Reference no: EM13956434

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 1. In March 2012, the state of California started requiring that all packaging for food and drink with the additive 4-methylimidazole (4-MI) be clearly labeled with a cancer warning. Because of this, both Pepsi and Coke changed their formula to eliminate 4-MI as an ingredient. If Pepsi and Coke did NOT change their formula, holding all else constant, what do you think would have happened to the demand for these goods, assuming Pepsi and Coke were in a competitive market?

a. The demand curve for both Pepsi and Coke would have shifted to the right, causing the price of both products to decrease and the profits for the companies to fall.
b. The demand curve for Pepsi and Coke would have remained unchanged, but the price of both products would have decreased and the profits for the companies would have fallen.
c. The demand curve for Pepsi and Coke would have decreased, but the prices and profits would not have changed.
d. The demand curve for only one of them would change because Pepsi and Coke are substitutes.

e. The demand curve for Pepsi and Coke would have shifted to the left, causing the price of both products to decrease and the profits for both companies to fall.

____ 2. Refer to the accompanying graph. If consumers expect the price of a good to decrease in the future and all else is held constant, we would assume that the demand curve would:

a. shift from D1 to D3.
b. remain at D1.
c. shift from D1 to D2.
d. shift from D2 to D1.

e. shift from D2 to D3.

____ 3. When the government places a tax on a good and all else is held constant, which of the following would most likely happen?
a. The overall consumption of the good decreases, assuming the good does not have a vertical demand curve.
b. The price the buyer pays for the good decreases, assuming the good does not have a
horizontal demand curve.
c. The supply curve shifts to the right.
d. The government receives no tax revenue if the tax is more than 20%.
e. The price and quantity adjust back to the competitive market equilibrium point.

____ 4. James specializes in college-level economics tutoring. He knows that, during the two weeks before finals, he can charge more for an hour of private tutoring. Expecting this price increase, James will:
a. supply less tutoring now, shifting supply to the left.
b. supply more tutoring now, shifting supply to the right.
c. supply less tutoring now, shifting supply to the right.
d. supply more tutoring now, shifting supply to the left.
e. change the price of tutoring without any shift in supply.

____ 5. When the price is _________ the equilibrium price, we would expect there to be a _________, causing the market to put _________ pressure on the price until it went back to the equilibrium price.
a. above; surplus; upward
b. above; shortage; downward
c. below; surplus; upward
d. below; shortage; downward
e. above; surplus; downward

____ 6. The economists at JET Consulting consider Campbell's Soup to be an inferior good. During a recession, when the income in the economy is decreasing, economists at JET Consulting would expect the demand curve for Campbell's Soup to _________, causing the equilibrium price to _________ and the equilibrium quantity to _________.
a. shift to the left; decrease; decrease.
b. shift to the left; increase; increase.
c. shift to the right; decrease; increase.
d. shift to the right; increase; decrease.
e. shift to the right; increase; increase.

____ 7. In the first few months of 2012, the price of gasoline increased by approximately 15%. Because of this increase, we would expect the _________ curve in the market for hybrid cars to _________.
a. demand; shift to the right
b. demand; make no movement
c. supply; shift to the left
d. demand; shift to the left
e. supply; shift to the right

____ 8. Wine and cheese are complement goods because they are consumed together. What would you expect to happen to the equilibrium quantity of cheese if the price of wine increased and all else is held constant?
a. It would increase because of a supply shift.
b. It would increase because of a demand shift.
c. It would stay the same because of both a demand and a supply shift.
d. It would decrease because of a supply shift.
e. It would decrease because of a demand shift.

____ 9. The difference between a tax and a subsidy is that when the government places a tax on a good, it _________ the equilibrium price and _________ the equilibrium quantity, whereas when the government places a subsidy on a good, it _________ the equilibrium price and _________ the equilibrium quantity.
a. increases; decreases; decreases; increases
b. increases; increases; decreases; decreases
c. decreases; decreases; increases; increases
d. decreases; increases; increases; decreases
e. increases; does not change; does not change; increases

____ 10. The market for footballs is perfectly competitive. If all else is held constant and the price of leather decreases, we would expect that the equilibrium quantity of footballs would:
a. fall and the equilibrium price would rise.
b. rise and the equilibrium price would fall.
c. fall and the equilibrium price would fall.
d. rise and the equilibrium price would rise.
e. fall and the equilibrium price would remain constant.

