Chapter 5 — Quiz

Multiple choice

Q1. The law of demand states that, ceteris paribus: a) Higher prices cause higher quantities supplied b) Higher prices cause lower quantities demanded c) Demand is always equal to supply d) Quantity demanded depends only on income

Q2. A demand curve slopes downward because: a) Buyers always want more of everything b) Higher prices reduce quantity demanded through diminishing marginal benefit, substitution, and income effects c) Sellers don't want to charge high prices d) The government regulates demand

Q3. A movement along the demand curve is caused by: a) A change in income b) A change in the price of the good itself c) A change in tastes d) A change in the price of substitutes

Q4. A shift of the demand curve to the right is caused by: a) A decrease in income (for a normal good) b) An increase in the price of a substitute c) A decrease in the number of buyers d) An increase in the price of the good itself

Q5. A supply curve slopes upward because: a) Sellers want to sell more when prices are higher b) Producing more units becomes increasingly expensive at the margin, and higher prices attract additional sellers into the market c) Both (a) and (b) d) Sellers have no choice in the matter

Q6. A shift of the supply curve to the left is caused by: a) A decrease in input prices b) A new, cheaper production technology c) An increase in the number of sellers d) An increase in input prices

Q7. Equilibrium in a market is the point where: a) Sellers earn maximum profit b) Buyers and sellers exchange the maximum quantity c) Quantity supplied equals quantity demanded d) The government has no influence

Q8. If the actual price is above equilibrium: a) There is a shortage; prices will rise b) There is a surplus; prices will fall c) The market is in equilibrium d) Demand will shift right

Q9. If the actual price is below equilibrium: a) There is a shortage; prices will rise b) There is a surplus; prices will fall c) The market is in equilibrium d) Supply will shift right

Q10. Which of the following is NOT a shifter of demand? a) Income b) The price of substitutes c) The price of the good itself d) Tastes and preferences

Q11. When demand shifts right and supply shifts left, equilibrium price: a) Falls b) Rises c) Stays the same d) Cannot be determined

Q12. When demand and supply both shift right, equilibrium quantity: a) Falls b) Rises c) Stays the same d) Cannot be determined

Short answer

SA1. Define "shift of the demand curve" in your own words. Give one example.

SA2. Distinguish a normal good from an inferior good. Give an example of each.

SA3. A new technology halves the cost of producing widgets. Use supply and demand to predict the effect on equilibrium price and quantity.

SA4. A new study shows that drinking widget juice improves IQ. Predict the effect on equilibrium price and quantity in the widget juice market.

SA5. In the Millbrook housing example, what was the largest single factor causing rents to rise from $1,200 to $1,400? Justify your answer.

True / False

TF1. The law of demand says that demand always falls when the price rises. (True / False — be careful about wording!)

TF2. A shift of the supply curve to the right means that more is supplied at every price. (True / False)

TF3. When there is a shortage, the price will fall. (True / False)

TF4. Movement along a supply curve happens when input prices change. (True / False)

TF5. A market in equilibrium has neither a shortage nor a surplus. (True / False)

TF6. Income is a shifter of demand but not of supply. (True / False)

Selected answers and walkthroughs in appendices/answers-to-selected.md.