Basic Economics 16th Edition by Mastrianna - Test Bank

Basic Economics 16th Edition by Mastrianna – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Chapter 4—Price: The Role of Demand and Supply

 

MULTIPLE CHOICE

 

1. For demand to exist, there must be

a.	a desire and an ability to buy.
b.	a supply of the product in the market.
c.	a price that is low enough to permit all consumers to afford the product.
d.	All of these.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Law of Demand                 KEY:  Bloom’s: Knowledge

 

2. The demand for a product at a given time is defined as the

a.	desire for it.
b.	sum spent on it.
c.	measure of total utility for it.
d.	amount that would be bought at various prices.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Law of Demand                 KEY:  Bloom’s: Knowledge

 

3. The law of demand illustrates that as

a.	price decreases, demand increases.
b.	price increases, quantity demanded increases.
c.	price decreases, quantity supplied increases.
d.	price decreases, quantity demanded increases.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Law of Demand                 KEY:  Bloom’s: Analysis

 

4. The demand curve for a product slopes downward to the right because more of the product will be

a.	demanded as income rises.
b.	bought as the population grows.
c.	purchased as price falls.
d.	demanded as the price of substitutes falls.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Quantity Demanded versus Demand                    KEY:  Bloom’s: Comprehension

 

5. A change in demand means that

a.	more will be bought at a lower price.
b.	a changed amount will be bought at the same given prices.
c.	less will be purchased at a higher price.
d.	the quantity demanded changes as the price changes.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Quantity Demanded versus Demand                    KEY:  Bloom’s: Analysis

 

6. A change in demand would be illustrated by

a.	a drop in price, which causes people to buy more.
b.	an increase in price, which causes people to buy less.
c.	a change in people’s preferences that causes them to buy either more or less than before.
d.	All of these.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Quantity Demanded versus Demand                    KEY:  Bloom’s: Analysis

 

7. The price elasticity of demand is defined as

a.	the absolute change in price divided by the absolute change in quantity demanded.
b.	the absolute change in quantity demanded divided by the absolute change in price.
c.	the percentage change in quantity demanded divided by the percentage change in price.
d.	the percentage change in price divided by the percentage change in quantity demanded.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Measuring Price Elasticity of Demand                 KEY:  Bloom’s: Knowledge

 

8. When talking about demand, price elasticity refers to the

a.	price flexibility in response to demand changes.
b.	adaptability of suppliers to price changes.
c.	responsiveness of buyers to price changes.
d.	ability to stretch one’s budget by making wise choices.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Measuring Price Elasticity of Demand                 KEY:  Bloom’s: Comprehension

 

9. If 12 units of a good are sold when the price is $1 per unit, and 8 units are sold at a price of $1.50 per unit, then demand is

a.	elastic.
b.	inelastic.
c.	of indeterminate elasticity.
d.	unit elastic.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   B-Head: Measuring Price Elasticity of Demand                 KEY:  Bloom’s: Synthesis

 

10. Consider the market for bicycles. If a dealer cuts prices by 10 percent and sells 20 percent more bikes, then demand for bicycles is

a.	inelastic, and total revenue will increase.
b.	elastic, and total revenue will increase.
c.	inelastic, and total revenue will decrease.
d.	elastic, and total revenue will decrease.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   B-Head: Measuring Price Elasticity of Demand                 KEY:  Bloom’s: Synthesis

 

11. If a 2 percent change in price is followed by a 10 percent change in quantity sold, the coefficient of price elasticity is

a.	0.2.
b.	5.0.
c.	8.0.
d.	20.0.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   B-Head: Measuring Price Elasticity of Demand                 KEY:  Bloom’s: Analysis

 

12. According to the total revenue rule, if the coefficient of price elasticity of demand is less than 1 and if price goes

a.	up, total revenue stays the same.
b.	down, total revenue goes up.
c.	down, total revenue goes down.
d.	up, total revenue goes down.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Measuring Price Elasticity of Demand                 KEY:  Bloom’s: Analysis

 

13. In accordance with the law of supply, if the price doubled, the quantity supplied would generally

a.	rise.
b.	fall.
c.	double.
d.	drop by half.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Supply Schedule                KEY:  Bloom’s: Knowledge

 

14. Demand for luxuries tends to be

a.	elastic.
b.	inelastic.
c.	indeterminate.
d.	unit elastic.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Characteristics and Range of Price Elasticity        KEY:  Bloom’s: Comprehension

 

15. Which of the following is not a determinant of demand?

a.	production costs
b.	consumer expectations
c.	prices of related goods
d.	tastes and preferences of consumers

