Review Questions Chapters 3 - 4 1) A change in the price of a good or service leads to a ________ which leads to a _______. A) change in demand; movement along the demand curve B) change in quantity demanded; movement along the demand curve C) change in demand; shift in the demand curve D) change in quantity demanded; shift in the demand curve 2) Demand for textbooks is given by Qd = – 2PTEXT + 0.05N -2PPOD. Textbooks and podcasts are: A) Substitutes B) Complements C) Inferior goods D) Normal goods 3) During an economic downturn when consumer income falls, the demand for ice cream increases and the demand for chocolate cake decreases. This implies that A) ice cream and chocolate cake are complements. B) ice cream is a normal good and chocolate cake is an inferior good. C) ice cream is an inferior good and chocolate cake is a normal good. D) ice cream is an economic bad and chocolate cake is an economic good. 4) The quantity demanded of Pepsi has decreased. The best explanation for this is that A) the price of Coca Cola has increased. B) costs of producing Pepsi's have decreased. C) the price of Pepsi increased. D) Pepsi consumers had an increase in income. 5) Suppose that the incomes of buyers increase in a particular market for an inferior good and there is also an increase in input prices. What would we expect to occur in this market? A) The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous. B) The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous. C) Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. D) Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. 6) An increase in the price of ground beef will A) increase the demand for chicken, a substitute for beef. B) increase the quantity demanded of ground beef. C) increase the demand for hamburger buns, a complement for beef. D) decrease the quantity demanded of ground beef. E) both A and D. 7) Suppose a bouquet of roses is currently selling for $20. The equilibrium price of a bouquet is $30. What would we expect? A) a shortage to exist and the market price of roses to increase B) a shortage to exist and the market price of roses to decrease C) a surplus to exist and the market price of roses to increase D) a surplus to exist and the market price of roses to decrease 8) If two goods are substitutes, what happens if there is a decrease in the price of one good? A) It increases the demand for the other good. B) It reduces the demand for the other good. C) It reduces the quantity demanded of the other good. D) It increases the quantity demanded of the other good. 9) A demand curve that has a price elasticity of A) infinity will be vertical. B) zero will be vertical. C) 1 will be horizontal. D) zero will be horizontal. E) 1 will be vertical. 10) For which one of the following will demand be the most price inelastic? A) The Toronto Star. B) Daily newspapers. C) Ontario newspapers. D) Toronto newspapers. E) Each of the above will exhibit the same demand elasticity 11) If the cross-price elasticity of demand between goods A and B is positive, then A) A and B are complements. B) the demands for A and B are both price inelastic. C) the demands for A and B are both price elastic. D) A and B are substitutes. 12) As a result of a technological breakthrough at ABC Computers, the supply curve shifted out, the equilibrium price of computers decreased, and total revenue decreased. This suggests the price elasticity of demand for computers is A) inelastic. B) elastic. C) perfectly inelastic. D) perfectly elastic. 13) If the rise in consumer income shifts the demand curve for good X to the left, then good X is a(n) A) inferior good with positive income elasticity of demand. B) normal good with positive income elasticity of demand. C) inferior good with negative income elasticity of demand. D) normal good with negative income elasticity of demand.
