University of the East

College of Business Administration

Manila Campus
Preliminary Examination

Name: ____________________________ Subject & Section: ________ Day(s)/Time:____________

True/False
Indicate whether the statement is true or false.

____ 1. In a market economy, supply and demand determine both the quantity of each good produced and the price at
which it is sold.

____ 2. All goods and services are sold in perfectly competitive markets.

____ 3. The quantity demanded of a product is the amount that buyers are willing and able to purchase at a particular
price.

____ 4. Individual demand curves are summed horizontally to obtain the market demand curve.

____ 5. If something happens to alter the quantity demanded at any given price, then the demand curve shifts.

____ 6. A movement upward and to the left along a given demand curve is called a decrease in demand.

____ 7. An increase in the price of a substitute good will shift the demand curve for a good to the right.

____ 8. A decrease in the price of a product and an increase in the number of buyers in the market affect the demand
curve in the same general way.

____ 9. Public service announcements, mandatory health warnings on cigarette packages, and the prohibition of
cigarette advertising on television are all policies aimed at shifting the demand curve for cigarettes to the
right.

____ 10. The law of supply states that, other things equal, when the price of a good rises, the quantity supplied of the
good falls.

____ 11. If something happens to alter the quantity supplied at any given price, then we move along the fixed supply
curve to a new quantity supplied.

____ 12. A movement along a supply curve is called a change in supply while a shift of the supply curve is called a
change in quantity supplied.

____ 13. When a seller expects the price of its product to decrease in the future, the seller's supply curve shifts left
now.

____ 14. A markets equilibrium is the point at which the supply and demand curves intersect.

____ 15. At the equilibrium price, quantity demanded is equal to quantity supplied.

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____ 16. The equilibrium price is the same as the market-clearing price.

____ 17. When the market price is above the equilibrium price, the quantity of the good demanded exceeds the quantity
supplied.

____ 18. A surplus is the same as an excess demand.

____ 19. Price will rise to eliminate a shortage.

____ 20. Surpluses drive price up while shortages drive price down.

____ 21. Demand refers to the amount buyers wish to buy, whereas the quantity demanded refers to the position of the
demand curve.

____ 22. Supply refers to the position of the supply curve, whereas the quantity supplied refers to the amount suppliers
wish to sell.

____ 23. A decrease in demand will cause a decrease in price, which will cause a decrease in supply.

____ 24. In a market economy, prices are the signals that guide the allocation of scarce resources.

____ 25. GDP is the most closely watched economic statistic because it is thought to be the best single measure of a
societys economic well-being.

____ 26. GDP can measure either the total income of everyone in the economy or the total expenditure on the
economys output of goods and services, but GDP cannot measure both at the same time.

____ 27. The government computes measures of income other than GDP because these other measures usually tell
different stories about overall economic conditions.

____ 28. If the value of an economys imports exceeds the value of that economys exports, then net exports is a
negative number.

____ 29. Nominal GDP uses constant base-year prices to place a value on the economys production of goods and
services, while real GDP uses current prices to place a value on the economys production of goods and
services.

____ 30. The term real GDP refers to a countrys actual GDP as opposed to its estimated GDP.

____ 31. Changes in real GDP reflect only changes in the amounts being produced.

____ 32. Real GDP is a better gauge of economic well-being than is nominal GDP.

____ 33. Recessions are associated with lower incomes, rising unemployment, and falling profits.

____ 34. If real GDP is higher in one country than in another, then we can be sure that the standard of living is higher
in the country with the higher real GDP.

____ 35. Other things equal, in countries with higher levels of real GDP per person, life expectancy and literacy rates
are higher than in countries with lower levels of real GDP per person.

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Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 36. For a market for a good or service to exist,

a. there must be a group of buyers and sellers.
b. there must be a specific time and place at which the good or service is traded.
c. there must be a high degree of organization present.
d. All of the above are correct.
____ 37. The highest form of competition is called
a. absolute competition.
b. cutthroat competition.
c. perfect competition.
d. market competition.
____ 38. Which of the following is not a characteristic of a perfectly competitive market?
a. Different sellers sell identical products.
b. There are many sellers.
c. Sellers must accept the price the market determines.
d. All of the above are characteristics of a perfectly competitive market.
____ 39. The law of demand states that, other things equal,
a. when the price of a good falls, the demand for the good rises.
b. when the price of a good rises, the quantity demanded of the good rises.
c. when the price of a good rises, the demand for the good falls.
d. when the price of a good falls, the quantity demanded of the good rises.
____ 40. The market demand curve
a. is the sum of all individual demand curves.
b. is the demand curve for every product in an industry.
c. shows the average quantity demanded by individual demanders at each price.
d. is always flatter than an individual demand curve.
____ 41. A decrease in the price of a good would
a. increase the supply of the good.
b. increase the quantity demanded of the good.
c. give producers an incentive to produce more to keep profits from falling.
d. shift the supply curve for the good to the left.
____ 42. Which of the following is not a determinant of the demand for a particular good?
a. the prices of related goods
b. income
c. tastes
d. the prices of the inputs used to produce the good
____ 43. If a decrease in income increases the demand for a good, then the good is
a. a substitute good.
b. a complementary good.
c. a normal good.
d. an inferior good.