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Determinants of Demand    KEY:  Bloom’s: Evaluation

 

16. A demand curve generally

a.	is a straight horizontal line.
b.	is a straight vertical line.
c.	slopes downward to the right.
d.	slopes downward to the left.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Demand Schedule and Demand Curve                 KEY:  Bloom’s: Knowledge

 

17. Which of the following is assumed to be constant along a demand curve for pet dogs?

a.	the quantity of dogs demanded each time period
b.	the price of dogs
c.	the price of cats
d.	the number of dogs people want to buy

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Demand Schedule and Demand Curve                 KEY:  Bloom’s: Knowledge

 

18. A supply curve generally

a.	is a straight horizontal line.
b.	is a straight vertical line.
c.	slopes downward to the right.
d.	slopes upward to the right.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Supply Schedule                KEY:  Bloom’s: Knowledge

 

19. An increase in demand will cause the demand curve to

a.	move to the right.
b.	move to the left.
c.	become more vertical.
d.	become more horizontal.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Changes in Demand           KEY:  Bloom’s: Application

 

20. An increase in supply will cause the supply line to

a.	move to the left.
b.	move to the right.
c.	become more vertical.
d.	become more horizontal.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Changes in Supply             KEY:  Bloom’s: Application

 

21. A shift in the supply curve for gasoline in the United States would result if

a.	people decided to travel more by automobile.
b.	the OPEC nations decided to stop sales of crude oil to the United States.
c.	the price of gasoline increased.
d.	the price of gasoline decreased.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Changes in Supply             KEY:  Bloom’s: Application

 

22. The point where quantity demanded and quantity supplied are equal is known as the

a.	ceiling price.
b.	minimum price.
c.	equilibrium price.
d.	administered price.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Knowledge

 

23. An increase in the number of consumers, all else held constant, will shift the

a.	supply curve leftward.
b.	demand curve leftward.
c.	supply curve to the right.
d.	demand curve to the right.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Determinants of Demand    KEY:  Bloom’s: Synthesis

 

24. If quantity demanded is greater than quantity supplied, the market price must be

a.	above equilibrium.
b.	at equilibrium.
c.	below equilibrium.
d.	above cost of production.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Analysis

 

25. When demand for a product increases but the supply of the product remains unchanged, the equilibrium price of the product will

a.	rise and equilibrium quantity will decrease.
b.	fall.
c.	first fall and then return to the original level.
d.	rise, and equilibrium quantity will increase.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Evaluation

 

26. If the market price is below the equilibrium price, forces will come into play to

a.	move the price lower.
b.	move it to the equilibrium price.
c.	move it above the equilibrium price.
d.	increase the supply.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Comprehension

 

27. As price is lowered from a point higher than the equilibrium price, it will bring about

a.	an increase in demand.
b.	a decrease in supply.
c.	an increase in quantity demanded.
d.	an increase in supply.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Comprehension

 

28. A surplus quantity will occur when

a.	quantity demanded is greater than quantity supplied.
b.	price is above equilibrium.
c.	demand is elastic.
d.	price is below equilibrium.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Analysis

 

29. When the supply of a product increases but the demand for the product remains unchanged, the equilibrium price of the product will

a.	fall, and equilibrium quantity will decrease.
b.	be unaffected.
c.	first rise and then return to the original price level.
d.	fall, and equilibrium quantity will increase.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Synthesis

 

30. To maintain a price above the equilibrium price,

a.	demand must increase.
b.	supply must increase.
c.	price must be regulated.
d.	demand must decrease.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: Price Ceilings and Price Floors                            KEY:  Bloom’s: Analysis

 

31. If demand increases and supply decreases, but supply decreases more than demand increases,

a.	equilibrium price will fall.
b.	equilibrium quantity will fall.
c.	quantity sold will increase.
d.	the quantities of both demand and supply will increase.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Synthesis

 

32. If the market price of gasoline were $4 a gallon and a ceiling price of $1.50 is imposed,

a.	a surplus of gasoline occurs.
b.	a shortage of gasoline occurs.
c.	the price of gasoline would remain unchanged.
d.	the price of gasoline would increase.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: Price Ceilings and Price Floors                           KEY:  Bloom’s: Evaluation

 

33. If a price ceiling of $3 is imposed on gasoline and the market price is $2,

a.	the price of gasoline will rise.
b.	the price of gasoline will fall.
c.	the price of gasoline will remain unchanged.
d.	the demand for gasoline will increase.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   A-Head: Price Ceilings and Price Floors                            KEY:  Bloom’s: Synthesis

 

