ECO501 – Principles of Economics

Tutorial 2 – Demand and Supply

Do the multiple choice and discussion questions below

Part A: Multiple Choice Questions

1. What is the "quantity demanded"?

A) the amount of a good people desire
B) the amount of a good people are able and willing to buy during a specific time period and at a
given price
C) the amount of a good people are able and willing to buy at all possible prices
D) the maximum amount of a good that can be consumed during a specific time period
E) the minimum amount of a good that people are willing to buy during a specific time period and at a
given price

2. The "law of demand" refers to the fact that, other things remaining the same, when the price
of a good rises,
A) the demand curve shifts rightward.
B) the demand curve shifts leftward.
C) there is a movement down along the demand curve to a larger quantity demanded.
D) there is a movement up along the demand curve to a smaller quantity demanded.
E) the demand curve shifts rightward and there is a movement up along the demand curve to a smaller
quantity demanded.

3. An increase in the quantity demanded is shown as

A) a movement along the demand curve.
B) a movement toward the demand curve.
C) a rightward shift of the demand curve.
D) a leftward shift of the demand curve.
E) BOTH a movement along the demand curve and a shift of the demand curve.

4. Which of the following results in a movement upward along the demand curve for movies?
A) an increase in the price of movie tickets
B) a decrease in the price of movie tickets
C) an increase in income, assuming that movies are a normal good
D) a decrease in income, assuming that movies are a normal good
E) a decrease in the price of NetFlix, a substitute for movies

5. The downward slope of a demand curve

A) represents the law of demand.
B) shows that as the price of a good rises, consumers increase the quantity they demand.
C) indicates how the quantity demanded changes when incomes rise and the good is a normal good.
D) indicates how demand changes when incomes rise and the good is a normal good.
E) indicates how demand changes when the price changes and the good is a normal good.

6. The phrase "a change in demand" refers to a

A) movement along a demand curve.
B) movement along the price curve.
C) change in the quantity demanded of a good.
D) shift of the demand curve.
E) movement along the quantity curve.

7. A change in the demand for apples could result from any of the following EXCEPT
A) a change in the number of buyers.
B) increased preferences for fresh fruit consumption for health reasons.
C) a change in the price of an apple.
D) a change in the price of a banana.
E) a change in income.

8. If the demand for used cars decreases after the price of a new car falls, used cars and new cars
are
A) inferior goods.
B) substitute goods.
C) complementary goods.
D) normal goods.
E) The questions errs because it is the quantity of used cars, NOT the demand for used cars, that will
change when the price of a new car falls.

9. Consumers regard Dell computers and Apple computers as substitutes. If the price of a Dell
computer decreases, the
A) demand for Dell computers increases.
B) demand for Apple computers increases.
C) demand for Apple computers decreases.
D) supply of Dell computers increases.
E) demand for Dell computers decreases.
10. Car insurance and cars are complements. If the price of car insurance increases, the
A) demand for cars decreases.
B) demand for cars increases.
C) quantity of cars demanded decreases.
D) quantity of cars demanded increases.
E) More information is needed to determine if the demand increases or decreases.

11. Consumers eat salsa with taco chips. The price of salsa rises. How does the increase in the
price of salsa affect the demand for taco chips?
A) It decreases the demand for taco chips.
B) It increases the demand for taco chips.
C) It has no effect on the demand for taco chips.
D) It will decrease the demand for taco chips ONLY IF taco chips are a normal good.
E) It could increase, decrease, or have no effect on the demand for taco chips, but more information is
needed to determine the impact.

12. If the demand for digital cameras increases when consumers' incomes rise, then digital
cameras are
A) a normal good.
B) an inferior good.
C) a substitute for camcorders.
D) a complement to camcorders.
E) made using advanced technology.
13. If macaroni and cheese is an inferior good, then a decrease in income results in
A) an increase in the demand for macaroni and cheese.
B) a decrease in the demand for macaroni and cheese.
C) an increase in the supply of macaroni and cheese.
D) a decrease in the supply of macaroni and cheese.
E) Both answers A and D are correct.

