Market reflects upward sloping demand and downward sloping supply curves

Hallym University

Principles of Economics (PS#1)

D)the use of policy to refute facts and hypotheses.

2. The study of economics is primarily concerned with: A) keeping private businesses from losing money.

D) choices need not be made if behavior is rational.

4. Studying economics:
A) helps one become a better-informed citizen and voter.

C) is important because economics is the "science of earning money."
D) helps students improve analytical skills which are in great demand in the workplace.

6. Economic theories:
A) are useless because they are not based upon laboratory experimentation.

C) emphasize basic economic relationships by abstracting from the complexities of the real world. D) are unrealistic and therefore of no practical consequence.

8. The term "other things equal" means that:
A) the associated statement is normative.

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11. Which of the following is associated with macroeconomics?

A) an examination of the incomes of Harvard Business School graduates
B) an empirical investigation of the general price level and unemployment rates in the 1990s C) a study of the trend of pecan prices since World War II
D) a case study of pricing and production in the textbook industry

D) The general price level increased by 4 percent last year.

14. A normative statement is one which:
A) is based on the law of averages B) pertains only to microeconomics C) pertains only to macroeconomics D) is based upon value judgments

B)the anticipation of a particular event can affect the nature or composition of that event when it occurs. C)what is true for the individual must necessarily be true for the group.

D)because event A precedes event B, A is necessarily the cause of B.

C) unlimited resources to satisfy limited wants.
D) limited resources to satisfy limited wants.

21. The concept of economic efficiency is primarily concerned with: A) the limited wants-unlimited resources dilemma.

D) the quantities available of some resources exceed the demand for them.

23. Economic resources are also called:
A) free gifts of nature B) consumption goods C) units of money capital D) factors of production

25. A market:
A) reflects upward sloping demand and downward sloping supply curves. B) entails the exchange of goods, but not services.

C) is an institution which brings together buyers and sellers.

27. The law of demand states that:
A) price and quantity demanded are inversely related.

B) the larger the number of buyers in a market, the lower will be product price. C) price and quantity demanded are directly related.

29. Economists use the term "demand" to refer to:
A) a particular price-quantity combination on a stable demand curve.

B) the total amount spent on a particular commodity over a stipulated time period. C) an upward sloping line on a graph which relates consumer purchases and product price. D) a schedule of various combinations of market prices and amounts demanded.

D) has all of the above characteristics.

32. An increase in the price of a product will reduce the amount of it purchased because: A) supply curves are upward sloping.

35. One reason why the quantity of a good demanded increases when its price falls is that the: A) price decline shifts the supply curve to the left.

B) lower price shifts the demand curve to the left.

This can best be explained by saying that oil and coal are:
A) complementary goods and the higher price for oil increased the demand for coal.

B) substitute goods and the higher price for oil increased the demand for coal. C) complementary goods and the higher price for oil decreased the supply of coal.

D) bicycles are normal goods.

39. If two goods are complements:
A) they are consumed jointly.

A) An increase in the price of C will decrease the demand for complementary product D.

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42. A shift to the right in the demand curve for product A can be most reasonably explained by saying that:
A) consumer incomes have declined and they now want to buy less of A at each possible price.
B) the price of A has increased and, as a result, consumers want to purchase less of it.

C) consumer preferences have changed in favor of A so that they now want to buy more at each possible price.

45. The demand curve for a product might shift as the result of a change in: A) consumer tastes B) consumer incomes C) the prices of related goods D) all of the above

46. The law of supply indicates that:
A) producers will offer more of a product at high prices than they will at low prices. B) the product supply curve is downward sloping.

C) the amount of oranges that will be available at various prices has declined. D) the price of oranges will fall.

49. Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and that potatoes are a consumer substitute for bread, we would expect the price of wheat to:
A) rise, the supply of bread to increase, and the demand for potatoes to increase.

A) demand rises and supply rises B) supply falls and demand remains constant C) demand rises and supply falls D) supply rises and demand falls

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D) how far business executives can stretch their fixed costs.

53. The basic formula for the price elasticity of demand coefficient is: A) absolute decline in quantity demanded/absolute increase in price. B) percentage change in quantity demanded/percentage change in price.

55. If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will: A) increase the quantity demanded by about 2.5 percent.
B) decrease the quantity demanded by about 2.5 percent.
C) increase the quantity demanded by about 25 percent.
D) increase the quantity demanded by about 250 percent.

56. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:
A) 4.00 B) 2.09 C) 1.37 D) 3.94

59. If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then: A) the price elasticity of demand is 0.44 B) A is a complementary good C) the price elasticity of demand is 2.25 D) A is an inferior good

60. Most demand curves are relatively elastic in the upper-left portion because the original price: A) and quantity from which the percentage changes in price and quantity are calculated are both large.

61. Suppose Piazza's pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Piazza now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week:
A) demand will become more price elastic.

B) price elasticity of demand will not change as price is lowered.

B) elastic, but does not change at various points on the curve. C) inelastic, but does not change at various points on the curve. D) 1 at all points on the curve.

64. Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is:
A) 0.8. B) 1.2. C) 1.6. D) 8.0

68. The larger the positive cross elasticity coefficient of demand between products X and Y, the: A) stronger their complement.

B) greater their substitutability.

B) A scarcity of vinyl has curtailed the manufacture of LPs.

C) Most consumers perceive CD sound reproduction to be of higher quality. D) The price of LP players has increased dramatically.

72. "Essential" water is cheaper than "nonessential" diamonds because: A) new industrial uses for diamonds have been discovered.

B) the supply of water is great relative to demand and the supply of diamonds is small relative to demand. C) although the total utility of diamonds is greater, their marginal utility is small.

D) increases the amount of health care consumed.

74. Why does the existence of scarcity mean that we must make choices?

79. Why is elasticity superior to slope as a measure of the sensitivity of quantity demanded to changes in price?

80. Explain why knowing that demand is elastic tells us that a decrease in price will cause an increase in total revenue.

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84. What are the effects of a minimum wage that is set above the market-clearing wage rate for unskilled labor?

88. The cross-elasticity between two goods has been measured at –1.2. How are the goods related? Explain. Give an example of goods for which this might be a reasonable measure of cross-elasticity.

89. New York City’s public bus line has been operating at a deficit. The city decides to raise the fare from $1.50 to $1.75, anticipating enough additional revenue to cover the deficit. What assumption is the city making about price elasticity?

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76. Wants reflect our unlimited desires for goods and services without regard to our ability or willingness to make the sacrifices necessary to obtain them. The existence of scarcity means that many of those wants will not be satisfied. Demands refer to plans to buy and therefore reflect decisions about which wants to satisfy.

88. Hamburgers and buns, cameras and film, cars and gasoline, etc.

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