ECO111 Principles of Economics Lecture 3 PDF

ECO111: Principles of Economics Chapter 3: Demand and Supply Assoc. Prof Amira Akl Ahmed Question 1: Choose the correct answer for the following questions. (1) The quantity demanded of a good or service is the amount that --------------------- (A) a consumer would like to buy but might not b...

ECO111: Principles of Economics Chapter 3: Demand and Supply Assoc. Prof Amira Akl Ahmed Question 1: Choose the correct answer for the following questions. (1) The quantity demanded of a good or service is the amount that --------------------- (A) a consumer would like to buy but might not be able to afford. (B) is actually bought during a given time period at a given price. (C) consumers plan to buy during a given time period at a given price. (D) firms are willing to sell during a given time period at a given price. (2) The law of demand states that the quantity of a good demanded varies ---------- (A) inversely with its price. (B) inversely with the price of substitute goods. (C) directly with income. (D) directly with population. (3) The price of cereal rises. As a result, people have cereal for breakfast on fewer days and eat eggs instead. This behavior is an example of -------------- (A) a decrease in the quantity demanded of cereal because of the substitution effect. (B) an increase in the quantity demanded of eggs because of the income effect. (C) a decrease in the quantity supplied of cereal because of the substitution effect. (D) an increase in the quantity supplied of eggs because of the income effect. (4) When the price of a good falls, the income effect for a normal good implies that people buy ---- (A) less of that good because the relative price of the good has fallen. (B) more of that good because the relative price of the good has risen. (C) less of that good because they cannot afford to buy all the things they previously bought. (D) more of that good because they can afford to buy more of all the things they previously bought. (5) Each point on the demand curve reflects -------------------- (A) all the wants of a given household. (B) the highest price consumers are willing and able to pay for that particular unit of a good. (C) the highest price sellers will accept for all units they are producing. (D) the lowest-cost technology available to produce a good. (6) A substitute is a good ------------------- (A) that can be used in place of another good. (B) that is not used in place of another good. (C) of lower quality than another good. (D) of higher quality than another good. Page 1 of 11 ECO111: Principles of Economics Chapter 3: Demand and Supply Assoc. Prof Amira Akl Ahmed (7) Which of the following pairs of goods are most likely substitutes? (A) DVDs and DVD players (B) cola and lemon lime soda (C) lettuce and salad dressing (D) peanut butter and gasoline (8) Cupcakes and granola bars are substitutes in consumption. The price of a granola bar increases so the demand for ------------------------- (A) granola bars will increase, that is, the demand curve will shift rightward. (B) cupcakes will increase, that is, the demand curve will shift rightward. (C) granola bars will decrease, that is, the demand curve will shift leftward. (D) cupcakes will decrease, that is, the demand curve will shift leftward. (9) An increase the expected future price of a good ------------------------ (A) increases its demand. (B) decreases its demand. (C) increases its supply. (D) has no effect on either its demand or its supply. (10) If consumers' incomes increase and the demand for bus rides decreases --------- (A) bus rides are a normal good. (B) consumers are behaving irrationally. (C) bus rides are an inferior good. (D) no answer is correct. (11) When income increases, the demand curve for X shifts rightward and the demand curve for Y shifts leftward. These shifts mean that ---------------------- (A) X and Y are complements. (B) X and Y both normal goods. (C) X is an inferior good and Y is a normal good. (D) X is a normal good and Y is an inferior good. (12) An increase in the number of consumers --------------- (A) results only in a movement along the demand curve. (B) shifts the supply curve leftward (C) shifts the demand curve rightward. (D) Both answers B and C are correct. Page 2 of 11 ECO111: Principles of Economics Chapter 3: Demand and Supply Assoc. Prof Amira Akl Ahmed Figure no. 1: Demand for fruit snack (13) In figure