34. If a price floor of $10 a bottle is imposed on wine from California,

a.	all wine from California becomes more expensive.
b.	all wine from California becomes cheaper.
c.	the price of some wines will increase.
d.	the price floor will have no effect.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   A-Head: Price Ceilings and Price Floors                            KEY:  Bloom’s: Synthesis

 

35. A price floor will result in

a.	a decrease in price if the price floor is below the market price.
b.	a decrease in price if the price floor is above the market price.
c.	an increase in price if the price floor is above the market price.
d.	the same price as the market price.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: Price Ceilings and Price Floors                            KEY:  Bloom’s: Comprehension

 

36. To maintain a price below the equilibrium price,

a.	demand must increase.
b.	supply must increase.
c.	the government must set a ceiling price.
d.	supply must decrease.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   A-Head: Price Ceilings and Price Floors                            KEY:  Bloom’s: Knowledge

 

37. Whenever the supply of a product decreases and the demand for the product increases,

a.	the quantity exchanged in the market will increase.
b.	equilibrium price will rise.
c.	the quantity exchanged in the market will decrease.
d.	equilibrium price will fall.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   DISC: Supply and demand               KEY:  Bloom’s: Synthesis

 

38. Whenever the supply of a product increases and the demand for the product decreases,

a.	the quantity exchanged in the market will increase.
b.	equilibrium price will rise.
c.	the quantity exchanged in the market will decrease.
d.	equilibrium price will fall.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Synthesis

 

39. If both demand and supply increase, but demand increases more than supply,

a.	equilibrium price will fall.
b.	equilibrium price will rise.
c.	quantity sold will decrease.
d.	both the equilibrium price will fall and the quantity sold will decrease.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Evaluation

 

40. On a price/quantity graph, a straight horizontal demand curve

a.	has zero price elasticity.
b.	is perfectly elastic.
c.	is perfectly inelastic.
d.	is perfectly unit elastic.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Characteristics and Range of Price Elasticity        KEY:  Bloom’s: Knowledge

 

41. Along a straight-line, slanted demand curve,

a.	the price elasticity is constant.
b.	the price elasticity varies along the line.
c.	the price elasticity is the same as slope.
d.	the price elasticity cannot be measured.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Characteristics and Range of Price Elasticity        KEY:  Bloom’s: Comprehension

 

42. The total quantity of a good that all buyers in the market would buy at various prices at a given time is known as

a.	individual demand.
b.	conglomerate demand.
c.	market demand.
d.	additive demand.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Demand Schedule and Demand Curve                 KEY:  Bloom’s: Knowledge

 

43. Which of the following would not lead to a change in demand for coffee?

a.	a change in the price of coffee
b.	a change in consumer preferences for coffee
c.	a change in the price of tea
d.	a change in consumers’ disposable incomes

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Determinants of Demand    KEY:  Bloom’s: Application

 

44. The quantity supplied and price tend to vary

a.	inversely.
b.	independently.
c.	in an unrelated fashion.
d.	directly.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Supply Schedule                KEY:  Bloom’s: Knowledge

 

45. In the long run, the supply of goods is based on

a.	the availability of the resources and the costs of production.
b.	the availability of the resources and the level of consumers’ incomes.
c.	the costs of production and consumer preferences.
d.	government regulations.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Determinants of Supply      KEY:  Bloom’s: Comprehension

 

46. The law of supply states that

a.	as prices increase, quantity supplied decreases.
b.	price changes are always in the same direction as supply changes.
c.	a change in price causes a change in supply.
d.	price and quantity supplied are positively or directly related.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Supply Schedule                KEY:  Bloom’s: Knowledge

 

47. Which of the following is not a determinant of supply?

a.	improvements in technology
b.	an increase in the number of consumers
c.	changes in the profitability of producing other products
d.	a change in the cost of labor

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Determinants of Supply      KEY:  Bloom’s: Knowledge

 

48. Which of the following types of goods tend toward elastic demand?

a.	luxuries
b.	durable goods
c.	goods with multiple uses
d.	All of these.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Characteristics and Range of Price Elasticity        KEY:  Bloom’s: Application

 

49. Over the long run, the supply curve becomes

a.	unit elastic.
b.	more elastic.
c.	inelastic.
d.	negative.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Time and Elasticity of Supply                              KEY:  Bloom’s: Comprehension

 

50. If a good has perfectly inelastic demand,

a.	an infinite amount could be sold without a change in price
b.	the same amount would be purchased regardless of price
c.	any price change is matched by an equal percentage change in quantity demanded
d.	total revenue remains unchanged if the price rises or falls

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Characteristics and Range of Price Elasticity        KEY:  Bloom’s: Analysis

 

51. Refer to the following graph. An increase in demand is reflected as

 