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____ 44. If Juan expects to earn a higher income next month, he may choose to
a. save more now and spend less of his current income on goods and services.
b. save less now and spend more of his current income on goods and services.
c. decrease his current demand for goods and services.
d. move along his current demand curves for goods and services.
____ 45. The following table contains a supply schedule for a good.

Price Quantity Supplied

P10 100
P20 ?

If the law of supply applies to this good, then ? could be

a. 0.
b. 50.
c. 100.
d. 150.
____ 46. In a market, to find the total amount supplied at a particular price,
a. we must add up all of the amounts that firms are willing and able to supply at that price.
b. we must take the average of the amounts that firms are willing and able to supply at that
price.
c. we must add all of the costs that firms incur to supply the product at that price.
d. all determinants of demand must be taken into account.
____ 47. If suppliers expect the price of their product to fall in the future, then they will
a. decrease supply now.
b. increase supply now.
c. decrease supply in the future but not now.
d. increase supply in the future but not now.
____ 48. Buyers are able to buy all they want to buy and sellers are able to sell all they want to sell
a. at prices at and above the equilibrium price.
b. at prices at and below the equilibrium price.
c. at prices above and below the equilibrium price, but not at the equilibrium price.
d. at the equilibrium price, but not above or below the equilibrium price.

Table 1

An Increase in Supply A Decrease in Supply

An Increase in Demand A B
A Decrease in Demand C D

____ 49. Refer to Table 1. Which space represents an increase in equilibrium price and an indeterminate change in
equilibrium quantity?
a. A
b. B
c. C
d. D

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 Figure 1
price
50

45

40

35

30
S
25

20

15

10

5 D

100 200 300 400 500 600 700 800 900 quantity

____ 50. Refer to Figure 1. If the price is P10, then there would be a
a. shortage of 400 and price would rise.
b. surplus of 400 and price would rise.
c. shortage of 600 and price would rise.
d. surplus of 600 and price would rise.

Figure 2

The diagram below pertains to the demand for chicken in the Philippines.
price

DA

DB
quantity

____ 51. Refer to Figure 2. All else equal, sellers expecting the price of chicken to rise in the future would cause a
current move
a. from DA to DB.
b. from DB to DA.
c. from x to y.
d. from y to x.

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____ 52. If the demand for a product increases, then we would expect
a. equilibrium price to increase and equilibrium quantity to decrease.
b. equilibrium price to decrease and equilibrium quantity to increase.
c. equilibrium price and equilibrium quantity both to increase.
d. equilibrium price and equilibrium quantity both to decrease.
____ 53. If the supply of a product decreases, then we would expect
a. equilibrium price to increase and equilibrium quantity to decrease.
b. equilibrium price to decrease and equilibrium quantity to increase.
c. equilibrium price and equilibrium quantity both to increase.
d. equilibrium price and equilibrium quantity both to decrease.
____ 54. In any economic system, scarce resources have to be allocated among competing uses. Market economies
harness the forces of
a. government to allocate scarce resources.
b. supply and demand to allocate scarce resources.
c. credit cards to allocate scarce resources.
d. nature to allocate scarce resources.
____ 55. There is no shortage of scarce resources in a market economy because
a. the government makes shortages illegal.
b. resources are abundant in market economies.
c. prices adjust to eliminate shortages.
d. quantity supplied is always greater than quantity demanded in market economies.
____ 56. Which of the following statements about GDP is correct?
a. GDP measures two things at once: the total income of everyone in the economy and the
unemployment rate of the economys labor force.
b. Money continuously flows from households to government and then back to households,
and GDP measures this flow of money.
c. GDP is to a nations economy as household income is to a household.
d. All of the above are correct.
____ 57. In the actual economy, households
a. spend all of their income.
b. divide their income among spending, taxes, and saving.
c. buy all goods and services produced in the economy.
d. Both (a) and (c) are correct.
____ 58. Anna, a Filipino Overseas Contract Worker, works only in Germany. The value she adds to production in
Germany is included
a. in both German GDP and Philippines GDP.
b. in German GDP, but it is not included in Philippines GDP.
c. in Philippines GDP, but it is not included in German GDP.
d. in neither German GDP nor Philippines GDP.
____ 59. Which of the following statements about nominal GDP and real GDP is correct?
a. Nominal GDP is a better gauge of economic well-being than is real GDP.
b. Real GDP is a better gauge of economic well-being than is nominal GDP.
c. Real GDP and nominal GDP are equally good measures of economic well-being.
d. Nominal GDP reflects the economys ability to satisfy peoples needs and desires, but
Real GDP does not.

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____ 60. The GDP deflator is the ratio of
a. real GDP to nominal GDP multiplied by 100.
b. real GDP to the inflation rate multiplied by 100.
c. nominal GDP to real GDP multiplied by 100.
d. nominal GDP to the inflation rate multiplied by 100.

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