no.1, which movement reflects an increase in demand? (A) from point a to point e (B) from point a to point b (C) from point a to point c (D) from point a to point d (14) In figure no.1, which movement reflects a decrease in demand? (A) from point a to point e (B) from point a to point b (C) from point a to point c (D) from point a to point d (15) In figure no.1, which movement reflects a decrease in quantity demanded but NOT a decrease in demand? (A) from point a to point e (B) from point a to point b (C) from point a to point c (D) from point a to point d (16) In figure no.1, which movement reflects how consumers would react to an increase in the price of a non-fruit snack? (A) from point a to point e (B) from point a to point b (C) from point a to point c (D) from point a to point d Page 3 of 11 ECO111: Principles of Economics Chapter 3: Demand and Supply Assoc. Prof Amira Akl Ahmed (17) In figure no.1, which movement reflects an increase in the price of a substitute for fruit snacks? (A) from point a to point e (B) from point a to point b (C) from point a to point c (D) from point a to point d (18) In figure no.1, which movement reflects an increase in the price of a complement for fruit snacks? (A) from point a to point e (B) from point a to point b (C) from point a to point c (D) from point a to point d (19) In figure no.1, which movement reflects how consumers would react to an increase in the price of a fruit snack that is expected to occur in the future? (A) from point a to point e (B) from point a to point b (C) from point a to point c (D) from point a to point d (20) In figure no.1, which movement reflects an increase in income if fruit snacks are an inferior good? (A) from point a to point e (B) from point a to point b (C) from point a to point c (D) from point a to point d (21) In figure no.1, which movement reflects an increase in income if fruit snacks are a normal good? (A) from point a to point e (B) from point a to point b (C) from point a to point c (D) from point a to point d (22) In figure no.1, which movement reflects a decrease in population? (A) from point a to point e (B) from point a to point b (C) from point a to point c (D) from point a to point d Page 4 of 11 ECO111: Principles of Economics Chapter 3: Demand and Supply Assoc. Prof Amira Akl Ahmed Figure no. 2: Supply of soft drinks (23) In figure no.2, a movement from point a to point c could be the result of ---------------- (A) a decrease in technology. (B) a decrease in the relative price of a soft drink. (C) an increase in the relative price of a soft drink. (D) an increase in the money price of a soft drink. (24) In figure no.2, an increase in the price of a soft drink is shown as a movement from point a to ------- (A) none of the points that are illustrated. (B) point b. (C) point c. (D) point d. (25) In figure no.2, a movement from point a to point d would be the result of ------------------ (A) an increase in technology. (B) a decrease in the relative price of a soft drink. (C) an increase in the relative price of a soft drink. (D) an increase in the number of soft drink suppliers. (26) In figure no.2, a decrease in the price of sugar used to make soft drinks is shown as a movement from point a to a point such as ---------------- (A) none of the points that are illustrated. (B) point b. (C) point c. (D) point d. Page 5 of 11 ECO111: Principles of Economics Chapter 3: Demand and Supply Assoc. Prof Amira Akl Ahmed (27) In figure no.2, an increase in the number of suppliers would be shown as a movement from point a to a point such as ------------------------------ (A) none of the points that are illustrated. (B) point b. (C) point c. (D) point d. (28) In figure no.2, a movement from point a to point b could be the result of --------------- (A) an increase in technology. (B) a decrease in the relative price of a soft drink. (C) an increase in the relative price of a soft drink. (D) an increase in the money price of a soft drink. (29) The quantity of CDs that firms plan to sell this month depends on all of the following EXCEPT the --- (A) number of producers of CDs. (B) quantity of CDs that people plan to buy. (C) wage rate of workers who produce CDs. (D) price of a CD. (30) The quantity supplied of a good is -------------- (A) the same thing as the quantity demanded at each price. (B) the amount that the producers are planning to sell at a particular price during a given time period. (C) equal