 

a.	a shift of the demand curve from D to D1.
b.	a shift of the demand curve from D to D2.
c.	movement from point A to B along demand curve D.
d.	movement from point A to E when the price is $12.50.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Changes in Demand           KEY:  Bloom’s: Synthesis

 

52. Refer to the following graph. A decrease in demand is reflected as

 

 

a.	a shift of the demand curve from D to D1.
b.	a shift of the demand curve from D to D2.
c.	movement from point B to A along demand curve D.
d.	movement from point A to C when the price is $12.50.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Changes in Demand           KEY:  Bloom’s: Synthesis

 

53. Refer to the following graph. An increase in supply is reflected as

 

 

a.	a shift of the supply curve from S to S2.
b.	a shift of the supply curve from S to S1.
c.	a shift of the supply curve from S1 to S2.
d.	a change in the quantity supplied from 6.8 to 5.2 million minutes when price is $12.50.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Changes in Supply             KEY:  Bloom’s: Synthesis

 

54. Refer to the following graph. A decrease in supply is reflected as

 

 

a.	a shift of the supply curve from S to S2.
b.	a shift of the supply curve from S to S1.
c.	a shift of the supply curve from S2 to S1.
d.	a change in the quantity supplied from 5.2 to 8.2 million minutes when price is $12.50.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Changes in Supply             KEY:  Bloom’s: Synthesis

 

55. Refer to the following graph. Which of the following statements is true?

 

 

a.	Equilibrium is shown at point A.
b.	When the price is $13.50 a shortage exists.
c.	When the price is $11.50 a surplus exists.
d.	If the price is currently $11.00 then the price will fall over time.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Synthesis

 

56. Refer to the following graph. When the price falls from $10 to $8, demand

 

 

a.	is most elastic if the demand curve is D2.
b.	is most elastic if the demand curve is D.
c.	is most elastic if the demand curve is D1.
d.	is most inelastic if the demand curve is D.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   B-Head: Measuring Price Elasticity of Demand                 KEY:  Bloom’s: Evaluation

 

TRUE/FALSE

 

1. Demand is a list of needs or wants, regardless of purchasing power.

 

ANS:  F                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   A-Head: Demand                            KEY:  Bloom’s: Knowledge

 

2. There is a difference between demand and quantity demanded.

 

ANS:  T                    PTS:   1                    DIF:    Easy

NAT:  B-Head: Quantity Demanded versus Demand

TOP:   B-Head: Quantity Demanded versus Demand                    KEY:  Bloom’s: Knowledge

 

3. A typical demand schedule shows higher sales at lower prices.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Law of Demand                 KEY:  Bloom’s: Knowledge

 

4. The quantity of goods demanded is a function of price alone.

 

ANS:  F                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   A-Head: Demand                            KEY:  Bloom’s: Knowledge

 

5. An increase in demand causes price to rise and quantity sold to fall.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Analysis

 

6. The quantity supplied is inversely related to price.

 

ANS:  F                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Supply Schedule                KEY:  Bloom’s: Knowledge

 

7. If demand and supply increase by the same amount, equilibrium price will rise.

 

ANS:  F                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Synthesis

 

8. If supply increases more than demand, equilibrium price will fall.

 

ANS:  T                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Synthesis

 

9. A change in demand occurs whenever consumers will purchase more because of a decrease in price.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Changes in Demand           KEY:  Bloom’s: Comprehension

 

10. An increase in demand tends to increase both the equilibrium price and the amount of a commodity exchanged.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Analysis

 

11. Probably the main characteristic of a demand curve is that it slopes upward from left to right.

 

ANS:  F                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Law of Demand                 KEY:  Bloom’s: Knowledge

 

12. Typically, the higher the price of a commodity, the greater the quantity supplied.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Supply Schedule                KEY:  Bloom’s: Knowledge

 

13. Price ceilings usually create surpluses since supply is increased.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: Price Ceilings and Price Floors                            KEY:  Bloom’s: Comprehension

 

14. Price floors can create surpluses if price floors are above market prices.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: Price Ceilings and Price Floors                            KEY:  Bloom’s: Comprehension

 

15. Price elasticity of demand is a measure of consumer responsiveness to a change in price.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   A-Head: Price Elasticity of Demand                                  KEY:  Bloom’s: Knowledge

 

16. The measure of elasticity will be the same at any place along a given straight-line, slanted demand curve.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Characteristics and Range of Price Elasticity        KEY:  Bloom’s: Comprehension

 

17. If 1,000 units of a particular good would be purchased at 40 cents per unit but only 750 units would be purchased at 50 cents per unit, the demand for the good is inelastic.

