# ECON520QUIZ_1Fall2010AnswerKey - University of Illinois At...

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University of Illinois At Chicago Microeconomics for Business Decisions (ECON520) Quiz #1 (Fall 2010) Answer Key 1. (4 pts.) In much of the U.S., homeowners choose to heat their houses with either natural gas or home heating oil. Which of the following could cause the demand for natural gas to change? A) a decrease in the price of home-heating oil B) an increase in the number of new homes being built C) an increase in consumer tastes for natural gas as an energy source D) all of the above Demand for natural gas is affected by changes in several demand factors: the price of a substitute (A), the size of the target market (B), and consumer preferences (C) 2. (4 pts.) Which of the following factors cause a movement along a demand curve? A) change in the price of related goods (i.e. substitutes or complements) B) change in the price of the good C) change in the population D) both B and C A demand curve comes from a demand schedule – the relationship between demand and the price of a product or service. A change in any demand factor other than price would, graphically speaking, shift the demand curve. 3. (4 pts.) Suppose the true equilibrium price of good X is \$2 and the true equilibrium quantity is 124 units. If the actual price of good X is \$25: A) there will be an excess demand for good X. B) there will be an excess supply of good X. C) the market will clear. D) the quantity demanded of X will be more than 124 units. Sellers respond to higher prices by offering more due to increased profit opportunities, while buyers respond to higher prices by demanding less. If the actual price is higher than its true equilibrium price, sellers would be offering more than buyers were willing to pay .

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ECON520 Quiz #1 Answer Key (Fall 2010) – Page 2 4. (4 pts.) Plastic and steel are substitutes in the production of body panels on certain automobiles. If the price of plastic increases, with everything else remaining the same, we would expect : A) the price of steel to fall B) the demand for steel to increase C) the demand for plastic to decrease D) both B and C. As relative prices change, some manufacturers are likely to substitute away from the higher priced option (plastic) and toward the lower priced option (steel) in an effort to reduce costs (subject, of course, to the engineering specifications). 5. (4 pts.) Which of the following markets has the most restrictive geographic boundary? A) the market for retail gasoline B) the market for housing C) the market for gold D) the market for beer Sellers of houses are unable to physically move their product to potential buyers. In addition, the text authors make a point to discuss the local nature of the housing market (see page 9). 6. (4 pts.) After the September 11, 2001 attacks on the World Trade Center in New York,
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ECON520QUIZ_1Fall2010AnswerKey - University of Illinois At...

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