14. Water bottlers announce that next month the price of bottled water will rise by 25 percent.
Which of the following occurs immediately?
A) The quantity of bottled water demanded increases.
B) The quantity of bottled water demanded decreases.
C) The demand for bottled water decreases.
D) The demand for bottled water increases.
E) None of the above answers is correct because it is the supply that immediately changes, not the
demand.
15. A huge 50 percent off sale on golf clubs is advertised for next week. What happens this week
in the market for golf clubs?
A) The supply of golf clubs increases.
B) The supply of golf clubs decreases.
C) The demand for golf clubs increases.
D) The demand for golf clubs decreases.
E) The demand for and the supply of golf clubs decreases.

16. Consider the market for cellular phones. Which of the following shifts the demand curve
leftward?
A) studies showing using cellular phones can cause brain cancer
B) a decrease in the price of cellular phones
C) a decrease in the quantity demanded of cellular phones
D) an increase in the services provided by cellular phones, such as text messaging
E) an increase in the price of cellular phones
17. To be part of the supply for a good, a producer must be
A) only able to supply the good.
B) only willing to supply the good.
C) both able and willing to supply the good.
D) both able and willing to supply the good, and have already identified a buyer.
E) both able and willing to supply the good, and have already sold the good.

18. The law of supply states that other things remaining the same, a decrease in the price of a
kayak leads to
A) a decrease in the supply of kayaks.
B) a decrease in the quantity of kayaks supplied.
C) an increase in the supply of kayaks.
D) an increase in the quantity of kayaks supplied.
E) an increase in the supply of kayaks AND a decrease in the quantity of kayaks supplied.

19. Which of the following results in a movement upward along the supply curve for movies in
theaters?
A) an increase in the price of movie tickets
B) a decrease in the price of movie tickets
C) a decrease in the price of downloaded movies
D) a decrease in movie star salaries
E) an increase in the number of theaters

20. Which of the following increases the supply of a product?

A) lower prices for the resources used to produce the product
B) some producers going bankrupt and leaving the industry
C) a higher price for the product
D) an increase in the expected future price of the product
E) a decrease in productivity

21. A decrease in the price of a complement in production leads to

A) a decrease in the supply of the good in question.
B) an increase in the supply of the good in question.
C) no change in the supply of the good in question.
D) a decrease in the quantity supplied of the good in question.
E) an increase in the supply of the good in question AND a decrease in the quantity supplied of the
good in question.

22. Milk can be used to produce cheese or butter. If the price of a pound of butter rises, what
happens to the supply of cheese?
A) The supply of cheese increases.
B) The supply of cheese decreases.
C) The supply of cheese stays the same, and there is no change in the quantity supplied of cheese.
D) The supply of cheese stays the same, and there is a decrease in the quantity supplied of cheese.
E) The supply of cheese could increase, decrease, or stay the same depending on what happens to the
supply of butter.

23. Which of the following increases the supply of gasoline?

A) a situation where the quantity of gasoline demanded exceeds the quantity supplied
B) an increase in the price of gasoline
C) a decrease in the price of a resource used to produce gasoline, such as crude oil
D) a decrease in the demand for gas-guzzling, sport utility vehicles
E) an increase in income if gas-guzzling, sport utility vehicles are a normal good

24. It is expected that the price of a bushel of wheat will increase in one month. This belief will
result in
A) an increase in the current supply of wheat.
B) a decrease in the current supply of wheat.
C) a decrease in the future supply of wheat.
D) no change in the current or future supply of wheat.
E) an increase in the current quantity supplied of wheat.

25. If the number of companies producing memory chips increases, then the
A) supply of memory chips does not change.
B) supply of memory chips increases.
C) supply of memory chips decreases.
D) quantity of memory chips supplied increases.
E) demand for memory chips increases.

26. Suppose over the next several years the productivity of firms producing electric cars improves
dramatically. The advance in productivity leads to
A) a decrease in the supply of electric cars so that the supply curve shifts leftward.
B) a decrease in the supply of electric cars so that the supply curve shifts rightward.
C) an increase in the supply of electric cars so that the supply curve shifts leftward.
D) an increase in the supply electric cars so that the supply curve shifts rightward.
E) no change in the supply of electric cars, only a change in the quantity supplied of electric cars.

27. Market equilibrium occurs when

A) the quantity demanded equals the quantity supplied.
B) the market is changing rapidly.
C) other things remain the same.
D) buyers get the lowest possible price.
E) everyone who wants the good gets the quantity he or she wants.

