Economics Chapter: Demand and Supply Concepts

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Questions and Answers

Which statement best describes the "law of demand"? Other things being equal, the quantity of tennis rackets demanded will be greater if the

incomes of tennis players are higher.
price of tennis rackets is lower. (correct)
demand for tennis rackets rises.
number of tennis players is higher.
price of badminton rackets is higher.

Consider a negatively sloped demand curve for natural gas. If the supply of natural gas increases, the new equilibrium will have

the same price and larger quantity.
a lower price and a greater quantity. (correct)
a lower price and a smaller quantity.
a higher price and a larger quantity.
a higher price and a smaller quantity.

Refer to Table 32-5. The comparative advantage in cheese is held by

Portugal.
both countries.
Insufficient information to know.
neither country.
Spain. (correct)

Which of the following illustrates elastic demand?

A 10% increase in price causes a 20% decrease in quantity demanded. (C) Signup and view all the answers

Normal goods

have positive income elasticity of demand. (D) Signup and view all the answers

Suppose that the free-market equilibrium price of natural gas would be $2.00 per unit, but in an effort to protect consumers the government has fixed the price at $1.50. At this ceiling price the quantity will be greater than the quantity resulting in a __ of natural gas.

demanded; supplied; shortage Signup and view all the answers

Economists use the term "marginal utility" to describe the

change in total satisfaction caused by consumption of an additional unit of a good. (A) Signup and view all the answers

Any consumption point that is on the budget line

implies that the household is spending all of its income on the goods in question. (B) Signup and view all the answers

Refer to Table 7-4. The marginal product of labour is at its maximum when the firm changes the amount of labour hired from

2 to 3 units. (D) Signup and view all the answers

A short-run average total cost curve and a long-run average cost curve are tangent

when the plant size is at the optimal level for that level of output. (A) Signup and view all the answers

Any firm's average revenue is defined as

total revenue divided by the number of units sold. (D) Signup and view all the answers

Suppose a typical firm in a competitive industry has the following data in the short run; price = $10; output = 100 units; ATC = $8; AVC = $7. What will likely happen in the long run?

In the long run the industry will expand because firms are earning economic profits. (D) Signup and view all the answers

Refer to Figure 10-5. A profit-maximizing single-price monopolist would charge the price

P4. (D) Signup and view all the answers

Refer to Figure 10-6. Assume this pharmaceutical firm charges a single price for its drug. At its profit-maximizing level of output, consumer surplus is represented by

areas D + E. (E) Signup and view all the answers

Which of the following products is best considered a differentiated product?

clothing (B) Signup and view all the answers

Refer to Figure 11-1. If this firm is maximizing its profits, does the diagram depict a long-run equilibrium situation?

No, because this firm is earning profits which will attract new firms to this market. (E) Signup and view all the answers

Which of the following statements is the best description of a Nash equilibrium?

An outcome where each player's best strategy is to maintain its present behaviour given the present behaviour of the other players. (E) Signup and view all the answers

Refer to Figure 18-2. This income-tax system can be characterized as

progressive. (D) Signup and view all the answers

Suppose taxes are levied in the following way. No individual pays any taxes on the first $10 000 of their income. And for every dollar earned above this amount, all individuals pay 20% in taxes. This income-tax system is

progressive. (C) Signup and view all the answers

Consider an industry producing good X. The quantity of good X produced in a competitive free market will be less than the socially optimal level if

the consumption of good X generates a positive externality. (D) Signup and view all the answers

Which of the following is the best example of a public good?

light from a lighthouse (C) Signup and view all the answers

Suppose that the free-market equilibrium price of natural gas would be $2.00 per unit, but in an effort to protect consumers the government has fixed the price at $1.50. At this ceiling price the quantity will be greater than the quantity resulting in a of natural gas.

demanded; supplied; shortage Signup and view all the answers

Refer to Figure 9-2. If the market price is $1, the firm will produce ____ units of output in the short run.

0 (E) Signup and view all the answers

Jodi recently went into business producing widgets. Which of the following would be a fixed cost for her firm?

labour costs of $1000 per month

raw material costs of $5000 per month

a one-year lease on a building of $12 000

3 only (A) Signup and view all the answers

Refer to Figure 5-5. At the market-clearing price and quantity of $30 per hour and 4000 hours of gardening services purchased, the economic surplus is

the sum of the areas above the supply curve and below the demand curve i.e., areas 1, 2, 3, 4, 6, 7. (E) Signup and view all the answers

The elasticity of supply for some product will tend to be larger

the easier it is for firms to shift from the production of this product to another. (C) Signup and view all the answers

Flashcards

Law of Demand

Other things being equal, the quantity demanded of a good increases when its price decreases.

Demand Curve (Negatively Sloped)

A graphical representation of the relationship between the quantity demanded of a good and its price.