Chapter

The Market Forces of Supply and Demand

1. The commercial jetliner industry, consisting of Boeing and Airbus, represents
a. perfect competition.
b. oligopoly.
c. monopoly.
d. None of the above are correct.

2. In a perfectly competitive market,

a. advertising is widely used to influence demand and price.
b. firms are price takers rather than price makers.
c. firms produce a small number
thỏa of differentiated
thuận cạnh tranh. products.
d. a small number of firms produce
b. chợ. an identical product.
c. ngành công nghiệp.
3. Suppose that a large dairy farmer is able to raise the market price of milk by withholding milk
d. ngàn.
supply from the market. In this instance,
a. the milk market is perfectly competitive.
b. buyers will decrease their demand for milk.
c. buyers will increase their demand for milk.
d. the milk market is imperfectly competitive.

4. A group of buyers and sellers with the potential to trade is known as a(n)
a. cartel.
b. market.
c. industry.
d. sector.

5. The amount of a good or service that buyers would be willing and able to purchase at a specific
price is known as
a. quantity demanded.
b. demand.
c. supply.
d. quantity supplied.

6. The demand curve for Beanie Baby dolls shows the quantity of dolls demanded
a. by suppliers of those dolls.
b. at the equilibrium price for Beanie Baby dolls.
c. at each level of income.
d. at each possible price of Beanie Baby dolls.

7. This diagram shows the market for in-line roller skates. Which of the following would cause a move
from point A to point B?
a. an increase in the price of bicycles
b. a decrease in the price of bicycles
c. a decrease in consumer incomes
d. a popular new movie that convinces teens that skateboards are really cool
8. This diagram shows the market for in-line roller skates. Which of the following would cause a move
from point A to point C?
a. an increase in the price of bicycles
b. a decrease in the price of bicycles
c. a decrease in the price of in-line roller skates
d. a decrease in consumer incomes

9. Which of the following are the best examples of substitute goods?

a. personal computers and computer software programs
b. milk and cookies
c. IBM and Gateway personal computers
d. hot dogs and mustard

10. Which of the following sets of goods are most likely to be complementary goods?
a. shoes and pizza
b. automobiles and computers
c. baseballs and baseball gloves
d. football tickets and baseball tickets

11. The diagram below shows the supply of oranges per week provided by Farmer Jones. When the
price increases from $1.00 per pound to $2.00 per pound, the quantity supplied increases to
a. 50.
b. 100.
c. 150.
d. 500.
12. If the same dairy can produce either whole milk or skim milk, an increase in the profitability of
whole milk results in a(n)
a. decrease in the quantity supplied of whole milk.
b. increase in the supply of whole milk.
c. decrease in the supply of skim milk.
d. increase in the supply of skim milk.

13. An increase in the number of tomato producers will

a. increase market supply because the price of tomatoes will rise.
b. increase market supply because market demand will increase as more tomatoes are produced.
c. increase market supply because market supply is the sum of all the individual tomato
producers’ supply curves.
d. increase market demand but leave market supply unchanged.

14. Consider the diagram below in equilibrium at point E. Firms who advertise in this market are
attempting to shift the
a. supply curve to S2.
b. supply curve to S3.
c. demand curve to D2.
d. demand curve to D3.

15. Suppose that the demand for apples increased more than the supply of apples increased. The net
effect of these two changes would be a(n)
a. increase in the equilibrium price and a decrease in the equilibrium quantity.
b. increase in the equilibrium price and an increase in the equilibrium quantity.
c. decrease in the equilibrium price and an increase in the equilibrium quantity.
d. decrease in the equilibrium price and a decrease in the equilibrium quantity.

16. Given this data, the equilibrium price and quantity of CD players are
a. $150 and 300 players.
b. $200 and 800 players.
c. $250 and 600 players.
d. $300 and 650 players.
 QUANTITY QUANTITY
PRICE DEMANDED SUPPLIED
(units per week) (units per week)
$100 1,000 100
$150 900 300
$200 800 500
$250 600 600
$300 300 650

17. Given this data, if the price of CD players is $200,

a. there will be a surplus.
b. there will be a shortage.
c. the market is in equilibrium.
d. the supply will increase.

18. Temporary shortages in a market are eliminated by

a. decreases in the price, which cause quantity supplied to fall and quantity demanded to rise.
b. decreases in the price, which cause quantity supplied to rise and quantity demanded to fall.
c. increases in the price, which cause quantity supplied to fall and quantity demanded to rise.
d. increases in the price, which cause quantity supplied to rise and quantity demanded to fall.

19. When a market is in equilibrium,

a. quantity demanded will equal quantity supplied.
b. a shortage will be present.
c. a surplus will be present.
d. sellers will continue to expand production to increase revenues.

