ECONOMICS: Review SUPPLY & DEMAND & BASIC APPLICATIONS

1. What is the difference between demand and quantity demanded? a. They are both numbers, but there are other differences. b. Demand is a curve, while quantity demanded is a number or point. c. Demand is a number or point, while quantity demanded is a curve. d. They are both curves, but there are other differences. e. The terms are synonymous.

2. The market-clearing price is also known as the a. equal price b. point price c. market-jumping price d. equilibrium price e. marketable price

3. A change in quantity demanded, but not demand, could occur if a. the market shifted right b. the equilibrium price remained the same c. the supply curve shifted d. the good or service was perfectly inelastic e. the good or service was elastic

4. Supply expresses the relationship between a. price and quantity supplied b. quantity supplied and quantity demanded c. demand and quantity supplied d. cost and revenue e. quantity demanded and price

5. The market-clearing price for a product is at the point where a. demand and supply are as far apart as they get b. price is at its highest point c. price is at its lowest point d. demand and supply intersect e. price is at the average point

6. If the price for a product is lower than the market-clearing price, there will be a. a surplus b. greater quantity supplied than quantity demanded c. a shortage d. perfect competition e. a monopoly

7. A government-mandated minimum price on a good or service is a a. This cannot happen; it violates the laws of supply and demand. b. price ceiling c. price wall d. price floor e. price door

8. A perfectly elastic demand curve is a. vertical b. horizontal c. positively sloped d. A demand curve cannot be perfectly elastic. e. negatively sloped

9. The demand curve for insulin is a. perfectly elastic b. unit elastic c. inelastic d. elastic e. perfectly inelastic

10. If the United States collapses from internal and external strain, causing the demand and supply for bombs, guns, and weapons to decrease, what would happen to the price and quantity exchanged? a. The change in both would be ambiguous. b. The price and quantity would increase. c. The price and quantity would decrease. d. The price would be lower and the change in quantity would be ambiguous. e. The quantity would be lower and the change in price would be ambiguous.

11. If a blight wipes out half of the world’s red cabbage in the same month that scientists discover that red cabbage cures cancer, what would happen to the price and quantity of red cabbage exchanged? a. The change in both would be ambiguous. b. The price would increase, while the change in quantity would be ambiguous. c. Both would increase. d. The quantity would increase, while the change in price would be ambiguous. e. The quantity would decrease, while the change in price would be ambiguous.

12. If two goods demonstrate positive cross price elasticity (that is, when the price of one rises the demand for the other rises in response), they are a. complementary goods b. excludable goods c. substitute goods d. rival goods e. luxury goods

13. If demand for a good decreases as income increases, the good is a(n) a. inferior good b. normal good c. ordinary good d. common good e. elastic good

14. Producer surplus is the a. surplus quantity when there is a price floor b. extra benefit consumers receive when they pay less than they are willing to for a good c. extra benefit producers receive when they get paid more than the lowest price they are willing to accept for a good d. additional quantity produced when demand increases e. price consumers pay below the equilibrium price

15. If an increase in price does NOT change total revenue, demand is a. perfectly elastic b. elastic c. unit elastic d. inelastic e. perfectly inelastic

16. An decrease in supply combined with a increase in demand will cause a(n) a. ambiguous effect on price and an increase in quantity b. ambiguous effect on price and a decrease in quantity c. decrease in price and an ambiguous effect on quantity d. increase in price and an ambiguous effect on quantity e. increase in price and an increase in quantity

17. A rational producer wishes to maximize A. production B. revenue C. labor D. standards of living E. profit

18. The golden rule of profit maximization says a producer should produce at which of these points? a. the point at which marginal supply equals marginal demand (MR = MD) b. the point at which variable cost equals marginal benefit (VC=MB) c. the point at which marginal revenue equals marginal cost (MR=MC) d. the point at which price equals quantity (P+Q e. the point at which demand equals supply (D=S)

19. The minimum wage is an example of a(n) a. excise b. externality c. price floor d. subsidy e. price ceiling

20. If a decrease in the price of a good results in increased quantity demanded, total revenue will increase. Demand for this good is a. inelastic b. perfectly inelastic c. perfectly elastic d. unit elastic e. elastic

21. What kind of good do you want more of if you get a raise? a. inferior good b. normal good c. ordinary good d. common good e. elastic good

22. Which of the following goods is likely to have the lowest price elasticity of demand? a. orange juice b. speed boats c. cigarettes d. soda pop e. movie tickets

23. Consumer surplus is the a. surplus quantity when there is a price floor b. extra benefit consumers receive when they pay less than they are willing to for a good c. extra benefit producers receive when they get paid more than the lowest price they are willing to accept for a good d. additional quantity produced when demand increases e. price consumers pay below the equilibrium price

24. The type of efficiency which occurs when no one may gain without someone else being harmed is a. productive efficiency b. allocative efficiency c. Pareto efficiency d. Kaldor-Hicks efficiency e. none of these

25. The supply curve for Oprah Winfrey is a. perfectly elastic b. perfectly inelastic d. relatively elastic d. relatively inelastic e. all of these

26. The fall in total surplus that results from a market distortion, such as a tax a. producer surplus b. consumer surplus c. total welfare surplus d. total welfare loss e. deadweight loss

26. A tax wedge cuts into and reduces a. producer surplus b. consumer surplus c. total welfare surplus d. marginal utility e. comparative advantage

27. What depicts the relationship between tax rates and tax revenue? a. the Laffer Curve b. the Lorenz Curve c. total welfare surplus d. deadweight loss e. tax incidence

28. Whether the tax falls more heavily on the producer or the consumer is a. deadweight loss b. tax incidence c. consumer surplus d. producer surplus e. total welfare