Quiz 2 (On Chapter 4) Eco 12 Spring 2005 Udayan Roy

HOMEWORK 1 (ON BASIC SUPPLY AND DEMAND) ECO 41 FALL 2009 UDAYAN ROY

Each of the questions below is worth 1 point. The maximum score is 20 points. Answers and comments are in red.

____ 1. There are thousands of wheat farmers who produce and sell wheat and there are millions of consumers who buy wheat and wheat products. The market for wheat would be considered a. oligopolistic. b. monopolistic. c. perfectly competitive. d. monopolistically competitive. ____ 2. If a good is "normal," then an increase in income will result in a. no change in the demand for the good. b. an increase in the demand for the good. c. a decrease in the demand for the good. d. a lower market price. ____ 3. Suppose that a decrease in the price of X results in a decrease in the demand for good Y. This would mean that X and Y are a. complementary goods. b. normal goods. c. inferior goods. d. substitute goods. ____ 4. Two goods are complements if a decrease in the price of one good a. increases the quantity demanded of the other good. b. reduces the demand for the other good. c. reduces the quantity demanded of the other good. d. raises the demand for the other good. ____ 5. You love peanut butter. You hear on the news that 50 % of the peanut crop in the South has been wiped out, which will cause the price to double by the end of the year. As a result, a. your demand for peanut butter will increase by the end of the year. b. your demand for peanut butter increases today. c. your demand for peanut butter falls as you look for a substitute good. d. you decide to give up peanut butter completely. ____ 6. A market demand curve reflects a. how much all buyers are willing and able to buy at each possible price. b. how quantity demanded changes when the number of buyers changes. c. the fact that the level of income is inversely related to quantity demanded. d. when the buyers are willing to buy the most. ____ 7. Refer to Figure 4-4. Which graph could be used to show the result of 5 percent of the country's smokers deciding to stop smoking? a. A b. B c. C d. Each graph could be used to show the result. Figure 4-4 A B

____ 8. If cigarettes and marijuana are substitutes, a tax placed on cigarettes would a. decrease the demand for marijuana. b. increase the demand for marijuana. c. decrease the quantity demanded of marijuana. d. increase the quantity demanded of marijuana. ____ 9. Lead is an important input in the production of crystal. If the price of lead decreases, all else equal, we would expect the supply of a. crystal to be unaffected. b. crystal to decrease. c. crystal to increase. d. lead to increase. ____ 10. An advance in production technology will a. increase a firm's costs. b. allow firms to raise the price of their product. c. shift the supply curve to the right. d. Both a and b are correct. ____ 11. The unique point at which the supply and demand curves intersect is called a. market unity. b. an agreement. c. cohesion. d. equilibrium. ____ 12. Suppose that the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market? a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous. b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous. c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. d. Both equilibrium price and equilibrium quantity would increase.

2 Price Quantity Demanded Quantity Supplied Per Month Per Month $5 6,000 10,000 $4 8,000 8,000 $3 10,000 6,000 $2 12,000 4,000 $1 14,000 2,000

13. Given the table above, graph the demand and supply curves for flashlights. Make sure you label the equilibrium price and equilibrium quantity

14. Continuing with the previous question, the equilibrium price is _$4_____ and the equilibrium quantity is _8,000__

15. Continuing with the previous question, suppose the price is currently $5. The market for flashlights a. Is in equilibrium b. Has an excess demand (or shortage) of flashlights c. Has an excess supply (or surplus) of flashlights d. Has an excess supply (or shortage) of flashlights

16. Continuing with the previous question, suppose the price is currently $2. The market for flashlights a. Is in equilibrium b. Has an excess demand (or shortage) of flashlights c. Has an excess supply (or surplus) of flashlights d. Has an excess demand (or surplus) of flashlights

17. Which of the following is true? a. Excess supply prevails when prices are low and excess demand prevails when prices are high b. Excess supply prevails when prices are high and excess demand prevails when prices are low c. Equilibrium is possible only when prices are low d. Equilibrium is possible only when prices are high

18. The law of supply and demand assumes that a. demand curves and supply curves tend to shift to the right as time goes by. b. the price of a good will eventually rise in response to an excess demand for that good. c. when the supply curve for a good shifts, the demand curve for that good shifts in response. d. the equilibrium price of a good will be rising more often than it will be falling.

19. What would happen to the equilibrium price and quantity of coffee if the wages of the workers who grow coffee fell (supply shifts right: P↓, Q↑) and the price of tea fell (demand shifts left: P↓, Q↓)? a. Price would fall and the effect on quantity would be ambiguous. b. Price would rise and the effect on quantity would be ambiguous. c. Quantity would fall and the effect on price would be ambiguous. d. Quantity would rise and the effect on price would be ambiguous.

3 20. What will happen to the equilibrium price and quantity of traditional camera film if traditional cameras become more expensive (demand shifts left: P↓, Q↓), digital cameras become cheaper (demand shifts left: P↓, Q↓), and the cost of the resources needed to manufacture traditional film falls (supply shifts right: P↓, Q↑)? a. Price will fall and the effect on quantity is ambiguous. b. Price will rise and the effect on quantity is ambiguous. c. Quantity will fall and the effect on price is ambiguous. d. Quantity will rise and the effect on price is ambiguous.