20. If a drought destroyed half of the U.S. garlic crop at a time when the health benefits of garlic were
being well publicized, economists would expect that in the market for garlic
a. quantity exchanged would rise but the change in price is uncertain without further information.
b. price would rise but the change in quantity exchanged is uncertain without further information.
c. both price and quantity exchanged would rise.
d. price would rise and quantity exchanged would fall.

21. The discovery of new gold in South America will __________ the price of gold and __________ the
quantity of gold traded.
a. raise; raise
b. lower; raise
c. raise; lower
d. lower; lower

22. Higher wages in the U.S. auto industry would __________ the prices of autos and __________ the
quantity exchanged.
a. lower; lower
b. lower; raise
c. raise; lower
d. raise; raise

23. In this diagram of the market for beachfront property in Connecticut, the equilibrium price is
a. $100,000 per acre.
b. $200,000 per acre.
c. $300,000 per acre.
 d. $400,000 per acre.

24. Consider this diagram of the market for beachfront property in Connecticut. If the local government
decides to establish a price of $200,000 per acre there will be
a. a shortage of land.
b. a surplus of land.
c. an equilibrium quantity of land exchanged.
d. no land exchanged in the market.

25. Consider this diagram of the market for beachfront property in Connecticut. At a price of zero,
a. 500 acres will be demanded.
b. 1000 acres will be demanded.
c. 10,000 acres will be demanded.
d. an infinite number of acres will be demanded.
Chapter
Elasticity and Its Application
1. If price elasticity of demand is 2.0, this implies that consumers would
a. buy twice as much of the good if price falls by 10 percent.
b. require a 2 percent cut in price to raise quantity demanded of the good by 1 percent.
c. buy 2 percent more of the good in response to a 1 percent cut in price.
d. require at least a $2 increase in price before showing any response to the price increase.

2. If the price elasticity of demand within the price range from $1 to $1.25 for carrots is 0.79 and for
radishes is 1.6, then within that price range
a. carrots are more price elastic than radishes.
b. radishes are more price elastic than carrots.
c. carrots and radishes must be substitute goods.
d. carrots and radishes must be complementary goods.

3. Sue’s Bagel Shop wants to estimate how responsive bagels are to a change in cream cheese prices.
To accomplish this task, which of the following data would NOT be needed?
a. percentage change in bagel price
b. original price of cream cheese
c. new quantity of bagels sold
d. original quantity of bagels sold

4. If Weiskamp T-Shirt Co. lowers its price from $6 to $5 and finds that students increase their
quantity demanded from 400 to 600 T-shirts, then the demand for Weiskamp T-shirts within this
price range is
a. price inelastic.
b. price elastic.
c. unit elastic.
d. cross elastic.

5. Demand for which of the following goods is the most likely to be (nearly) perfectly elastic?
a. emergency surgery
b. Ford automobiles
c. Farmer Ben’s wheat
d. diamonds

6. The slope of the demand curve is not the same as the price elasticity of demand because the slope of
a demand curve
a. compares percentage changes in quantity demanded and price.
b. compares absolute changes in quantity demanded and price.
c. obeys the law of demand.
d. is not constant when the demand curve is linear.

7. The cross elasticity of demand for substitute goods must be

a. greater than one.
b. less than one.
c. zero.
d. greater than zero.
8. A 5 percent increase in the price of sugar reduces sugar consumption by about 10 percent. The
increase causes households to
a. spend more on sugar.
b. spend less on sugar.
c. spend the same amount on sugar.
d. consume more goods like coffee and tea that are complements of sugar.

9. In this figure, the slope of the demand curve

a. has a constant value of –2.
b. is higher between points T and U than between points V and W.
c. is lower between points T and U than between points V and W.
d. matches the value of the price elasticity of demand at each point.

10. In this figure, the price elasticity of demand between $12 and $6 using the midpoint method is
a. –.5.
b. –.82.
c. –1.22.
d. –2.00.

11. As a result of heavy spring rains in the Midwestern states, the corn crop declined sharply. If corn
growers experienced an increase in sales revenue, the demand for corn must be
a. price elastic.
b. price inelastic.
c. unitary elastic.
d. perfectly inelastic.

12. The U.S. Post Office finds that it now has extra costs associated with decontaminating first class
mail for anthrax. It is considering a rate hike, but it will only be successful in raising more revenue
to pay for these additional costs if
a. there are many substitutes for first class mail service.
b. no anthrax is found on the mail.
c. the demand for first class mail service is inelastic.
d. the rate increase is a very large one.
13. Suppose that the elasticity of supply of lawn mowers is 1.5. If the price of lawn mowers rises 5
percent, the quantity supplied of lawn mowers would
a. decline 7.5 percent.
b. rise 7.5 percent.
c. rise 1.5 percent.
d. rise 0.3 percent.

