Review of supply, demand and elasticity

1. In a market economy, supply and demand determine

a. both the quantity of each good produced and the price at which it is sold.
b. the quantity of each good produced but not the price at which it is sold.
c. the price at which each good is sold but not the quantity of each good produced.
d. neither the quantity of each good produced nor the price at which it is sold.

2. In a market economy,
a. supply determines demand and demand, in turn, determines prices.
b. demand determines supply and supply, in turn, determines prices.
c. the allocation of scarce resources determines prices and prices, in turn, determine supply and
demand.
d. supply and demand determine prices and prices, in turn, allocate the economy’s scarce resources.

3. In a competitive market, the price of a product

a. is determined by buyers, and the quantity of the product produced is determined by
sellers.
b. is determined by sellers, and the quantity of the product produced is determined by
buyers.
c. and the quantity of the product produced are both determined by sellers.
d. None of the above is correct. By both sellers and buyers

4. A competitive market is a market in which

a. an auctioneer helps set prices and arrange sales.
b. there are only a few sellers.
c. the forces of supply and demand do not apply.
d. no individual buyer or seller has any significant impact on the market
price.

5. Assume Diana buys computers in a competitive market. It follows that

a. Diana has a limited number of sellers to turn to when she buys a computer.
b. Diana will find herself negotiating with sellers whenever she buys a computer.
c. if Diana buys a large number of computers, the price of computers will rise
noticeably.
d. None of the above is correct.

6. An increase in quantity demanded (but quantity demanded increase, there are 2 answers)
a. results in a movement downward and to the right along a demand curve. (only the price
change)
b. results in a movement upward and to the left along a demand curve.
c. shifts the demand curve to the left.
d. shifts the demand curve to the right.

7. When the price of a good or service changes,

a. the supply curve shifts in the opposite direction.
b. the demand curve shifts in the opposite direction.
c. the demand curve shifts in the same direction.
d. there is a movement along a given demand
curve.

8. The law of demand states that, other things equal, an increase in

a. price causes quantity demanded to increase.
 b. price causes quantity demanded to decrease.
c. quantity demanded causes price to increase.
d. quantity demanded causes price to decrease.

9. The demand curve for a good is a line that relates

a. price and quantity demanded.
b. income and quantity demanded.
c. quantity demanded and quantity supplied.
d. price and income.

10. When quantity demanded increases at every possible price, the demand curve has
a. shifted to the left.
b. shifted to the right.
c. not shifted; rather, we have moved along the demand curve to a new point on the same
curve.

d. not shifted; rather, the demand curve has become steeper.

11. The market demand curve

a. is the sum of all individual demand curves.
b. is the demand curve for every product in an industry.
c. shows the average quantity demanded by individual demanders at each
price.
d. is always flatter than an individual demand curve.

12. The quantity supplied of a good is the amount that

a. buyers are willing and able to purchase.
b. sellers are able to produce.
c. buyers and sellers agree will be brought to
market.
d. sellers are willing and able to sell.

13. Which of the following would cause a movement along the supply curve for cupcakes?
a. an improvement in technology for commercial
mixers
b. a decrease in the price of cupcakes
c. an increase in the price of cake flour
d. All of the above are correct.

14. Which of these statements best represents the law of supply?

a. When input prices increase, sellers produce less of the good.
b. When production technology improves, sellers produce less of the good.
c. When the price of a good decreases, sellers produce less of the good.
d. When sellers’ supplies of a good increase, the price of the good
increases.

15. A improvement in production technology will shift the

a. supply curve to the right.
b. supply curve to the left.
c. demand curve to the right.
d. demand curve to the left.
16. If car manufacturers begin using new labor-saving technology on their assembly lines, we would not expect
a. a smaller quantity of labor to be used.
b. the supply of cars to increase.
c. the firms’ costs to fall.
d. individual car manufacturers to move up and to the right along their individual supply
curves.

17. At the equilibrium price, the quantity of the good that buyers are willing and able to buy
a. is greater than the quantity that sellers are willing and able to sell.
b. exactly equals the quantity that sellers are willing and able to sell.
c. is less than the quantity that sellers are willing and able to sell.
d. Either a) or c) could be correct.

18. Buyers are able to buy all they want to buy and sellers are able to sell all they want to sell at
a. prices at and above the equilibrium price.
b. prices at and below the equilibrium price.
c. prices above and below the equilibrium price, but not at the equilibrium
price.
d. the equilibrium price but not above or below the equilibrium price.

19. Which of the following events must cause equilibrium price to rise?
a. demand increases and supply
decreases
b. demand and supply both decrease
c. demand decreases and supply
increases
d. demand and supply both increase

20. Suppose roses are currently selling for $20 per dozen, but the equilibrium price of roses is $30 per dozen. We
would expect a
a. shortage to exist and the market price of roses to increase.
b. shortage to exist and the market price of roses to decrease.
c. surplus to exist and the market price of roses to increase.
d. surplus to exist and the market price of roses to decrease.

21. In general, elasticity is a measure of

a. the extent to which advances in technology are adopted by producers.
b. the extent to which a market is competitive.
c. how firms’ profits respond to changes in market prices.
d. how much buyers and sellers respond to changes in market conditions.

22. When studying how some event or policy affects a market, elasticity provides information on the
a. equity effects on the market by identifying the winners and losers.
b. magnitude of the effect on the market.
c. speed of adjustment of the market in response to the event or policy.
d. number of market participants who are directly affected by the event or policy.

23. The price elasticity of demand measures how much

a. quantity demanded responds to a change in price.
b. quantity demanded responds to a change in
income.
c. price responds to a change in demand.
 d. demand responds to a change in supply.

24. Demand is said to be inelastic if

a. buyers respond substantially to changes in the price of the good.
b. demand shifts only slightly when the price of the good changes.
c. the quantity demanded changes only slightly when the price of the good changes.
d. the price of the good responds only slightly to changes in demand.

25. Demand is elastic if the price elasticity of demand is

a. less than 1.
b. equal to 1.
c. equal to 0.
d. greater than 1.

26. Goods with many close substitutes tend to have

a. more elastic demands.
b. less elastic demands.
c. price elasticities of demand that are unit
elastic.
d. income elasticities of demand that are negative.

27. For a good that is a necessity, demand

a. tends to be inelastic.
b. tends to be elastic.
c. has unit elasticity.
d. cannot be represented by a demand curve in the usual
way.

28. The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would
realize an increase in total revenue if the (supply curve shift to right)
a. supply of wheat is elastic.
b. supply of wheat is inelastic.
c. demand for wheat is inelastic.
d. demand for wheat is elastic.

29. The supply of oil is likely to be

a. inelastic in both the short run and long run.
b. elastic in both the short run and long run.
c. elastic in the short run and inelastic in the long
run.
d. inelastic in the short run and elastic in the long
run.