____ 11. Leading economic indicators suggest that incomes will be going up next year. In response to these reports, companies are forecasting increased prices for future sales of their goods. As a result of these increases, the supply curve will:
a. shift to the right, causing the equilibrium price to decrease.
b. remain the same, but the equilibrium price will increase.
c. remain the same, but the equilibrium price will decrease.
d. shift to the right, causing the equilibrium price to increase.
e. shift to the left, causing the equilibrium price to increase.

____ 12. If the price and quantity for a normal good, Good X, is $8 and 6 units at the original equilibrium, what is one possibility for the new equilibrium of Good X if we see income increase and all other factors stay constant?
a. $10 and 4 units
b. $10 and 8 units
c. $6 and 4 units
d. $6 and 8 units
e. $10 and 2 units

____ 13. If the price and quantity for an inferior good, Good X, is $8 and 6 units at the original equilibrium, what is one possibility for the new equilibrium of Good X if we see income increase and all other factors stay constant?
a. $10 and 4 units
b. $10 and 8 units
c. $6 and 4 units
d. $6 and 8 units
e. $10 and 2 units

____ 14. Spam is considered an inferior good. What would happen to the equilibrium price and quantity of Spam if income decreased and more firms started producing Spam?
a. Equilibrium price will go up and equilibrium quantity will go down.
b. Equilibrium price will go up and equilibrium quantity will go up.
c. Equilibrium price will go down and equilibrium quantity will be indeterminate.
d. Equilibrium price will be indeterminate and equilibrium quantity will go up.
e. Equilibrium price will go up and equilibrium quantity will be indeterminate.

____ 15. In one year, 15 bowling alleys opened in California. During that same year, ESPN started broadcasting professional bowling on TV, which sparked more interest in the sport. What would we expect to happen to the price and quantity of a game of bowling in California during that year?
a. Equilibrium price will be indeterminate and equilibrium quantity will go down.
b. Equilibrium price will go up and equilibrium quantity will go up.
c. Equilibrium price will go down and equilibrium quantity will be indeterminate.
d. Equilibrium price will be indeterminate and equilibrium quantity will go up.
e. Equilibrium price will go up and equilibrium quantity will be indeterminate.

____ 16. What would you expect to happen to the price of bagels if the price of flour decreased and the price of cream cheese decreased?
a. The equilibrium price of bagels will be indeterminate and the equilibrium quantity will go up.
b. The equilibrium price will go up and the equilibrium quantity will go up.
c. The equilibrium price will go down and the equilibrium quantity will be indeterminate.
d. The equilibrium price will be indeterminate and the equilibrium quantity will go down.
e. The equilibrium price will go up and the equilibrium quantity will be indeterminate.

____ 17. What would you expect to happen to the price and quantity of Pepsi if the price of Coke increases and Pepsi develops a new technology that makes its production process more efficient?
a. The equilibrium price will go up and the equilibrium quantity will go up.
b. The equilibrium price will be indeterminate and the equilibrium quantity will go up.
c. The equilibrium price will go down and the equilibrium quantity will be indeterminate.
d. The equilibrium price will be indeterminate and the equilibrium quantity will go down.
e. The equilibrium price will go up and the equilibrium quantity will be indeterminate.

____ 18. When people move to an area of the world that was previously unpopulated, we expect more consumers and more producers to spring up in that area. What would we expect to happen to the price and quantity in the markets where this happens?
a. The equilibrium price will go up and the equilibrium quantity will go up.
b. The equilibrium price will go down and equilibrium quantity will be indeterminate.
c. The equilibrium price will be indeterminate and equilibrium quantity will go up.
d. The equilibrium price will go up and equilibrium quantity will be indeterminate.
e. The equilibrium price will be indeterminate and equilibrium quantity will go down.

____ 19. What would happen to the equilibrium price and quantity for the market for cigarettes if the government increased the tax and a scientific study came out confirming that smoking cigarettes increased the rate of heart disease?
a. Equilibrium price will be indeterminate and equilibrium quantity will go down.
b. Equilibrium price will go up and equilibrium quantity will go up.
c. Equilibrium price will go down and equilibrium quantity will be indeterminate.
d. Equilibrium price will be indeterminate and equilibrium quantity will go up.
e. Equilibrium price will go up and equilibrium quantity will be indeterminate.

