ECONOMICS:
Review
SUPPLY & DEMAND
& BASIC APPLICATIONS
1. What is the difference between
demand and quantity
demanded?
• a. They are both numbers, but there are other
differences.
• b. Demand is a curve, while quantity demanded is
a number or point.
• c. Demand is a number or point, while quantity
demanded is a curve.
• d. They are both curves, but there are other
differences.
• e. The terms are synonymous.
2. The market-clearing price is also
known as the
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a. equal price
b. point price
c. market-jumping price
d. equilibrium price
e. marketable price
3. A change in quantity demanded, but
not demand, could occur if
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a. the market shifted right
b. the equilibrium price remained the same
c. the supply curve shifted
d. the good or service was perfectly inelastic
e. the good or service was elastic
4. Supply expresses the relationship
between
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a. price and quantity supplied
b. quantity supplied and quantity demanded
c. demand and quantity supplied
d. cost and revenue
e. quantity demanded and price
5. The market-clearing price for a
product is at the point where
• a. demand and supply are as far apart as they
get
• b. price is at its highest point
• c. price is at its lowest point
• d. demand and supply intersect
• e. price is at the average point
6. If the price for a product is lower
than the market-clearing price, there
will be
• a. a surplus
• b. greater quantity supplied than quantity
demanded
• c. a shortage
• d. perfect competition
• e. a monopoly
7. A government-mandated minimum
price on a good or service is a
• a. This cannot happen; it violates the laws of
supply and demand.
• b. price ceiling
• c. price wall
• d. price floor
• e. price door
8. A perfectly elastic demand curve is
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a. vertical
b. horizontal
c. positively sloped
d. A demand curve cannot be perfectly elastic.
e. negatively sloped
9. The demand curve for insulin is
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a. perfectly elastic
b. unit elastic
c. inelastic
d. elastic
e. perfectly inelastic
10. If the United States collapses from internal
and external strain, causing the demand and
supply for bombs, guns, and weapons to
decrease, what would happen to the price and
quantity exchanged?
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a. The change in both would be ambiguous.
b. The price and quantity would increase.
c. The price and quantity would decrease.
d. The price would be lower and the change in
quantity would be ambiguous.
• e. The quantity would be lower and the change
in price would be ambiguous.
11. If a blight wipes out half of the world’s red
cabbage in the same month that scientists
discover that red cabbage cures cancer, what
would happen to the price and quantity of red
cabbage exchanged?
• a. The change in both would be ambiguous.
• b. The price would increase, while the change in
quantity would be ambiguous.
• c. Both would increase.
• d. The quantity would increase, while the change
in price would be ambiguous.
• e. The quantity would decrease, while the change
in price would be ambiguous.
12. If two goods demonstrate positive
cross price elasticity (that is, when the
price of one rises the demand for the
other rises in response), they are
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a. complementary goods
b. excludable goods
c. substitute goods
d. rival goods
e. luxury goods
13. If demand for a good decreases as
income increases, the good is a(n)
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a. inferior good
b. normal good
c. ordinary good
d. common good
e. elastic good
14. Producer surplus is the
• a. surplus quantity when there is a price floor
• b. extra benefit consumers receive when they pay
less than they are willing to for a good
• c. extra benefit producers receive when they get
paid more than the lowest price they are willing
to accept for a good
• d. additional quantity produced when demand
increases
• e. price consumers pay below the equilibrium
price
15. If an increase in price does NOT
change total revenue, demand is
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a. perfectly elastic
b. elastic
c. unit elastic
d. inelastic
e. perfectly inelastic
16. An decrease in supply combined
with a increase in demand will cause
a(n)
• a. ambiguous effect on price and an increase
in quantity
• b. ambiguous effect on price and a decrease in
quantity
• c. decrease in price and an ambiguous effect
on quantity
• d. increase in price and an ambiguous effect
on quantity
• e. increase in price and an increase in quantity
17. A rational producer wishes to
maximize
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A. production
B. revenue
C. labor
D. standards of living
E. profit
18. The golden rule of profit
maximization says a producer should
produce at which of these points?
• a. the point at which marginal supply equals
marginal demand (MR = MD)
• b. the point at which variable cost equals
marginal benefit (VC=MB)
• c. the point at which marginal revenue equals
marginal cost (MR=MC)
• d. the point at which price equals quantity (P+Q
• e. the point at which demand equals supply (D=S)
19. The minimum wage is an example
of a(n)
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a. excise
b. externality
c. price floor
d. subsidy
e. price ceiling
20. If a decrease in the price of a good
results in increased quantity
demanded, total revenue will increase.
Demand for this good is
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a. inelastic
b. perfectly inelastic
c. perfectly elastic
d. unit elastic
e. elastic
21. What kind of good do you want
more of if you get a raise?
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a. inferior good
b. normal good
c. ordinary good
d. common good
e. elastic good
22. Which of the following goods is
likely to have the lowest price elasticity
of demand?
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a. orange juice
b. speed boats
c. cigarettes
d. soda pop
e. movie tickets
23. Consumer surplus is the
• a. surplus quantity when there is a price floor
• b. extra benefit consumers receive when they pay
less than they are willing to for a good
• c. extra benefit producers receive when they get
paid more than the lowest price they are willing
to accept for a good
• d. additional quantity produced when demand
increases
• e. price consumers pay below the equilibrium
price
24. The type of efficiency which
occurs when no one may gain
without someone else being
harmed is
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a. productive efficiency
b. allocative efficiency
c. Pareto efficiency
d. Kaldor-Hicks efficiency
e. none of these
25. The supply curve for Oprah
Winfrey is
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a. perfectly elastic
b. perfectly inelastic
d. relatively elastic
d. relatively inelastic
e. all of these
26. The fall in total surplus that
results from a market distortion,
such as a tax
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a. producer surplus
b. consumer surplus
c. total welfare surplus
d. total welfare loss
e. deadweight loss
26. A tax wedge cuts into and
reduces
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a. producer surplus
b. consumer surplus
c. total welfare surplus
d. marginal utility
e. comparative advantage
27. What depicts the relationship
between tax rates and tax
revenue?
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a. the Laffer Curve
b. the Lorenz Curve
c. total welfare surplus
d. deadweight loss
e. tax incidence
28. Whether the tax falls more
heavily on the producer or the
consumer is
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a. deadweight loss
b. tax incidence
c. consumer surplus
d. producer surplus
e. total welfare