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Section One: Multiple Choice
1. If a 20% decrease in the price of long distance phone calls leads to a 35% increase in the quantity of calls demanded, we can conclude that the demand for phone calls is:
a. elastic.
b. inelastic.
c. unit elastic.
d. stretchy elastic.
2. Which of the following pairs are examples of substitutes?
i. Popcorn & Pepsi
ii. Automobiles & Motorcycles
iii. Boats & Fishing Tackle
iv. Wine & Cheese
3. Which of the following is true if the market price of a product is above the equilibrium price.
a. no producer can cover the costs of production at that price
b. quantity supplied exceeds quantity demanded at that price
c. there is a shortage in the marketplace
d. consumers are willing to buy all the units produced at that price
4. A movement along a demand curve is referred to as:
a. A change in demand
b. A demand side disturbance
c. A change in quantity demanded
d. A change in quantity supplied
_______5. A good in which the quantity demanded decreases when a person’s income increases is referred to as:
a. A normal good.
b. An inferior good
c. A substitute good
d. An inelastic good
_______6. A competitive market consists of:
a. Many buyers but only a few sellers so sellers have some control over price
b. Many sellers but only a few buyers so buyers have some control over price
c. So many buyers and sellers that no one has any control over price
d. Government intervention to keep the price stable
Use the Supply and Demand Graph below to answer questions 7-10.
________ 7. What is the equilibrium price shown on the graph above?
a. $10.00
b. $5.00
c. 3
d. $2.00
________ 8. What is the equilibrium quantity shown on the graph above?
a. 10
b. 3
c. $5.00
d. Unknown
________ 9. A price of $2.00 on the above graph would result in:
b. Marginal Utility
c. Inelastic Demand
d. Market Shortage
e. Market Surplus
________ 10. A shift of the demand curve to the right would result in :
a. A new equilibrium quantity that is lower than the equilibrium quantity shown
b. A new equilibrium price that is lower than the equilibrium price shown
c. No change in equilibrium
d. A new equilibrium price that is higher than the equilibrium price shown
Section Two: Short Answer (250 words or less)
1. Define “Elasticity of Demand”. Give an example of a product that generally has an elastic demand and an example of a product that generally has an inelastic demand.
a. Looking at the following situations, state whether the demand curve or supply curve will shift. Explain the direction of the shift and the effect on equilibrium price and quantity.
a. Effect on the Pepsi market when the price of Coca-Cola decrease.
b. Effect on automobile market when the price of engine parts increase
c. Effect on the housing market when many people move into the surrounding area
b. Explain why a necessity tends to have a more inelastic demand curve than a luxury good.
c. Define the “Law of Demand” and the “Law of Supply”.
