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PRINCIPLES OF ECONOMICS
GROUP H & I
Test 3 (Chapter 3)

1. One major reason for the law of demand is that
A. one price changing requires at least one other price to change in the opposite
direction.
B. people substitute relatively lower-priced goods for relatively higher-priced goods.
C. a higher price never reduces quantity demanded by enough to lower total revenue.
D. people are willing to produce more units at a higher price.


Graph-3

2. Refer to Graph-3. A movement from point Z to point W would have been the result of
A. a price reduction.
B. an increase in population.
C. a decline in technology.
D. an increase in the number of buyers.

3. Refer to Graph-3. Which of the following would result in a movement from D
1
to D
2
?
A. There was a decrease in the price of a substitute.
B. There was an increase in the price of a complement.
C. There was an improvement in production technology.
D. There was an increase in the number of buyers.

4. There are two universities, A and B, in a city. Tuition rises at University A and, as a
result, the demand for attending University B rises. It follows that educational services at
the two universities are
A. complements.
B. normal goods.
C. inferior goods.
D. substitutes.



D
D
P
r
i
c
e

(
d
o
l
l
a
r
s
)
Z
W
V
1
2
Quantity
1
2
3
4
5
6
2

5. Which of the following will NOT shift a supply curve?
A. A change in the price of relevant resources.
B. A change in the good's own price.
C. A change in the number of sellers.
D. A change in per-unit costs brought about by a change in taxes.

6. On a supply-and-demand diagram, equilibrium is found
A. where the supply curve intercepts the vertical axis.
B. where the demand curve intercepts the horizontal axis.
C. where the demand and supply curves intersect.
D. at every point on either curve.

Graph-4

7. Refer to Graph-4. In Graph-4,
A. there is a shortage of doctors at fee F
1
.
B. there is a surplus of doctors at fee F
1
.
C. Q
3
doctors are employed at fee F
1
.
D. Q
2
doctors are employed at fee F
1
.

8. According to __________, when prices decreases, quantity demanded rises, and when
price increases, quantity demanded falls.
A. the law of diminishing marginal utility
B. Adam Smith
C. the law of demand
D. the elasticity of demand



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9. Each point on the demand curve reflects
A. the highest price consumers are willing and able to pay for that particular unit of a
good.
B. the highest price sellers will accept for all units they are producing.
C. the lowest-cost technology available to produce a good.
D. all the wants of a household.

10. A decrease in quantity demanded caused by an increase in price is represented by a
A. movement up along the demand curve.
B. movement down along the demand curve.
C. leftward shift of the demand curve.
D. rightward shift of the demand curve.

11. People come to expect that the price of a gallon of gasoline will rise next week. As a
result,
A. next weeks supply of gasoline decreases.
B. the price of a gallon of gasoline falls today.
C. todays supply of gasoline increases.
D. todays demand for gasoline increases.

12. A supply curve shows the relation between the quantity of a good supplied and
A. the price of the good. Usually a supply curve has negative slope.
B. income. Usually a supply curve has positive slope.
C. income. Usually a supply curve has negative slope.
D. the price of the good. Usually a supply curve has positive slope.

13. Good A and good B are substitutes in production. The demand for good A decrease,
which lowers the price of good A. The decrease in the price of good A
A. increases the demand for good B.
B. decreases the demand for good B.
C. increases the supply of good B.
D. decreases the supply of good B.














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Figure 3

14. Refer to Figure 3. A price of $20 in this market will result in
A. a shortage of 50 units.
B. a surplus of 50 units.
C. a surplus of 100 units.
D. a shortage of 100 units.


Figure 4


15. Which of the diagrams in Figure 4 illustrate(s) the effect of a decrease in incomes upon
the market for secondhand clothing?
A. A and C.
B. A only.
C. B only.
D. C only.



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Figure 5


16. Which of the diagrams in Figure 5 illustrate(s) the effect of a governmental subsidy on
the market for AIDS research?
A. A only.
B. B only.
C. C only.
D. D only.

17. When UUM students leave Sintok town for the semester holidays, the demand for meals
at the restaurants in Sintok declines. This results in
A. a decrease in equilibrium price and an increase in quantity.
B. an increase in equilibrium price and quantity.
C. a decrease in equilibrium price and quantity.
D. an increase in equilibrium price, and a decrease in quantity.