____ 20. According to a supply and demand model for apples, if the average household income decreases at the same time ten apple orchards go out of business, one would expect the:
a. equilibrium price of apples to increase and the equilibrium quantity of apples in the market to decrease.
b. equilibrium price of apples to be indeterminate and the equilibrium quantity of apples in the market to increase.
c. equilibrium quantity of apples in the market to be indeterminate and the equilibrium price of apples to increase.
d. equilibrium quantity of apples in the market to decrease and the equilibrium price of apples to stay the same.
e. equilibrium quantity of apples in the market to decrease and the equilibrium price of apples to be indeterminate.

____ 21. Many consumer items eventually go out of style, and because fewer people want these items,
demand for them drops. When this happens, we usually see production of these items stop. What happens to the equilibrium price and equilibrium quantity in a market like this?
a. The equilibrium price goes up and equilibrium quantity goes up.
b. The equilibrium price is indeterminate and equilibrium quantity goes up.
c. The equilibrium price goes down and equilibrium quantity is indeterminate.
d. The equilibrium price is indeterminate and equilibrium quantity goes down.
e. The equilibrium price goes up and equilibrium quantity is indeterminate.

____ 22. The change in equilibrium shown in the accompanying figure would be explained by a(n):

a. increase in the price of an input and an increase in the price of a complement.
b. decrease in the price of an input and an increase in the price of a complement.
c. decrease in the price of an input and an increase the in price of a substitute.
d. increase in the price of an input and a decrease in the price of a complement.
e. increase in the price of an input and a increase in the price of a substitute.

____ 23. What happens to the equilibrium price and equilibrium quantity of a good if both the producers and the consumers of that good expect its price to be higher in the future?
a. The equilibrium price will go up and equilibrium quantity will go up.
b. The equilibrium price will go down and equilibrium quantity will be indeterminate.
c. The equilibrium price will be indeterminate and equilibrium quantity will go up.
d. The equilibrium price will go up and equilibrium quantity will be indeterminate.
e. The equilibrium price will go up and equilibrium quantity will be indeterminate.

____ 24. Assume that the price of rubber increased at the same time that Michael Jordan, arguably the best NBA basketball player of all time, became famous. What do you expect to happen to the equilibrium price and equilibrium quantity of the basketball shoes that are promoted by Michael Jordan?
a. Equilibrium price will go up and equilibrium quantity will go down.
b. Equilibrium price will go up and equilibrium quantity will go up.
c. Equilibrium price will go down and equilibrium quantity will be indeterminate.
d. Equilibrium price will go down and equilibrium quantity will go up.
e. Equilibrium price will go up and equilibrium quantity will be indeterminate.

____ 25. Shoes are considered to be a normal good. What would happen to the equilibrium price and equilibrium quantity of shoes if income increases and the cost of labor to produce shoes increases?
a. The equilibrium price will go up and equilibrium quantity will go up.
b. The equilibrium price will be indeterminate and equilibrium quantity will go up.
c. The equilibrium price will go down and equilibrium quantity will be indeterminate.
d. The equilibrium price will go up and equilibrium quantity will be indeterminate.
e. The equilibrium price will be indeterminate and equilibrium quantity will go down.

____ 26. In agriculture, a "bumper crop" refers to a particularly productive harvest. If there is a bumper crop for wheat at the same time that more people become allergic to wheat and all else is held constant, what will happen to the equilibrium price and quantity for wheat?
a. The equilibrium price will go up and equilibrium quantity will go up.
b. The equilibrium price will be indeterminate and equilibrium quantity will go up.
c. The equilibrium price will go down and equilibrium quantity will be indeterminate.
d. The equilibrium price will go up and equilibrium quantity will be indeterminate.
e. The equilibrium price will be indeterminate and equilibrium quantity will go down.

____ 27. Top Ramen is a brand of noodles that is widely considered to be an inferior good with a high salt content. What would happen to the equilibrium price and equilibrium quantity of Top Ramen if income went up and the price of salt decreased?
a. The equilibrium price will go up and equilibrium quantity will go up.
b. The equilibrium price will go down and equilibrium quantity will be indeterminate.
c. The equilibrium price will be indeterminate and equilibrium quantity will go up.
d. The equilibrium price will go up and equilibrium quantity will be indeterminate.
e. The equilibrium price will be indeterminate and equilibrium quantity will go down.

____ 28. What would happen in the market for SUVs if the government started to subsidize the production of SUVs that get very few miles per gallon and the price of gasoline went up?
a. The equilibrium price will go up and equilibrium quantity will go up.
b. The equilibrium price will go down and equilibrium quantity will be indeterminate.
c. The equilibrium price will be indeterminate and equilibrium quantity will go up.
d. The equilibrium price will go up and equilibrium quantity will be indeterminate.
e. The equilibrium price will be indeterminate and equilibrium quantity will go down.

