Practice_Ch3_ - Chapter 3 Practice Test Demand, Supply, and...

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Chapter 3 Practice Test Demand, Supply, and Market Equilibrium 1. If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium: a. price must rise b. price must fall c. quantity must rise d. quantity must fall Answer: a Feedback: A decrease in supply reduces equilibrium quantity while an increase in demand increases equilibrium quantity. Both, however, increase the equilibrium price. 2. Refer to the following: S 1 and D 1 represent the original supply and demand curves and S 2 and D 2 the new curves. In this market: a. both supply and demand have decreased and equilibrium price has increased b. demand has increased, supply has decreased, and equilibrium price has decreased c. both demand and supply have increased and equilibrium price has decreased d. demand has decreased, supply has increased and equilibrium price has decreased Answer: c Feedback: Both S 2 and D 2 show an increase in quantity at each possible price, indicating that both demand and supply have increased. The increase in supply has more than offset the increase in demand, however. Equilibrium has moved from point J to point L, reflecting a drop in the equilibrium price. 3. When an economist says that the demand for a product has increased, this means that: a. quantity demanded is greater at each possible price b. firms make less of the product available for sale c. consumers respond to a lower price by buying more d. the demand curve becomes steeper Answer: a Feedback: Demand is defined as the relationship between price and quantity demanded, all else equal. An “increase in demand” occurs if this relationship exhibits greater quantity demanded at each possible price. 4. Which of the following best describes an inferior good?
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a. A good for which price and quantity demanded are directly related b. A good for which price and quantity demanded are inversely related c. A good for which income and quantity demanded are directly related d. A good for which income and quantity demanded are inversely related Answer: d Feedback: An inferior good is defined as one for which demand shifts to the left when income increases. That is, quantity demanded and income move in opposite directions, all else equal. 5. A leftward shift in the demand curve for product E might be caused by: a. a decrease in income if E is an inferior good b. an increase in income if E is a normal good c. an increase in the price of a product that is a close substitute for E d. an increase in the price of a product that is complementary to E Answer: d Feedback: An increase in the price of one good will reduce the demand for its complementary good. The other options will each increase the demand for product E. 6. At the equilibrium price:
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This note was uploaded on 02/22/2011 for the course ECON 2023 taught by Professor Meier during the Spring '11 term at St. Petersburg College.

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Practice_Ch3_ - Chapter 3 Practice Test Demand, Supply, and...

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