14. A decrease in supply will raise the equilibrium price most when demand is
a. relatively elastic.
b. relatively inelastic.
c. unit elastic.
d. perfectly elastic.

15. In this diagram, the price elasticity of supply between points A and B is
a. 2.
b. .33.
c. .66.
d. 3.33.

16. In this diagram, the slope of the supply curve between points A and B is
a. 2.
b. .33.
c. .66.
d. 3.33.

17. A perfectly inelastic supply curve represents a

a. product supply that is extremely responsive to a price change.
b. product with a constant price, regardless of the quantity offered for sale.
c. product in abundant supply.
d. fixed supply of a good.

18. Elasticity of supply becomes __________ elastic over time because __________.
a. less; of the growing scarcity of resources
b. less; suppliers have more time to acquire additional resources to achieve desired capacity
c. more; demand becomes more inelastic
d. more; suppliers have more time to acquire additional resources to achieve desired capacity
19. In which of the markets listed below would you expect the least elastic response from suppliers?
a. fast food
b. soft drink
c. road building
d. Picasso paintings

20. If the price elasticity of supply equals zero, this implies that
a. suppliers can easily change quantity supplied when price changes.
b. the supply curve is perfectly vertical.
c. the percentage change in price of the good supplied is zero.
d. the percentage change in quantity supplied equals the percentage change in price.

21. Elasticity of supply for the long run is

a. always greater than the long-run price elasticity of demand.
b. always zero.
c. perfectly inelastic.
d. always greater than the short-run elasticity of supply.

22. The supply of food

a. is subject to significant technological advance in the long run.
b. is characterized by a large price elasticity of demand.
c. has been decreasing over the long run.
d. can be represented by a horizontal supply curve.

23. One response to increased oil prices that reflects long-run elasticity and not short-run elasticity is
a. gasoline rationing.
b. shorter family vacations.
c. smaller cars.
d. cooler homes and offices in winter.

24. A government seeking to raise revenue would be most likely to tax a good with a
a. high income elasticity of demand.
b. low cross-price demand elasticity.
c. high price elasticity of demand.
d. low price elasticity of demand.

25. When comparing price elasticities of demand for gasoline in the long run to the short run, what can
we say about the long-run elasticities?
a. Within every price range, the price elasticity of demand for gasoline is more elastic in the long
run.
b. Consumers are less sensitive to changes in the price of gasoline in the long run.
c. Within every price range, the price elasticity of demand is less elastic in the long run.
d. The price elasticity of demand for gasoline tends to be unit elastic in the long run.

26. If the fines and jail time for dealing illegal drugs were reduced, we would expect
a. an increased demand for illegal drugs.
b. an increased supply of illegal drugs, a lower price, and higher quantity traded.
c. a decreased supply of illegal drugs, a higher price, and lower quantity traded.
d. no change in the market for illegal drugs because buyers and sellers believe they won’t get
caught.
Chapter
Supply, Demand, and
Government Policies
1. When the government issues ration coupons, it is an indication that the government has prohibited
the use of which rationing mechanism?
a. merit
b. need
c. price
d. age

2. If the equilibrium price of bread is $2 and the government imposes a $1.50 price ceiling on the price
of bread,
a. more bread will be produced to meet the increased demand.
b. there will be a shortage of bread.
c. the demand for bread will decrease because suppliers will reduce their supply.
d. a surplus of bread will emerge.

3. Rent controls typically end up

a. increasing rents received by landlords.
b. raising property values.
c. encouraging landlords to overspend for maintenance.
d. discouraging new housing construction.

4. A price ceiling might be an appropriate government response to a

a. period of falling farm prices due to unusually good harvests.
b. substantial increase in farm productivity due to applications of new technology in agriculture.
c. national security crisis leading to major shortages of essential goods.
d. period of extraordinary large surpluses of farm goods.

5. Suppose that the government places a price ceiling in the fish market, and that the ration coupons it
issues are bought and sold on a ration coupon market before they are used to purchase fish. The
a. excess supply of fish will be eliminated.
b. purpose of that price ceiling would be defeated.
c. price ceiling must have been too low.
d. price of fish set by the price ceiling would rise.

6. Assume that the government sets a ceiling on the interest rate that banks charge on loans. If the
ceiling is set below the market equilibrium interest rate, the result will be
a. a surplus of credit.
b. a shortage of credit.
c. greater profits for banks issuing credit.
d. a perfectly inelastic supply of credit in the market place.

7. In a market where the government imposes a price control, the excess demand or excess supply
created will be determined by the
a. imposed price and the slope of the demand curve.
b. imposed price and the slope of the supply curve.
 c. difference between quantity demanded and quantity supplied at the imposed price.
d. difference between the imposed price and the equilibrium price.

8. Government-created price floors are typically imposed to

a. help consumers.
b. help producers.
c. raise tax revenue.
d. shift the supply curve to the right.

