Economics 252

Review Questions Chapter 3 - Demand and Supply

(1) An increase in the price of a product will reduce the amount of it purchased because:

(a) supply curves are upward-sloping.

(b) demand curves are upward-sloping.

(c) consumers will substitute other products for the one whose price has risen.

(d) as production levels increase, costs begin to rise.

(2) Which of the following would not shift the demand curve for beef?

(a) A widely publicized study which indicates beef increases one’s cholesterol.

(b) A reduction in the price of cattle feed.

(c) An effective advertising campaign by pork producers.

(d) A change in the incomes of beef consumers.

(3) The law of supply indicates that:

(a) producers will offer more of a product at high prices than they will at low prices.

(b) the supply curve is downward-sloping.

(c) consumers will purchase less of a good at high prices that they will at low prices.

(d) producers will offer more of a product at low prices than they will at high prices.

(4) An improvement in production technology will:

(a) increase equilibrium price.

(b) shift the supply curve to the right.

(c) shift the supply curve to the left.

(d) shift the demand curve to the left.

Consider the following data related to the supply and demand for wheat in answering Questions (5), (6), (7), and (8).

Bushels Demanded Price per Bushels Supplied

Per Month Bushel Per Month

45 $ 5 77

50 $ 4 73

56 $ 3 68

61 $ 2 61

67 $ 1 57

(5) Considering the data above, the equilibrium price will be:

(a) $ 4

(b) $ 3

(c) $ 2

(d) $ 1

(6) Considering the data above, if the price in this market was $ 4:

(a) farmers would increase the number of acres allocated to growing wheat.

(b) buyers would want to purchase more wheat than is currently being supplied.

(c) farmers would not be able to sell all their wheat.

(d) there would be a shortage of wheat.

(7) Considering the data above, if the price in this market was $1:

(a) farmers would decrease the number of acres allocated to growing wheat.

(b) buyers would want to purchase more wheat than is currently being supplied.

(c) farmers would not be able to sell all their wheat.

(d) there would be a surplus of wheat.

(8) Suppose the government set a price floor of $3:

(a) there would be a surplus of 12 bushels/month.

(b) there would be a shortage of 12 bushels/month.

(c) There would be a surplus of 56 bushels/month.

(d) there would be a shortage of 56 bushels/month.

Consider Figure 1 in answering Questions (9) and (10).

Figure 1

50

100

(9) In Figure 1, a price of $50 in this market would result in:

(a) equilibrium.

(b) a shortage of 50 units.

(c) a surplus of 50 units.

(d) a surplus of 100 units.

(10) In Figure 1, a price of $60 in this market would result in:

(a) equilibrium.

(b) a shortage of 50 units.

(c) a surplus of 50 units.

(d) a shortage of 100 units.

Consider Figure 2 in answering Questions (11) and (12).

Figure 2

Q

Q

Q

(11) Which of the panels in Figure 2 illustrates the effect of an increase in the tariff on imported lumber from Canada, and a decline in long term mortgage rates for home buyers in the market for new homes?

(a) Panel A.

(b) Panel B.

(c) Panel C.

(d) Panel D.

(12) Which of the panels in Figure 2 represents the changes in the market for soft drinks (eg. Coke and Pepsi, etc.) after the introduction of bottled water, a new substitute, and the federal government, in co-operation with the states, institutes a national program that all beverage containers must be re-used (refillable)?

(a) Panel A.

(b) Panel B.

(c) Panel C.

(d) Panel D.