Principles of Economics(2)

Where are the market equilibrium price and quantity determined?

• The market equilibrium price and quantity are determined where the quantity demanded is equal to the quantity supplied

• The market equilibrium price and quantity are determined where the quantity demanded is larger the quantity supplied

• The market equilibrium price and quantity are determined where the quantity demanded is less than the quantity supplied

• The market equilibrium price and quantity are determined where the quantity demanded is unequal to the quantity supplied

What does the law of demand state?

• It states that, if other things remain the same, the higher the price of a good, the smaller is the quantity demanded, and the lower the price of a good, the greater is the quantity demanded.

• It states that, if other things remain the same, the higher the price of a good, the larger is the quantity demanded, and the lower the price of a good, the smaller is the quantity demanded.

Which of the following statement is incorrect?

• If the price of a substitute for good “X” rises, people tend to buy less of the substitute

• If the price of a substitute for good “X” rises, people tend to buy less of good “X”.

• If the price of a complement for good “Y” rises, people tend to buy less of the complement.

• If the price of a complement for good “Y” rises, people tend to buy less of good “Y”.

Which of the following statement is correct?

• If there is an increase in demand and no change in supply, there is increase in the equilibrium price and increase in the equilibrium quantity.

• If there is an increase in demand and no change in supply, there is decrease in the equilibrium price and increase in the equilibrium quantity.

• If there is an increase in demand and no change in supply, there is decrease in the equilibrium price and decrease in the equilibrium quantity.

• If there is an increase in demand and no change in supply, there is increase in the equilibrium price and decrease in the equilibrium quantity.

Which of the following statement is correct?

• If an increase in demand is smaller than increase in supply, it leads to decrease in the equilibrium price and increase in equilibrium quantity.

• If an increase in demand is smaller than increase in supply, it leads to decrease in the equilibrium price and decrease in equilibrium quantity.

• If an increase in demand is smaller than increase in supply, it leads to increase in the equilibrium price and increase in equilibrium quantity.

• If an increase in demand is smaller than increase in supply, it leads to increase in the equilibrium price and decrease in equilibrium quantity.

The price of good X falls and the demand for good Y decreases. We can conclude that:

• X is an inferior good

• X and Y are substitutes.

• X and Y are complements.

• X and Y are independent of each other.

If A and B are substitutes and the cost of a factor of production used in the production of A increases, then the price of:

• A and B rise.

• A and B fall.

• B rises, but the price of A falls.

• A falls, and the price of B will stay unchanged.

Suppose we observe a rise in the price of good A and an increase in the quantity of good A bought and sold. Which one of the following is a likely explanation?

• The supply of A increased.

• The supply of A decreased.

• The demand for A decreased.

• The demand for A increased.

The equation for the demand curve is P (dollars) = 700 – 20Q_D. The supply curve equation is P = 300 + 20Q_S. Calculate the market equilibrium quantity, Q, and price, P.

• Q = 10 and P=500

• Q = 20 and P =350

• Q = 5 and P =600

• Q = 20 and P = 700

William Gregg, mill owner, in December 1862 placed a notice in the Edgehill Advertiser announcing his willingness to exchange cloth for food and other items. Here is an extract:

1 yard of cloth for 1 pound of bacon; 2 yards of cloth for 1 pound of butter;

4 yards of cloth for 1 pound of wool; 8 yards of cloth for 1 bushel of salt.

What is the relative price of butter in terms of wool?

• The relative price of butter in terms of wool was 2 pound of wool per pound of butter.

• The relative price of butter in terms of wool was 1 pound of wool per pound of butter.

• The relative price of butter in terms of wool was 1/4 pound of wool per pound of butter.

• The relative price of butter in terms of wool was 1/2 pound of wool per pound of butter.