Chapter 03 - Demand, supply and equilibrium

Student: ___________________________________________________________________________

1.

The demand curve:

A. slopes downwar B. indicates consumer preferences over a range of prices. C tells producers how much of a product to produce over a rang . D. slopes downward from left to right. E indicates consumer preferences over a range of prices and slop . right. 2. Movements along the demand curve can be brought about by: A. B. a decrease in price. C changes in manufacturing technology. . D an increase in the equilibrium quantity . demanded. 3. If vegetable oil and peanut oil are substitute products, an increase in the price of vegetable oil would cause: A. B . C . D . 4.

the demand curve for peanut oil to shift to the right. an extension of quantity demanded for peanut oil. an extension of quantity demanded for vegetable oil.

The supply curve:

A. B. alone determines equilibrium price and quantity. C. does not always shift when the price of the commodity chan D. indicates producers' responses to various prices. E shows that the higher the price of the commodity, the less will . producers' responses to various prices.

5.

From an initial position of equilibrium, an increase in the price of umbrellas ceteris paribus will: A. B increase the immigration rate to drier . states. Cdecrease demand for umbrellas while attracting an increase in umbrella producers into the market. D have no impact if it was during . winter.

6.

A severe drought and crop failure would cause a decrease in the supply of tea. This would result in: A. B . C. D .

no change in the equilibrium quantity but an increase in the eq price of tea. a shift to the left in the demand curve for coffee. an increase in equilibrium price and a decrease in equilibrium tea.

7.

Excess supply: A. B. can be controlled by increasing price. C. is the same thing as a shortage of goods. D is caused by consumers demanding too much. . E occurs only when the price is below the equilibrium . level.

8.

The substitution effect suggests that: A. B as the price of a good increases, the demand curve for a . substitute good will shift to the right. C there will be no change if there is an increase in supply. . D demand will decrease for a range of closely related . products.

9.

As real income increases: A. B . C . D .

demand will increase if the good is a normal good. demand will decrease if the good is a normal good. there will be no change without a price change.

10.

Suppose that the price of raincoats were to rise and the quantity to fall. At the same time assume that there has been an increase in the price of home heating and also an increase in the quantity of heaters being demanded and supplied. From this information, you could reasonably suggest:

A. B. the weather was normal yet the cost of producing raincoats i C. the weather got colder and also the cost of producing raincoa D rainfall increased, there was an increase in humidity and this w . cost of producing raincoats or home heating. 11 The market demand curve is the sum of individual demand curves. . True False 12 The demand curve slopes downward from right to left. . True False 13 The Law of Demand highlights the direct relationship between price and quantity. . True False 14 The substitution effect only works when the price increase is high. . True False 15 An increase in money income will always increase real income. . True False 16 The quantity supplied will move in the same direction as price. . True False 17 The supply curve has a positive slope and always moves in the opposite direction to the demand curve. . True False 3

18 The market supply curve will depend on the number of individual producers. . True False 19 A position of equilibrium such as excess demand means price will eventually be forced down. . True False 20 Price adjustments and excess supply ensure that a cheaper price and small quantity will be produced. . True False Terms to their definitions 1. 'Equivalent to an increase in a person's income' 2. 'A table showing how many items producers would supply at various prices at a particular time' 3. 'A table showing how many items would be purchased over a range of prices at a particular time' 4. 'Suggests that as the price of a good changes, consumers will cease purchasing it and buy closely related goods' 5. 'The amount of a commodity that will be purchased at a given price by consumers at a point in time' 6. 'The one price where the quantity demanded is equal to the quantity supplied'

21.