to the difference between the quantity available and the quantity desired by all consumers and producers. (D) the amount the firm would sell if it faced no resource constraints. (31) Which of the following shifts the supply curve for gasoline rightward? (A) a situation in which the quantity demanded exceeds the quantity supplied (B) an increase in the price of gasoline (C) a decrease in the price of a resource used to produce gasoline, such as crude oil (D) an increase in the demand for gas-guzzling, sport utility vehicles (32) Auto workers negotiate a wage increase. How does this wage hike affect the supply of cars? (A) It decreases the supply. (B) It increases the supply. (C) It has no effect. (D) There is not enough information to tell if the change increases, decreases, or has no effect on the supply of cars (33) Good A and good B are substitutes in production. The demand for good A increases so that the price of good A rises. The increase in the price of good A shifts the ------------ (A) demand curve for good B leftward. (B) demand curve for good B rightward. (C) supply curve of good B leftward. (D) supply curve of good B rightward. Page 6 of 11 ECO111: Principles of Economics Chapter 3: Demand and Supply Assoc. Prof Amira Akl Ahmed (34) A bakery can produce either cakes or cookies. If the price of cookies rises, then ------------- (A) the supply curve of cake shifts leftward. (B) the supply curve of cake shifts rightward. (C) there is a movement downward along the supply curve of cakes. (D) there is a movement upward along the supply curve of cakes. (35) An increase in the number of suppliers in the market results in a -------------- (A) movement up along the supply curve. (B) rightward shift in the supply curve. (C) leftward shift in the supply curve. (D) Both answers A and C are correct. (36) Growers expect that the price of a bushel of wheat will increase in one month. This belief results in ------------------ (A) an increase in current supply of wheat. (B) a decrease in current supply of wheat. (C) a decrease in future supply of wheat. (D) no change in current or future supply of wheat. (37) An increase in the number of fast-food restaurants ------------------ (A) raises the price of fast-food meals. (B) increases the demand for fast-food meals. (C) increases the supply of fast-food meals. (D) increases the demand for substitutes for fast-food meals. (38) An increase in technology for producing personal computers leads to -------------- (A) an increase in the demand for personal computers. (B) a decrease in the demand for personal computers. (C) an increase in the supply of personal computers. (D) a decrease in the supply of personal computers. (39) A severe drought has damaged this year's lettuce crop. The initial effect on the lettuce market is a --------------- (A) decrease in the demand for lettuce. (B) decrease in the supply of lettuce. (C) decrease in both the demand and supply of lettuce. (D) rightward movement along the demand curve for lettuce. (40) Which of the following shifts the supply curve for good X leftward? (A) a situation in which quantity demanded exceeds quantity supplied (B) an increase in the cost of the machinery used to produce X (C) a technological advance in the production of X (D) a decrease in the wages of workers employed to produce X Page 7 of 11 ECO111: Principles of Economics Chapter 3: Demand and Supply Assoc. Prof Amira Akl Ahmed (41) When a market is in equilibrium, -------------- (A) everyone has all they want of the commodity in question. (B) there is no shortage and no surplus at the equilibrium price. (C) the number of buyers is exactly equal to the number of sellers. (D) the supply curve has the same slope as the demand curve. (42) The equilibrium price is the price at which the quantity ---------------- (A) sold equals the quantity bought. (B) demanded equals the quantity sold. (C) demanded equals the quantity supplied. (D) supplied equals the quantity bought. Figure no.3: Market equilibrium. (43) In figure no. 3, the equilibrium price is -------------- (A) $2. (B) $4. (C) $6. (D) $8. (44) In figure no. 3, the equilibrium quantity is --------- (A) 200 units. (B) 300 units. (C) 400 units. (D) 600 units. Page 8 of 11 ECO111: Principles of Economics Chapter 3: Demand and Supply Assoc. Prof Amira Akl Ahmed )45) In figure no. 3, there is ----------------- at a price of $10. (A) a surplus of 200 units. (B) a shortage