____ 29. If your friend says, "I am never going to buy another Avicii remix again!" his price elasticity of demand for Avicii remixes is:
a. perfectly elastic.
b. perfectly inelastic.
c. elastic.
d. inelastic.
e. unitary elastic.

____ 30. A producer knows that the price elasticity for his product is -0.5. He wants to increase quantity demanded by 30%. By what percentage does he need to change the price?
a. 10%
b. 6%
c. -9.5%
d. -60%
e. -6%

____ 31. If the price elasticity of demand for Good A is -0.2 and the price increases from $2.25 to $2.75, the percentage change in the quantity demanded of Good A is:
a. -100%.
b. 100%.
c. 4.0%
d. -4.0%.
e. unknown because not enough information is provided.

____ 32. Refer to the accompanying table. When the price drops from $5 to $3, price elasticity of demand for sushi (using the midpoint method) at an income of $30,000 is:

a. 0.71.
b. 0.67.
c. 0.10.
d. 0.33.
e. -0.67.

____ 33. Jane says that she will always spend $20 a week on lattes. Jane's demand for lattes is price:
a. inelastic.
b. elastic.
c. perfectly inelastic.
d. perfectly elastic.
e. unitary elastic.

____ 34. Cellphone companies found that when they raised the price of connecting to wireless hot spots, demand decreased more than proportionally among casual users but decreased less than proportionally among businesspeople. This is because wireless connectivity is a(n) ________ for casual users but a(n) ________ for businesspeople.
a. elastic good; inelastic good
b. luxury good; necessity good
c. normal good; inferior good
d. inelastic good; elastic good
e. inferior good; normal good

____ 35. When the price of softballs is high, a __________ in price will raise total revenue. When the price is low, the seller should __________ the price to increase total revenue.
a. decrease; raise
b. rise; raise
c. decrease; decrease
d. rise; decrease
e. decrease; not change

____ 36. When Nina decreases her price of lipstick from $7 to $5, she finds that her sales increase from 6 to 7. She faces ________ demand for her product, and this price change will ________ her total revenue.
a. elastic; raise
b. inelastic; lower
c. unitary elastic; not change
d. perfectly elastic; raise

e. perfectly inelastic; lower

Use the following scenario to answer the questions that follow:

Dairy Dream, a local ice cream store, finds that it sells out of ice cream sandwiches at the current price of $1. It raises the price to increase its revenues and finds that no one buys ice cream sandwiches anymore.

____ 37. The demand for ice cream sandwiches is:
a. inelastic.
b. elastic.
c. perfectly inelastic.
d. perfectly elastic.
e. unitary elastic.

____ 38. The owners raised the price because they believed that the demand for ice cream sandwiches is:
a. inelastic.
b. elastic.
c. relatively price sensitive.
d. perfectly elastic.
e. unitary elastic.

____ 39. When Heavenly Cookies prices its sugar cookies at $1.00, they sell 75 cookies. They lowered the price to $0.50 and sold 200 cookies. Their total revenue ________ because the price elasticity of demand for sugar cookies is ________.
a. rose; elastic
b. rose; inelastic
c. fell; elastic
d. fell; inelastic
e. stayed the same; unitary elastic

____ 40. The local National Hockey League (NHL) team decides to lower its ticket prices in order to attract more fans. They are hoping that the:
a. price elasticity of demand is perfectly inelastic.
b. price decrease matters more than the quantity increase to total revenue.
c. quantity increase matters more than the price decrease to total revenue.
d. price elasticity of demand is unitary elastic.
e. price elasticity of demand is perfectly elastic.

____ 41. While there are many pizza places in Curtisville, Pappy's Pizza is known for its distinctive deep-dish pizza with an almost pie-like crust, whereas Momma's Pizza Pizzazz is comparable to many other restaurants. Pappy's is likely to find that it can ________ prices to increase total revenue, and Mommas must ________ prices to increase total revenue.
a. raise; lower
b. lower; raise
c. raise; raise
d. lower; lower
e. raise; not change

____ 42. Refer to the accompanying table. The price elasticity of demand of erasers is __________ when the price is lowered from $1.50 to $1.00. Sellers of erasers will __________ their total revenue from this price change.

a. perfectly elastic; not change
b. elastic; raise
c. elastic; lower
d. inelastic; lower
e. inelastic; raise