28. A surplus of cardboard boxes means that

A) at the current price of a cardboard box, the quantity demanded exceeds the quantity supplied.
B) at the current price of a cardboard box, the quantity demanded is less than the quantity supplied.
C) the current price of a cardboard box is less than the equilibrium price.
D) at the current price of a cardboard box, the quantity demanded equals the quantity supplied and the
price will fall to restore the equilibrium.
E) More information is needed to determine if the price of cardboard boxes is higher than, lower than,
or equal to the equilibrium price.
29. Suppose the current price of a pound of steak is $12 per pound and the equilibrium price is $9
per pound. In this case, there is a
A) shortage, so the price falls and quantity demanded increases.
B) surplus, so the price falls and quantity demanded increases.
C) shortage, so the price rises and quantity demanded decreases.
D) surplus, so the price rises and quantity demanded increases.
E) surplus, so the price falls and quantity supplied increases.

30. If the price is below the equilibrium price,

A) there is a surplus.
B) there is a shortage.
C) the supply curve will shift rightward.
D) the supply curve will shift leftward.
E) the demand curve will shift leftward.

31. Suppose the current price of a pound of steak is $6 per pound and the equilibrium price is $9
per pound. What takes place?
A) There is a shortage, so the price falls and quantity demanded increases.
B) There is a surplus, so the price falls and quantity demanded increases.
C) There is a shortage, so the price rises and quantity demanded decreases.
D) There is a shortage, so the price rises and quantity demanded increases.
E) There is a shortage, so the price falls and quantity demanded decreases.

32. The above figure shows the market for game day t-shirts. If the price of t-shirts is $8, then
A) there is a shortage and the price of t-shirts will rise.
B) there is a surplus and the price of t-shirts will rise.
C) the market is in equilibrium.
D) there is a shortage and the price of t-shirts will fall.
E) there is a surplus and the price of t-shirts will fall
33. The above figure shows the market for game day t-shirts. If the price of t-shirts is $10, then
A) there is a surplus and the price of t-shirts will rise.
B) there is a shortage and the price of t-shirts will rise.
C) there is a shortage and the price of t-shirts will fall.
D) there is a surplus and the price of t-shirts will fall.
E) the market is in equilibrium.
34. The above figure shows the market for game day t-shirts. If the price of t-shirts is $12, then
A) there is a shortage and the price of t-shirts will fall.
B) there is a shortage and the price of t-shirts will rise.
C) there is a surplus and the price of t-shirts will rise.
D) there is a surplus and the price of t-shirts will fall.
E) the market is in equilibrium.
35. The above figure shows the market for game day t-shirts. If the price of t-shirts is $8, then
A) the market is in equilibrium.
B) there is a surplus and the price of t-shirts will rise.
C) the quantity demanded is greater than quantity supplied.
D) there is a shortage and the price of t-shirts will fall.
E) there is a surplus and the price of t-shirts will fall.

36. A construction boom occurs and many of the new buildings need plywood for their framing.
Which of the figures above best illustrates this change?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) Figure A or Figure C

37. Contractors can use plywood or brick to construct walls. Suppose the price of bricks
increases. Which of the figures above best illustrates the effect of this change on the market
for plywood?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) Figure A or Figure C depending on how contractors react to the higher price of bricks.

38. The number of logging firms increases. Which of the figures above best illustrates this
change?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) Figure A and Figure D

39. New technology for producing plywood is developed. Which of the figures above best
illustrates this change?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) Figure A and Figure D

40. In an effort to protect endangered species from the effects of logging in America's national
forests, the federal government passes a law prohibiting logging in most of the state of
Washington. Which of the figures above best illustrates the effect of this new law?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) None of the above because a prohibition cannot be illustrated using demand and supply figures.

Part B: Discussion Questions

1. Suppose Popme noodles, an inexpensive but a quite tasty dish, are an inferior good. Why do
grocery stores in college towns, that is, towns with a large fraction of college students, stock a
lot of Popme noodles?
2. Why does an increase in supply lead to lower prices?
3. Smart phones are becoming less expensive as new technology reduces the cost of production.
In a supply and demand model, explain the effects of the technological innovations and their
effect on the quantity of smart phones.
4. What is the effect on the price and quantity of a product if both the demand and supply
simultaneously increase?
5. What is the effect on the price and quantity of a product if the demand decreases and the
supply simultaneously increases?
6. For consumers, computers are a complement to computer software. Suppose the price of a
computer falls. Simultaneously, suppose that the number of companies selling computer
software decreases. How do these changes affect the price and quantity of computer software?