9. Suppose the government imposed a minimum price in a market and a reporter for a local
newspaper wrote a story on it. The headline on the story would read:
a. “Government Action Calls for Ration Coupons”
b. “Rationing Price Replaces Market Price”
c. “Price Ceiling Replaces Equilibrium Price”
d. “Price Floor Protects Sellers from Low Incomes”

10. In the supply and demand schedules for socks shown here, if a price floor of $10 is imposed by the
government, the quantity of socks actually purchased will be
a. 6 units.
b. 10 units.
c. 2 units.
d. 8 units.

Price Quantity Quantity

Per Pair Demanded Supplied
$2.00 18 3
$4.00 14 4
$6.00 10 5
$8.00 6 6
$10.00 2 8

11. In the supply and demand schedules for socks shown here, if a price floor of $10 is imposed by the
government, there will be a
a. surplus of socks equal to 8 pairs.
b. shortage of socks equal to 16 pairs.
c. surplus of socks equal to 6 pairs.
d. market clearing quantity of 6 pairs of socks exchanged.

12. When the minimum wage is set above the equilibrium market wage,
a. there will be an excess demand for labor at the minimum wage.
b. it will have no effect on the quantity of labor employed.
c. the unemployment rate will rise.
d. the quality of the labor force will rise.

13. If the government imposes a binding price floor on sugar, it may also have to
a. establish programs to expand supply in the private sector.
b. establish programs to reduce demand in the private sector.
c. produce some sugar itself.
d. purchase the surplus sugar.

14. Consider this diagram, which shows the market for wheat. A price floor of $2.00 per bushel is
 a. binding and will generate a surplus of 100 bushels.
b. not binding and will generate a shortage of 100 bushels.
c. binding and will generate an equilibrium in this market.
d. not binding.

15. A tax on sales of a good, when compared to the market equilibrium without the tax, will result in a
__________ price paid by buyers and a __________ quantity traded.
a. higher; lower
b. lower; lower
c. higher; higher
d. lower; higher

16. Taxes levied directly on consumers

a. always hurt consumers rather than producers.
b. always hurt producers rather than consumers.
c. generate more revenue than taxes levied on producers.
d. have the same effect as taxes directly levied on producers.

17. The per-unit tax on a good is the

a. difference between the list price and the actual price paid by the buyer.
b. licensing fees and other business taxes paid by sellers, averaged over the total quantity of goods
sold.
c. difference between the total price paid by the buyer and the price received by the seller.
d. difference between wholesale and retail prices.

18. Given the market described in this diagram, the burden of the tax will fall on
a. buyers and sellers equally.
b. only the buyers.
c. only the sellers.
d. both buyers and sellers, with sellers paying the larger share.
19. A 5 percent tax is levied on products A and B, both of which have the same demand elasticity. Unit
sales of A are nearly the same after the tax, while unit sales of B fall dramatically. Which of the
following can we conclude?
a. Producers of A bear a greater share (relative to consumers) of their market’s tax burden than the
producers of B.
b. Product B has a smaller elasticity of supply than product A.
c. Tax revenue is greater from product A.
d. Tax revenue is greater from product B.

20. Consider the impact of a tax on sellers, shown in this diagram of the market for whiskey. In this
case, the total tax revenue collected by the government is
a. $3.00.
b. $1500.00.
c. $13,500.00.
d. $40,500.00.

21. Consider the impact of a tax on sellers, shown in this diagram of the market for whiskey. In this
case, the buyers’ share is __________ and the sellers’ share is __________.
a. $500; $500
b. $6750; $6750
c. $9000; $4500
d. None of the above are correct.
22. Suppose the government wants to raise additional tax revenues with the least disruption to
prevailing demand patterns. For which product should an excise tax be levied?
a. Coca Cola
b. liquor
c. Cheerios
d. hot tubs

23. The government is thinking about increasing the gasoline tax to raise additional revenue rather than
to promote conservation. The tax will result in the greatest amount of tax revenue if the price
elasticity of demand for gasoline equals
a. 1.8.
b. 1.4.
c. 1.0.
d. .5.

24. The government is thinking about increasing the gasoline tax to promote conservation. The tax will
discourage the consumption of gasoline by the greatest extent when the price elasticity of demand
equals
a. 0.1.
b. 0.7.
c. 1.3.
d. 2.0.

25. If a new excise tax is imposed on steak,

a. government’s tax revenue will decrease.
b. government’s tax revenue will increase.
c. amount of steak produced and sold will increase.
d. market price of steak will decrease.

26. A tax on fur coats will most likely

a. raise large amounts of tax revenue for the government.
b. cause a large decline in the sales of fur coats because demand is elastic.
c. be an effective way to tax the rich.
d. fall mostly on the fur coat buyers rather than the producers.