### Homework 3 In Tutorial Library

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### TITLE: Homework 3

#### CLASS / COURSE: ECON 25100: Microeconomics

QUESTION DESCRIPTION:

Homework 3

1. Markets, viewed from the perspective of the supply and demand model:

A. assume many buyers and many sellers of a standardized product.
B. assume market power so that buyers and sellers bargain with one another.
C. do not exist in the real-world economy.
D. are approximated by markets in which a single seller determines price.

2. Graphically, the market demand curve is:

A. steeper than any individual demand curve that is part of it.
B. greater than the sum of the individual demand curves.
C. the horizontal sum of individual demand curves.
D. the vertical sum of individual demand curves.

3. One reason that the quantity demanded of a good increases when its price falls is that the:

A. price decline shifts the supply curve to the left.
B. lower price shifts the demand curve to the left.
C. lower price shifts the demand curve to the right.
D. lower price increases the real incomes of buyers, enabling them to buy more.

4. Steve went to his favorite hamburger restaurant with \$3, expecting to buy a \$2 hamburger and a \$1 soda. When he arrived he discovered that hamburgers were on sale for \$1, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by:

A. the substitution effect.
B. the income effect.
C. the price effect.
D. a rightward shift in the demand curve for hamburgers.

5. In 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are:

A. complementary goods and the higher price for oil increased the demand for natural gas.
B. substitute goods and the higher price for oil increased the demand for natural gas.
C. complementary goods and the higher price for oil decreased the supply of natural gas.
D. substitute goods and the higher price for oil decreased the supply of natural gas.

6. If the price of product L increases, the demand curve for close-substitute product J will:

A. shift downward toward the horizontal axis.
B. shift to the left.
C. shift to the right.
D. remain unchanged.

7. Which of the following is most likely to be an inferior good?

A. fur coats
B. ocean cruises
C. used clothing
D. steak

8. Digital cameras and memory cards are:

A. substitute goods.
B. complementary goods.
C. independent goods.
D. inferior goods.

9. If the demand for steak (a normal good) shifts to the left, the most likely reason is that:

A. consumer incomes have fallen.
B. cattle production has declined.
C. the price of steak has risen.
D. the price of cattle feed has gone up.

10. Suppose an excise tax is imposed on product X. We expect this tax to:

A. increase the demand for complementary good Y and decrease the demand for substitute product Z.
B. decrease the demand for complementary good Y and increase the demand for substitute product Z.
C. increase the demands for both complementary good Y and substitute product Z.
D. decrease the demands for both complementary good Y and substitute product Z.

11. "In the corn market, demand often exceeds supply and supply sometimes exceeds demand." "The price of corn rises and falls in response to changes in supply and demand." In which of these two statements are the terms demand and supply being used correctly?

A. in neither statement.
B. in the second statement.
C. in the first statement.
D. in both statements.

12. By an "increase in demand" economists mean that:

A. product price has fallen so consumers move down to a new point on the demand curve.
B. the quantity demanded at each price in a set of prices is greater.
C. the quantity demanded at each price in a set of prices is smaller.
D. a leftward shift of the demand curve has occurred.

13. In moving along a demand curve which of the following is not held constant?

A. the price of the product for which the demand curve is relevant.
B. price expectations.
C. consumer incomes.
D. prices of complementary goods.

14. In which of the following statements are the terms "demand" and "quantity demanded" used correctly?

A. When the price of ice cream rose, the demand for both ice cream and ice cream toppings fell.
B. When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell.
C. When the price of ice cream rose, the demand for ice cream fell, and the quantity demanded of ice cream toppings fell.
D. None of these statements use the terms correctly.

15. Increasing marginal cost of production explains:

A. the law of demand.
B. the income effect.
C. why the supply curve is upsloping.
D. why the demand curve is downsloping.

16. Suppose product X is an input in the production of product Y. Product Y in turn is a substitute for product Z. An increase in the price of X can be expected to:

A. decrease the demand for Z.
B. increase the demand for Z.
C. have no effect on the demand for Z.
D. decrease the supply of Z.

17. Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect:

A. the supply of ethanol, a corn-based product, to increase.
B. consumer demand for wheat to fall.
C. the supply to increase as farmers plant more corn.
D. the supply to fall as farmers plant more of other crops.

18. Refer to the above table. In relation to column (3), a change from column (2) to column (1) would indicate a(n):

A. increase in demand.
B. decrease in demand.
C. increase in supply.
D. decrease in supply.

19. The rationing function of prices refers to the:

A. tendency of supply and demand to shift in opposite directions.
B. fact that ration coupons are needed to alleviate wartime shortages of goods.
C. capacity of a competitive market to equate quantity demanded and quantity supplied.
D. ability of the market system to generate an equitable distribution of income.

20. A product market is in equilibrium:

A. when there is no surplus of the product.
B. when there is no shortage of the product.
C. when consumers want to buy more of the product than producers offer for sale.
D. where the demand and supply curves intersect.

21. If the supply and demand curves for a product both decrease, then equilibrium:

A. quantity must fall and equilibrium price must rise.
B. price must fall, but equilibrium quantity may rise, fall, or remain unchanged.
C. quantity must decline, but equilibrium price may rise, fall, or remain unchanged.
D. quantity and equilibrium price must both decline.

22. Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in demand may have been caused by:

A. a decline in the number of buyers in the market.
B. a decline in the price of a substitute good.
C. an increase in incomes if the product is a normal good.
D. an increase in incomes if the product is an inferior good.

23. In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X, (2) the equilibrium price (P) of X and (3) the equilibrium quantity (Q) of X.

Refer to the above. An increase in income, if X is a normal good, will:

A. increase D, increase P, and increase Q.
B. increase D, increase P, and decrease Q.
C. increase S, increase P, and increase Q.
D. decrease D, increase P, and increase Q.

24. In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X, (2) the equilibrium price (P) of X and (3) the equilibrium quantity (Q) of X.

Refer to the above. An improvement in the technology used to produce X will:

A. decrease S, increase P, and decrease Q.
B. decrease S, increase P, and increase Q.
C. increase S, decrease P, and increase Q.
D. decrease D, decrease P, and decrease Q.

25. Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the market for automobiles?

A. A only.
B. B only.
C. C only.
D. D only.

26. Which of the above diagrams illustrate(s) the effect of a decrease in incomes on the market for secondhand clothing?

A. A and C.
B. A only.
C. B only.
D. C only.

27. (Advanced analysis) Answer the question on the basis of the following information. The demand for commodity X is represented by the equation P = 10 - 0.2Q and supply by the equation P = 2 + 0.2Q.

Refer to the above information. If demand changed from P = 10 - .2Q to P = 7 - .3Q, the new equilibrium price is:

A. \$2.
B. \$4.
C. \$6.
D. \$7.

28. (Consider This) Ticket scalping implies that:

A. event sponsors have established ticket prices at above-equilibrium levels.
B. an event is not likely to be sold out.
C. event sponsors have established ticket prices at below-equilibrium levels.
D. the demand for tickets has fallen between the time tickets were originally sold and the event takes place.

29. (Consider This) Suppose that salsa manufacturers sell 2 million bottles at \$3.50 in one year, and 3 million bottles at \$3 in the next year. Based on this information we can conclude that the:

A. law of supply has been violated.
B. law of demand has been violated.
C. demand for salsa has increased.
D. supply of salsa has increased.

30. (Last Word) A market for human organs (rather than the current volunteer-donor system) would be expected to:

A. reduce the price of organs.
B. create a surplus of organs.
C. reduce the supply of organs.
D. eliminate the shortage of organs.

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