Economics: Chapters 4 & 5 Review

Generally speaking, the lower the price, the greater the quantity demand.

• True
• False

Consumer wants are the same as consumer demand.

• True
• False

The change in the relative price- the price of one good relative to the prices of other goods-causes the substitution effect.

• True
• False

The law of demand helps explain why people buy more when the price decreases.

• True
• False

The demand curve slopes upward, indicating that price and quantity are positively correlated. 

• True
• False

Elasticity of supply = Percentage change in quantity supplied  ÷ percentage change in price

• True
• False

A firm faces two kinds of costs in the short run: fixed cost and variable cost.

• True 
• False

Firms try to avoid diseconomies of scale.

• True
• False

There would be no substitution effect of a price change if the prices of all other goods 

• changed by the same percentage.
• remained unchanged.
• changed inversely.
• changed inversely by the same percentage.

A higher price makes producers more willing and better able to increase quantity supplied. 

• True
• False