of 200 units. (C) a surplus of 400 units. (D) a shortage of 400 units. (46) In figure no. 3, at a price of $4 ------------------- (A) the equilibrium quantity is 400 units. (B) there is a surplus of 200 units. (C) the quantity supplied is 400 units. (D) there is a shortage of 200 units. (47) In figure no. 3, if the good under consideration is a normal good and income rises, then the new equilibrium quantity --------------- (A) is less than 300 units. (B) is 300 units. (C) is more than 300 units. (D) could be less than, equal to, or more than 300 units. (48) The initial supply and demand curves for a good are illustrated in figure no. 3. If there are technological advances in the production of the good, then the new equilibrium price for the good (A) is less than $6. (B) is $6. (C) is more than $6. (D) could be less than, equal to, or more than $6. (49) The initial supply and demand curves for a good are illustrated in figure no. 3. If there is a rise in the price of a factor of production used to produce the good, then the new equilibrium price----- (A) is less than $6. (B) is $6. (C) is more than $6. (D) could be less than, equal to, or more than $6. (50) When the price is below the equilibrium price, the quantity demanded ----------- (A) is less than the equilibrium quantity. The quantity supplied exceeds the equilibrium quantity. (B) exceeds the equilibrium quantity. The quantity supplied is less than the equilibrium quantity. (C) exceeds the equilibrium quantity. So does the quantity supplied. (D) is less than the equilibrium quantity. So is the quantity supplied. (51) A price below the equilibrium price results in (A) a further price fall. (B) a shortage. (C) excess supply. (D) a surplus. Page 9 of 11 ECO111: Principles of Economics Chapter 3: Demand and Supply Assoc. Prof Amira Akl Ahmed (52) If the quantity demanded exceeds the quantity supplied, then there is (A) a shortage and the price is above the equilibrium price. (B) a surplus and the price is below the equilibrium price. (C) a shortage and the price is below the equilibrium price. (D) a surplus and the price is above the equilibrium price. (53) A surplus occurs when the price is ------------- (A) equal to the equilibrium price. (B) greater than the equilibrium price. (C) less than the equilibrium price. (D) None of the above because the existence of a surplus is independent of the price of the good. (54) If the quantity of textbooks supplied is 10,000 per year and the quantity of textbooks demanded is 12,000 per year, there is a ---- in the market and the price will --------- (A) shortage; rise (B) shortage; fall (C) surplus; rise (D) surplus; fall (55) If the quantity of textbooks supplied is 10,000 per year and the quantity of textbooks demanded is 8,000 per year, there is a ------- in the market and the price will ------ (A) shortage; rise (B) shortage; fall (C) surplus; rise (D) surplus; fall Table 1: demand schedule and supply schedule for chocolate chip cookies (56) In table no. 1, what is the equilibrium quantity and equilibrium price for chocolate chip cookies? (A) 7 pounds, $3.00 per pound (B) 2 pounds, $3.00 per pound (C) 2 pounds, $6.00 per pound (D) 4 pounds, $5.00 per pound Page 10 of 11 ECO111: Principles of Economics Chapter 3: Demand and Supply Assoc. Prof Amira Akl Ahmed (57) In table no. 1, If the price is $4.00 per pound, there is a ----------- (A) shortage of 2 pounds of chocolate chip cookies. (B) shortage of 3 pounds of chocolate chip cookies. (C) shortage of 5 pounds of chocolate chip cookies. (D) surplus of 3 pounds of chocolate chip cookies. (58) In table (1), An increase in income results in an increase in the demand for chocolate cookies by an amount of 3 pounds at every price. What are the new equilibrium quantity and equilibrium price? (A) 5 pounds, $4.00 per pound (B) 5 pounds, $6.00 per pound (C) 5 pounds, $5.00 per pound (D) 4 pounds, $5.00 per pound (59) The interaction of supply and demand explains------------ (A) both the prices and the quantities of goods and services. (B) the quantities of goods and services but not their prices. (C) the prices of goods and services but not their quantities. (D) neither the prices nor the quantities of goods and services. (60) When the quantity demanded equals, quantity supplied -------------------- (A) the government must be intervening in the market. (B) there is a shortage. (C) there is a surplus. (D) none of the above. Page 11 of 11