Economics Classes: Review Questions (Chapter 4) for Econ222

Economics Classes: Review Questions (Chapter 4) for Econ222:

Review Questions (Chapter 4) for Econ222

1.	Which of the following is NOT a characteristic of a perfectly competitive market? a. The goods being offered for sale are all the same. b. Buyers and sellers are very numerous. c. Buyers and sellers are price takers. d. It is difficult for new firms to enter the market.

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2.	A market with only one firm is known as a: a. complementary market. b. monopoly. c. perfectly competitive market. d. normal market.

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3.

An increase in demand means that: a. when the price drops consumers are willing to purchase greater quantities of the good. b. consumers are willing to purchase greater quantities of the good at any given price. c. when the price rises, consumers are willing to purchase greater quantities of the good. d. consumers make the price drop by buying greater quantities of the good.

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4.	If good B is a substitute for good A, and the price of good B increases: a. the quantity demanded of good A will decrease. b. the demand for good A will increase. c. the price of good A will tend to decrease. d. the quantity demanded of good B will increase.

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5.	When the price of a good increases: a. the quantity supplied of the good will increase. b. the quantity supplied of the good will decrease. c. the supply curve of the good will shift to the right. d. the supply curve of the good will shift to the left.

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6.	A new technology that helps firms reduce production costs will cause a: a. movement down and to the left along the supply curve. b. movement up and to the right along the supply curve. c. shift to the right of the supply curve. d. shift to the left of the supply curve.

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7.	If the price in a market happens to be below equilibrium, there will be a ________ in the market, and the price will tend to ________. a. surplus, drop b. surplus, rise c. shortage, drop d. shortage, rise

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8.	If the price in a market happens to be above equilibrium, there will be a ________ in the market, and the price will tend to ________. a. surplus, drop b. surplus, rise c. shortage, drop d. shortage, rise

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9.

Suppose that a scientific study just published demonstrates that eating apples makes people much healthier. How will this affect the equilibrium price and quantity in the market? a. The equilibrium price will increase and the equilibrium quantity will decrease. b. The equilibrium price will decrease and the equilibrium quantity will increase. c. Both the equilibrium quantity and price will increase. d. Both the equilibrium quantity and price will decrease.

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10.

Suppose the price of corn syrup increases. Given that corn syrup is a major ingredient in the production of soft drinks, how will this affect the equilibrium price and quantity in the soda market? a. The equilibrium price will increase and the equilibrium quantity will decrease. b. The equilibrium price will decrease and the equilibrium quantity will increase. c. Both the equilibrium quantity and price will increase. d. Both the equilibrium quantity and price will decrease. Review Questions (Chapter 5) for Econ222 1. A good will tend to have an inelastic demand if: a. the good has many close substitutes. b. the good is a luxury. c. the market is defined very broadly. d. the time horizon is long. 2. A perfectly elastic demand is represented graphically by a: a. relatively steep demand curve. b. relatively flat demand curve. c. vertical demand curve. d. horizontal demand curve. 3. What effect will an increase in the price have on Total Revenue, if demand is elastic? a. Total Revenue will increase. b. Total Revenue will decrease. c. Total Revenue will first decrease and then increase. d. Total Revenue will remain unchanged. 4. The price elasticity of demand tends to be more elastic: a. at points further up and to the left along the demand curve. b. at points further down and to the right along the demand curve. c. when the demand curve becomes steeper. d. when the demand curve is vertical. 5. Suppose that General Cars increases the price of its Cadiclap model from $13,500 to $16,500. As a result of this, the quantity demanded of the Cadiclap model decreases from 600,000 to 400,000 per year. Find the price elasticity of demand of the Cadiclap using the Mid-Point method. a. -3.0 b. -0.5 c. -2.0 d. -0.3 6. If a firm needs to increase its Total Revenue, the firm should ________ the price, if the demand for its product is ________. a. drop, inelastic b. raise, elastic c. drop, elastic d. drop, unit elastic 7. Suppose that consumers' incomes rise by 3%, and that this causes the quantity demanded for a good to increase by 4.5%. What is the income elasticity of demand? a. 1.50 b. 0.67 c. -1.50 d. -0.67 8. Suppose that a good has an income elasticity of demand of -2.0. This means that the good is: a. normal. b. inferior. c. a substitute. d. a complement. 9. If two goods have a cross-price elasticity of demand of -0.8. This means that these goods are: a. normal. b. inferior. c. substitutes. d. complements. 10. The price of good A increases from $4.50 to $5.50. This causes the quantity demanded of good B to increase from 900 to 1100 units per month. Find the cross price elasticity of demand using the Mid-Point method. a. -1.0 b. +2.0 c. +1.0 d. -2.0 Review Questions (Chapter 6) for Econ222 1. Suppose that a regulation is in place that does not allow the price of a good to exceed $5. If this price is above the equilibrium price in the market, this would be an example of a: a. binding price ceiling. b. not binding price ceiling. c. binding price floor. d. not binding price floor. 2. Suppose that a regulation is in place that does not allow the price of a good to fall below $10. If this price is above the equilibrium price in the market, this would be an example of a: a. binding price ceiling. b. not binding price ceiling. c. binding price floor. d. not binding price floor. 3. Suppose that a regulation is in place that does not allow the price of a good to exceed $5. If this price is below the equilibrium price in the market, this would be an example of a: a. binding price ceiling. b. not binding price ceiling. c. binding price floor. d. not binding price floor. 4. If a price floor is in place and it is binding, the market will: a. remain in equilibrium, unaffected by the price floor. b. experience a shortage. c. experience a surplus. d. adjust its equilibrium point toward the price floor. 5. If a price ceiling is in place and it is binding, the market will: a. remain in equilibrium, unaffected by the price floor. b. experience a shortage. c. experience a surplus. d. adjust its equilibrium point toward the price floor. 6. If a price floor is in place and it is not binding, the market will: a. remain in equilibrium, unaffected by the price floor. b. experience a shortage. c. experience a surplus. d. adjust its equilibrium point toward the price floor. 7. If a tax is imposed on buyers of a good, the ________ curve of the good will shift ________ by the amount of the tax. a. demand, upward b. demand, downward c. supply, upward d. supply, downward 8. If a tax is imposed on sellers of a good, the ________ curve of the good will shift ________ by the amount of the tax. a. demand, upward b. demand, downward c. supply, upward d. supply, downward 9. If a tax is imposed on a good and the incidence of the tax ends up falling more heavily on the sellers than on the buyers, this will be because: a. demand is more elastic than supply for that good. b. demand is less elastic than supply for that good. c. the tax was imposed on the buyers of the good. d. the tax was imposed on the sellers of the good. 10. If a tax is imposed on a good and the incidence of the tax ends up falling more heavily on the buyers than on the sellers, this will be because: a. demand is more elastic than supply for that good. b. demand is less elastic than supply for that good. c. the tax was imposed on the buyers of the good. d. the tax was imposed on the sellers of the good.