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Chapter 4



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

1. 

One result of a drought in the midwest could be an increase in
a.
farm machinery prices.
b.
the price of diesel fuel used in farming.
c.
migrant farm workers' wages.
d.
the price of frosted shredded wheat.
 

2. 

Which of the following would be an example of a monopoly?
a.
a bakery in a large city
b.
local cement companies
c.
a local cable television company
d.
a potato farmer
 

3. 

Which of the following would be an example of an oligopolistic market?
a.
the air travel industry
b.
the domestic wheat market
c.
the software industry
d.
electrical power for residential consumers
 

4. 

The behavior of buyers is represented by
a.
demand.
b.
supply.
c.
a market.
d.
competition.
 

5. 

Each of the following are determinants of demand EXCEPT
a.
tastes.
b.
technology.
c.
income.
d.
the price of related goods.
 

6. 

The amount of the good buyers are willing and able to purchase is the
a.
demand.
b.
quantity supplied.
c.
quantity demanded.
d.
supply.
 

7. 

For economists, people's tastes and demand are
a.
beyond the realm of economics.
b.
negatively related.
c.
not related.
d.
positively related.
 

8. 

When it comes to people's tastes, economists generally believe that
a.
tastes are based on forces beyond the realm of economics.
b.
tastes are based on historical and psychological forces.
c.
tastes can only be studied through well-constructed, real-life models.
d.
since tastes do not directly affect demand, there is little need to explain people's tastes.
 

9. 

Which of the following is NOT a determinant of demand?
a.
the price of a resource
b.
the price of a complementary good
c.
the price of the good next month
d.
the price of a substitute good
 

10. 

A demand curve is
a.
the downward-sloping line relating the price of the good to the quantity demanded.
b.
the upward-sloping line relating price to quantity supplied.
c.
the curve that relates income to quantity demanded.
d.
showing the same relationship between two goods as a production possibilities frontier.
 
 
Figure 4-1
chapter4_files/i0120000.jpg
 

11. 

Refer to Figure 4-1. The movement from point A to point B on the graph shows
a.
a decrease in demand.
b.
an increase in demand.
c.
a decrease in quantity demanded.
d.
an increase in quantity demanded.
 

12. 

If, at the current price, there is a shortage of a good,
a.
sellers are producing more than buyers wish to buy.
b.
the market must be in equilibrium.
c.
the price is below the equilibrium price.
d.
quantity demanded equals quantity supplied.
 
 
Figure 4-7
chapter4_files/i0150000.jpg
 

13. 

Refer to Figure 4-7. Equilibrium price and quantity are
a.
$35,200.
b.
$35,600.
c.
$25,400.
d.
$15,200.
 
 
Figure 4-9
chapter4_files/i0170000.jpg
 

14. 

Refer to Figure 4-9. In this market, equilibrium price and quantity would be
a.
$15,400.
b.
$20,600.
c.
$25,500.
d.
$25,800.
 

15. 

Refer to Figure 4-9. If the price is $10, there would be a
a.
shortage of 200 and price would rise.
b.
surplus of 200 and price would fall.
c.
shortage of 600 and price would rise.
d.
surplus of 600 and price would fall.
 

16. 

When there is a shortage in a market,
a.
there is downward pressure on price.
b.
there is upward pressure on price.
c.
the market could still be in equilibrium.
d.
the price must be above equilibrium.
 
 
Figure 4-10
chapter4_files/i0210000.jpg
 

17. 

Refer to Figure 4-10. Graph A shows which of the following?
a.
an increase in demand
b.
an increase in quantity demanded
c.
an increase in quantity supplied
d.
All of the above are correct.
e.
Both a and c are correct.
 

18. 

Which chain of events occurs in the correct order?
a.
Quantity supplied increases, price increases, demand increases.
b.
Price increases, demand increases, quantity supplied increases.
c.
Demand increases, price increases, quantity supplied increases.
d.
Any of the above could be correct.
 

19. 

Suppose that the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?
a.
The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous.
b.
The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous.
c.
Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
d.
Both equilibrium price and equilibrium quantity would increase.
 

20. 

If there is a shortage of farm laborers, we would expect
a.
the wages of farm laborers to increase.
b.
the wages of farm laborers to decrease.
c.
the prices of farm commodities to decrease.
d.
a decrease in the demand for substitutes for farm labor.
 

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

21. 

A market is a group of buyers and sellers of a particular product.
 

22. 

A local cable TV company might be a monopolist.
 

Short Answer
 

23. 


A.
What is the difference between a "change in demand" and a "change in quantity demanded"? Graph your answer.
B.
For each of the following changes, determine whether there will be a movement along the demand curve (a change in quantity demanded) or a shift in the demand curve (a change in demand).
a.
a change in the price of a related good
b.
a change in tastes
c.
a change in the number of buyers
d.
a change in price
e.
a change in expectations
f.
a change in income
 

24. 

Fill in the accompanying table, showing whether equilibrium price and equilibrium quantity go up, down or stay the same.

 
No Change in Supply
An Increase in Supply
A Decrease in Supply
No Change in Demand



An Increase in Demand



A Decrease in Demand



 

25. 

Suppose we are analyzing the market for hot chocolate. Graphically illustrate the impact each of the following would have on demand or supply. Also show how equilibrium price and quantity have changed.
a.
Winter starts and the weather turns sharply colder.
b.
The price of tea, a substitute for hot chocolate, falls.
c.
The price of cocoa beans decreases.
d.
The price of whipped cream falls.
e.
A better method of harvesting cocoa beans is introduced.
f.
The Surgeon General of the U.S. announces that hot chocolate cures acne.
g.
Protesting farmers dump millions of gallons of milk, causing the price of milk to rise.
h.
Consumer income falls because of a recession and hot chocolate is considered a normal good.
i.
Producers expect the price of hot chocolate to increase next month.
j.
Currently, the price of hot chocolate is $0.50 per cup above equilibrium.
 



 
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