Quiz 4

Time allowance: 25 minutes

1. The unique point at which the supply and demand curves intersect is called
a. market harmony.
b. coincidence.
c. equivalence.
d. equilibrium.

2. In markets, prices move toward equilibrium because of

a. the actions of buyers and sellers.
b. government regulations placed on market participants.
c. increased competition among sellers.
d. buyers' ability to affect market outcomes.

3. If a surplus exists in a market, then we know that the actual price is

a. above the equilibrium price, and quantity supplied is greater than quantity demanded.
b. above the equilibrium price, and quantity demanded is greater than quantity supplied.
c. below the equilibrium price, and quantity demanded is greater than quantity supplied.
d. below the equilibrium price, and quantity supplied is greater than quantity demanded.

4. Consider the market for portable air conditioners in equilibrium. When a heat wave strikes the
equilibrium price
a. and quantity both decrease.
b. and quantity both increase.
c. increases, and the equilibrium quantity decreases.
d. decreases, and the equilibrium quantity increases.

5. Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk
production of dairy cows. If the demand for milk is relatively inelastic, the discovery will
a. raise both price and total revenues.
b. lower both price and total revenues.
c. raise price and lower total revenues.
d. lower price and raise total revenues.
Scenario 5-4
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase
decreases both the population of dairy cows and the population of beef cattle by 50 percent.
6. Refer to Scenario 5-4. The equilibrium price will
a. increase in both the milk and beef markets.
b. increase in the milk market and decrease in the beef market.
c. decrease in the milk market and increase in the beef market.
d. decrease in both the milk and beef markets.

7. Refer to Scenario 5-4. The equilibrium quantity will

a. increase in both the milk and beef markets.
b. increase in the milk market and decrease in the beef market.
c. decrease in the milk market and increase in the beef market.
d. decrease in both the milk and beef markets.

8. Refer to Scenario 5-4. The change in equilibrium quantity will be

a. greater in the milk market than in the beef market.
b. greater in the beef market than in the milk market.
c. the same in the milk and beef markets.
d. Any of the above could be correct.

9. A price ceiling will be binding only if it is set

a. equal to the equilibrium price.
b. above the equilibrium price.
c. below the equilibrium price.
d. either above or below the equilibrium price.

10. Which of the following observations would be consistent with the imposition of a binding price
ceiling on a market? After the price ceiling becomes effective,
a. a smaller quantity of the good is bought and sold.
b. a smaller quantity of the good is demanded.
c. a larger quantity of the good is supplied.
d. the price rises above the previous equilibrium.

11. Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she
enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her
consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her
consumption by a lot. These examples illustrate the importance of
a. the availability of close substitutes in determining the price elasticity of demand.
b. a necessity versus a luxury in determining the price elasticity of demand.
c. the definition of a market in determining the price elasticity of demand.
d. the time horizon in determining the price elasticity of demand.
12. A person who takes a prescription drug to control high cholesterol most likely has a demand for that
drug that is
a. inelastic.
b. unit elastic.
c. elastic.
d. highly responsive to changes in income.

13. Studies indicate that the price elasticity of demand for beer is about 0.9. A government policy aimed
at reducing beer consumption changed the price of a case of beer from $10 to $20. According to the
midpoint method, the government policy should have reduced beer consumption by
a. 30%.
b. 40%.
c. 60%.
d. 74%.