____ 43. Demand for which of the following goods/services is likely to be the LEAST elastic in a Minnesota winter?
a. a blue hooded sweatshirt with fur-lined pockets
b. a blue hooded sweatshirt
c. a hooded crew-neck sweatshirt
d. a blue sweatshirt
e. a sweatshirt

____ 44. When the price of erasers increases from $1.50 to $2.50, the quantity demanded of pencils is unchanged. The cross-price elasticity of demand between erasers and pencils is ________ because erasers and pencils ________.
a. 1; are substitutes
b. 1/2; are complements
c. 0; are normal goods
d. 0; are unrelated
e. -1/2; are complements

____ 45. If the cross-price elasticity of demand between Good A and Good B is 3, the price of Good B increases, and the price elasticity of demand for Good B is inelastic, we can expect to see a(n) ________ change in the quantity demanded for Good A.
a. zero
b. small
c. infinite
d. one-for-one
e. large

____ 46. If the cross-price elasticity of demand between Good A and Good B is 3, the price of Good B increases, and the price elasticity of demand for Good B is inelastic, we can expect to see a ________ change in the quantity demanded for Good A:
a. positive, zero
b. positive, small
c. negative, infinite
d. negative, one-for-one
e. positive, large

____ 47. If the cross-price elasticity of demand between Good A and Good B is -2, the price of Good B increases, and the price elasticity of demand for Good B is elastic, we can expect to see a ________ change in the quantity demanded for Good A.
a. positive, zero
b. positive, small
c. negative, infinite
d. negative, one-for-one
e. negative, large

Refer to the accompanying table to answer the questions that follow.

____ 48. The price of erasers increases from $0.50 to $1.00 per eraser. Use the midpoint method to calculate the cross-price elasticity of demand between pencils and erasers.
a. -0.13
b. 7.67
c. -7.67
d. 0.13
e. -3

____ 49. As price elasticity of supply becomes more elastic over time, the overall shape of the supply curve:
a. becomes more vertical.
b. remains unchanged.
c. becomes closer to 45 degrees from the origin.
d. becomes completely vertical.
e. becomes more horizontal.

____ 50. Consider two labor markets. In the first, the elasticity of supply is relatively elastic, while it is relatively inelastic in the latter. Imposing a minimum wage in each market would result in ________ unemployment in the first market and ________ unemployment in the second.
a. lower; lower
b. higher; higher
c. unchanged; unchanged
d. lower; higher

e. higher; lower

Short Answer

51. Use the accompanying graph to answer the following questions.

a. What is the equilibrium price and equilibrium quantity in this market?
b. Draw an increase in demand and explain what happens to the equilibrium price and equilibrium quantity.
c. This is a special type of supply curve that we call an inelastic supply curve. What special property does it have?

52. You are given the following supply and demand equations:
QD = 100 - 2P QS = 10 + P
a. What will be the quantity demanded at a price of $40?
b. What will be the quantity supplied at the price of $30?
c. What is the equilibrium price and equilibrium quantity?

53. In 1985, International Data Corp. (IDC) estimated that 3.7 million desktop computers had been sold at an average price of $1,054. In 2000, the number sold in the United States had risen to 132 million, with the average price decreasing to $700. The change in individuals' tastes and preferences has increased their demand for computers. Explain how the price of computers dropped over the 15-year period from 1985 to 2000.

54. Assume that the demand for Choco Candy Bites is price elastic.
a. Draw a demand curve for Choco Candy Bites. Label each axis and curve.
b. Use the relatively price elastic demand curve from (a) and draw the entire market graph for Choco Candy Bites. Label the equilibrium price P1 and the equilibrium quantity Q1. If the supply curve for Choco Bites shifts to the left, will there be a relatively large or small change in P and Q? Indicate this on your graph. Label the new equilibrium price P2 and the equilibrium quantity Q2.
c. Compare this change in P and Q to the changes that would result with a relatively price inelastic demand curve.
d. What impact does the price elasticity of demand have on the change in P and Q?

55. Use the accompanying graph to answer the following questions.

a. A study shows the many health benefits of eating eggs for breakfast. Demand rises by 6 units at each price. Draw this on the graph.
b. What is the percentage change in equilibrium price for eggs?
c. If the percentage change in quantity demanded for toast decreased by 1/2 of what you found in part (b) for eggs, what is the cross-price elasticity of demand for eggs and toast?
d. Will this be positive or negative? Are eggs and toast related to each other?