 

ANS:  F                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   B-Head: Measuring Price Elasticity of Demand                 KEY:  Bloom’s: Evaluation

 

18. Graphically, perfectly elastic demand is represented by a straight horizontal line.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   B-Head: Characteristics and Range of Price Elasticity        KEY:  Bloom’s: Knowledge

 

19. It is possible for a change in the price of one commodity to lead to a change in the demand for another commodity.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Changes in Demand           KEY:  Bloom’s: Application

 

20. Any time the market price moves away from its equilibrium position to a lower price, market action will tend to force it further away from its original equilibrium position.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Comprehension

 

21. The demand for necessities and goods that require a small expenditure tends to be price inelastic.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Characteristics and Range of Price Elasticity        KEY:  Bloom’s: Analysis

 

22. If total revenue decreases when a price is decreased, the demand for the commodity is elastic.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Measuring Price Elasticity of Demand                 KEY:  Bloom’s: Synthesis

 

23. If the coefficient of elasticity for a commodity is 1.5 and the price of that commodity is raised, total revenue will decrease.

 

ANS:  T                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   B-Head: Measuring Price Elasticity of Demand                 KEY:  Bloom’s: Synthesis

 

24. The slope of a demand curve is a measure of elasticity.

 

ANS:  F                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   B-Head: Measuring Price Elasticity of Demand                 KEY:  Bloom’s: Synthesis

 

25. The demand for a fur coat tends to be more price elastic than the demand for automobile tires.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Characteristics and Range of Price Elasticity        KEY:  Bloom’s: Application

 

26. Price elasticity of demand tends to be greater for substitute items than for complementary goods.

 

ANS:  T                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   B-Head: Characteristics and Range of Price Elasticity        KEY:  Bloom’s: Evaluation

 

27. If income increases and the demand for a product increases, the product is a normal good.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Changes in Demand           KEY:  Bloom’s: Analysis

 

28. The more substitutes for a good, the more elastic its demand tends to be.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Characteristics and Range of Price Elasticity        KEY:  Bloom’s: Synthesis

 

29. The total quantity of a good offered for sale is unaffected by estimates by sellers of the probable costs of producing the good in the future.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   B-Head: Supply Schedule                KEY:  Bloom’s: Knowledge

 

30. In a market with many buyers and sellers, no one individual can influence the market price.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   A-Head: How Demand and Supply Determine Price          KEY:  Bloom’s: Knowledge

 

ESSAY

 

1. Give three reasons why a demand curve slopes downward to the right.

 

ANS:

First, more of a good will be purchased at a lower price, since those who are willing to pay a high price may buy even more of the product at a lower price. Second, those who do not think the product is worth a high price may purchase it at a lower price. Third, those who cannot afford to buy it at a high price may be able to afford it at a lower price.

 

PTS:   1                    DIF:    Moderate       NAT:  BUSPROG: Analytic

TOP:   B-Head: Law of Demand                 KEY:  Bloom’s: Evaluation

 

2. Give two specific reasons why quantity supplied is greater at a higher price.

 

ANS:

First, if a firm can make a profit at a given price, it will be inclined to produce more at a higher price and enhance its profit. Second, firms that cannot make a profit at a low price may be able to do so at a higher price and therefore will undertake production. In either case, total quantity supplied will be greater at a higher price.

 

PTS:   1                    DIF:    Moderate       NAT:  BUSPROG: Analytic

TOP:   B-Head: Supply Schedule                KEY:  Bloom’s: Evaluation

 

3. Why do necessities tend to have demand that is price inelastic, while luxuries tend to have demand that is price elastic?

 

ANS:

Necessities, such as milk for children and electricity for our homes, are hard to do without. Therefore, when their price increases, we do not tend to reduce our purchases of these commodities very much. On the other hand, a luxury, such as a fur coat or diamond necklace, is not essential and has available substitutes. Therefore, we find it much easier to reduce or eliminate our purchase of such items.

 

PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   B-Head: Characteristics and Range of Price Elasticity        KEY:  Bloom’s: Evaluation

 

4. Under what circumstances might a government price ceiling lead to the development of a black market?

 

ANS:

A so-called black market is one in which goods are being bought in violation of a government law or regulation. If the government establishes a maximum price below the free market equilibrium price, a shortage may occur at the ceiling price. Moreover, some individuals will be willing to pay a price higher than the ceiling price, so certain suppliers will violate the ceiling price and sell their products at a higher price, risking criminal prosecution in order to make more profit.

 

PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   A-Head: Price Ceilings and Price Floors                           KEY:  Bloom’s: Evaluation