Economics Demand and Supply - Questions and Answers

Check the correct answer:

1.Which of the following is not held constant along a given demand curve for a good?

A)  Price.  B)  Consumer's income.  C)  The price of substitutes. 

D)  Consumer tastes.

2. Which determinant of demand changes in the personal computer market as more individuals become interested in "surfing the Internet"?

A)  Cost of factors of production.    B)  Income.    C)  Expectations.  

D)  Number of buyers.

3. If consumers expect PC manufacturers to offer discounts next month, consumers will:

A)  Increase their demand for PCs today.

B)  Decrease their demand for PCs today.

C)  Keep demand the same, but increase the quantity demanded for PCs.

D)  Keep demand the same, but decrease the quantity demanded for PCs.

4. An increase in the price of one good can cause a decrease in the demand for another good if the goods are:

 A)  Substitutes.    B)  Complements.    C)  Unrelated to each other.  

 D)  Both inferior.

5. If the quantity demanded of a good is greater than the quantity supplied of the good at the current price, then:

 A)  Price will increase until it reaches the equilibrium price.

  B)  The demand curve will shift to the left to create an equilibrium.

  C)  The supply curve will shift to the right to create an equilibrium.

  D)  There is a surplus of the good.

6. Suppose there are a series of forest fires which affect the wood industry while, at the same time, consumers demand more wooden furniture. The wooden furniture market would experience:

A)        An increase in price and an indeterminate change in quantity.

B)        An increase in price and an increase in quantity.

C)        An increase in quantity and an indeterminate change in price.

D)        A decrease in price and an indeterminate change in quantity.

7. A 20 percent increase in the quantity of pizza demanded results from a 10 percent decline in its price. The price elasticity of demand for pizza is

A)        0.5.

B)        2.0.

C)        10.0.

D)        20.0.

8. A shift of the supply curve of oil raises the price of oil from $9.50 a barrel to $10.50 a barrel and reduces the quantity demanded from 41 million to 39 million barrels a day. The price elasticity of demand for oil is

A)        2 million barrels a day per dollar.

B)        $1 per 2 million barrels a day.

C)        0.5.

D)        2.0.

9. If demand is price elastic,

A)   a 1 percent decrease in the price leads to an increase in the quantity demanded that exceeds 1 percent.

B)   a 1 percent increase in the price leads to an increase in the quantity demanded that exceeds 1 percent.

C)   a 1 percent decrease in the price leads to a decrease in the quantity demanded that is less than 1 percent.

D)        the price is very sensitive to any shift of the supply curve.

10.  Demand is perfectly inelastic when

A)        shifts in the supply curve results in no change in price.

B)        the good in question has perfect substitutes.

C)        shifts of the supply curve results in no change in quantity demanded.

D)        shifts of the supply curve results in no change in the total revenue from sales.

11.  A straight-line demand curve with negative slope intersects the horizontal axis at 100 tons per week. At the midpoint on the demand curve (corresponding to 50 tons per week) the absolute value (ignoring the negative sign) of the price elasticity of demand is

A)        0.

B)        0.5.

C)        1.0.

D)        greater than 1.0

12.  Producers’ total revenue will decrease if

A)   income increases and the good is a normal good.

B)   the price rises and demand is elastic.

C)   the price rises and demand is inelastic.

D)   income falls and the good is an inferior good.

13.  The demand for a good is elastic if

A)        an increase in its price results in an increase in total revenue.

B)        a decrease in its price results in a decrease in total revenue.

C)        an increase in its price results in a decrease in total revenue.

D)        the good is a necessity.

14.  Of the following, demand is likely to be the least elastic for

A)        Ford automobiles.

B)        Toyota automobiles.

C)        compact disc players.

D)        toothpicks.

15.  If goods are complements, definitely their

A)        cross elasticities are positive.

B)        income elasticities are positive.

C)        income elasticities are negative.

D)        cross elasticities are negative.

16. Estimating a demand equation in the form: Q = B₀ + B₁ P + B₂ I, where P is the price and I is  income. To check the significance of P effect on Q (or the explanatory power of P), the alternative hypothesis should be stated as:

A) H₀ : B₁< 0

B) H₁ : B₀< 0

C) H₁ : B₁< 0

D) H₀ : B₁ = 0

17. Estimating a demand equation in the form: Q = B₀ + B₁ P + B₂ I, where P is price and I is  income. To check the significance of the effect of P and I together on Q (or the explanatory power of the model), the null hypothesis should be stated as:

A) H₀ : B₁< 0

B) H₁ : B₁= B₂= 0

C) H₁ : B₁< 0

D) H₀ : B₁ = B₂ = 0    

18. Estimating a demand equation in the form: Q = B₀ + B₁ P + B₂ I, where P is price and I is  income. B₀ measures:

A) the intercept

B) the total slope of the demand equation

C) the effect of other variables not included in the model or in the quation

D) both (A) and (C) are correct

19) If the logarithmic values of the data on Q, P, and I were used in estimating the demand equation in its log-linear form, the estimated P coefficient would measure:

A) the slope with respect to P

B) the effect of other variables not included in the model

C) the price elasticity of demand

D) none of the above answers is correct.

20) All of the following factors increase the price elasticity of demand for a good, except one

A) the higher the cost of producing the good

B) the availability of substitutes for the good

C) the greater the percentage of income spent on the good

D) the longer the time elapsed after a certain price change