium price and the equilibrium quantity of automobiles.
• Incorrect. An increase in supply would increase equilibrium quantity.
• c. an increase in the equilibrium price and a decrease in equilibrium quantity of automobiles.
• Incorrect. An increase in supply would decrease price and increase quantity.
• d. a decrease in the equilibrium price and an increase in the equilibrium quantity of automobiles.
• Correct. This is the only possible result of an increase in supply.
 13. The shift in the supply curve from S1 to S is

• a. an increase in supply.
• Incorrect. An increase means a rightward shift.
• b. a decrease in supply.
• Correct. When the supply curve shifts leftward, this represents a decrease.
• c. an increase in quantity supplied.
• Incorrect. This would be shown as a movement along the supply curve.
• d. a decrease in quantity supplied.
• Incorrect. This would be shown as a movement along the supply curve.
 14. The shift in the supply curve from S to S1 might be explained by

• a. an increase in income.
• Incorrect. This would cause a demand side change.
• b. a decrease in the price of equipment used to produce the product.
• Correct. A reduction in resource costs means more supply at each price.
• c. an increase in population.
• Incorrect. This is a demand side variable.
• d. a change in consumer tastes.
• Incorrect. This would cause the demand curve to shift.
 15. Suppose the price of land increases. At the same time, income
increases. What would happen to the equilibrium price and quantity of
housing?
• a. Equilibrium price will decrease. We cannot predict what will happen to equilibrium quantity.
• Incorrect. With higher incomes there will be more demand and higher prices.
• b. Equilibrium price will increase. We cannot predict what will happen to equilibrium
• quantity.
• Correct. This is the result of an increase in demand and a decrease in supply.
• c. Equilibrium quantity will decrease. We cannot predict what will happen to equilibrium price.
• Incorrect. With higher incomes, more demand means more quantity.
• d. Equilibrium quantity will increase. We cannot predict what will happen to equilibrium price.
• Incorrect. The higher resource price of land will shift the supply curve leftward.
 16. An increase in the price of gasoline will:

• a. increase the supply of gasoline.

• Incorrect. This defines a shift in the curve caused by a non-price variable.
• b. increase the quantity of gasoline supplied.
• Correct. This means a movement along the supply curve.
a. decrease the supply of gasoline.
• Incorrect. This is a shift in the supply curve leftward.
• d. decrease the quantity of gasoline supplied.
• Incorrect. Price and quantity supplied are positively related.
17. Because cars and gasoline are complements, an increase in the price
of gasoline will

• a. increase the demand for cars.

• Incorrect. If gasoline gets more expensive, people will buy fewer cars.
• b. decrease the demand for cars.
• Correct. Less demand for gasoline means less demand for cars.
• c. increase the demand for gasoline.
• Incorrect. The quantity of gasoline demanded will decrease.
• d. decrease the demand for gasoline.
• Incorrect. The quantity of gasoline demanded will decrease.
18. An increase in the equilibrium price of CDs accompanied by a
decrease in the equilibrium quantity of CDs could be caused by

• a. an increase in the demand for CDs.

• Incorrect. An increase in demand would increase quantity.
• b. an increase in the supply of CDs.
• Incorrect. An increase in supply would decrease the price.
• c. a decrease in the demand for CDs.
• Incorrect. A decrease in demand would decrease the price.
• d. a decrease in the supply of CDs.
• Correct. This is the only way an increase in price can be accompanied by a decrease in quantity.
19. Suppose the equilibrium price of bagels is $2.25. Currently, bagels
are selling for $1.75. We know that the market for bagels is
experiencing:
• a. a shortage and the price of bagels will rise.
• Correct. Shortages are caused by prices below equilibrium and this creates pressure for prices to rise.
• b. a shortage and the price of bagels will fall.
• Incorrect. Shortages cause prices to rise.
• c. a surplus and the price of bagels will rise.
• Incorrect. Surpluses cause prices to fall.
• d. a surplus and the price of bagels will fall.
• Incorrect. If the price is above equilibrium, there is a shortage.
20. An increase in the price of a complementary good will result in:

• a. an increase in equilibrium price and a decrease in equilibrium quantity of the related good.
• Incorrect. As demand decreases, the price will decrease as well.
• b. a decrease in both the equilibrium price and the equilibrium quantity of the related good.
• Correct. This is the result of a decrease in demand.
• c. an increase in both the equilibrium price and the equilibrium quantity of the related good.
• Incorrect. The decrease in demand for the related good will reduce its price and quantity.
• d. a decrease in equilibrium price and an increase in equilibrium quantity of the related good.
• Incorrect. The decrease in demand will cause both price and quantity to fall.