Practice 1: Demand and Supply Demand Questions

Answer true or false (1-7).

1. An increase in demand is illustrated graphically by a shift upward and to the right by the demand curve. +

2. If price falls and, in response, quantity demanded rises, this represents an increase in demand. -

3. A perfectly elastic demand curve has an elasticity of zero. -

4. When demand is elastic and price is raised, total revenue will fall. +

5. When demand is inelastic and price is lowered, total revenue will rise. -

6. Utility is measured by a product's usefulness. +

7. Elasticity of demand is found by dividing the percentage change in price by the percentage change in quantity. -

Multiple-Choice Questions

Circle the letter that corresponds to the best answer.

1. If demand is inelastic and price is raised, total revenue will

a. rise

b. fall

c. stay the same

d. possibly rise or possibly fall

2. If demand is elastic and price is lowered, total revenue will

a. rise

b. fall

c. stay the same

d. possibly rise or possibly fall

3. Demand is elastic when

a. percentage change in price is greater than percentage change in quantity

b. percentage change in quantity is greater than percentage change in price

c. the demand curve is vertical

d. price increases raise total revenue

4. Each of the following may lead to a change in the demand for product A except

a. a change in the price of product A

b. a change in people's taste for product A

c. a change in people's incomes

d. a change in the price of product B (a substitute for product A)

5. The retail market for gasoline is

a. local

b. regional

c. national

d. international

6. Suppose the price of a service falls and people buy more of that service. What has happened?

a. Quantity demanded changed.

b. Demand changed.

c. Demand increased.

d. Demand decreased.

8. The most important determinant of the degree of elasticity of demand is

a. whether the item is a big-ticket item

b. whether the item is a luxury

c. how many uses the product has

d. the availability of substitutes

9. The advertiser wants to push her product's demand curve

a. to the right and make it more elastic

b. to the right and make it less elastic

c. to the left and make it more elastic

d. to the left and make it less elastic

10. Which statement is true about the graph in Figure 1?

a. Demand is perfectly elastic.

b. Demand is perfectly inelastic.

c. Demand is more elastic at point X than at point Y.

d. Demand is more elastic at point Y than at point X.

Figure 1

11. As income rises, the demand for inferior goods

a. rises

b. falls

c. stays about the same

d. cannot be determined

For questions 12 through 17, use choices a through d (the same choice may be used more than once) and Figures 2 and 3.

a. change in quantity demanded

b. change in demand

c. increase in demand

d. decrease in demand

Figure 2

Figure 3

12. A move from I to J d

13. A move from J to K a

14. A move from K to L b

15. A move from M to N c

16. A move from N to O d

17. A move from O to P b

18. A 5 percent increase in the price of sugar causes the quantity demanded to fall by 15 percent. The demand for sugar is

a. perfectly elastic

b. elastic

c. unit elastic

d. inelastic

e. perfectly inelastic

19. If the price of cameras falls, there will be a(n)

a. decrease in the demand for film

b. decrease in the quantity of cameras demanded

c. decrease in the supply of cameras

d. increase in the demand for cameras

e. increase in the quantity of cameras demanded

20. The market demand for a good will decrease

a. as income decreases if the good is an inferior good

b. if the market price of a substitute good increases

c. as income decreases if the good is a normal good

d. if the market price of a complementary good decreases

e. as the number of consumers in the market increases

21. Demand is elastic if

a. percentage change in quantity is greater than percentage change in price

b. percentage change in price is greater than percentage change in quantity

c. percentage change in quantity demand is zero

d. percentage change in price is zero

e. percentage change in quantity is equal to percentage change in price

22. Change in which of the following would not quickly cause a shift in demand?

a. number of buyers

b. tastes

c. buyers' perception of quality of product

d. income

e. price

Supply

Questions 1 through 9: Answer true or false.

1. When marginal cost is less than average variable cost, average variable cost is rising. +

2. As output rises, average fixed cost declines. +

3. In the short run, when output is zero, total cost is zero. -

4. Average fixed cost plus average variable cost +

equals average total cost.

5. Average total cost is always greater than average variable cost, but as output rises, the difference between them narrows. +

6. The marginal cost curve always intersects the average total cost curve at the latter's minimum point. +

7. Marginal revenue is the additional revenue for selling one more unit of output. +

8. A firm will always produce at an output at which marginal revenue is greater than marginal cost. -

9. The firm's short-run supply curve runs up the marginal cost curve from the shutdown point to the break-even point. +

10. At an output of 3, if fixed cost is 100 and variable cost is 180, how much is average fixed cost, average variable cost, and average total cost?

11. Prove whether this statement is true or false: As output rises, average fixed cost rises. -

12. Profits are always maximized when Mc equals _Mr___________

_______________________coses____________________________________.