Unit 2 Test Prep

The law of demand says

• The higher the price, the more consumers will buy.

• the lower the price, the less consumers will buy.

• the lower the price, the more consumers will buy.

• the lower the price, the more consumers will substitute.

Which of the following describes the substitution effect?

• As the price of a good falls, people will substitute other products.

• As the price of a good rises, people will substitute other products.

• As demand rises, people will substitute other products.

• As demand falls, people will substitute other products.

Which of the following is NOT an example of complements?

• skis and ski boots

• row boat and oars

• electric shaver and charging cord

• calculator and cell phone

If you keep buying despite a price increase, your demand is

• elastic.

• strong.

• normal.

• inelastic

According to the law of supply

• the lower the price, the larger the quantity consumed.

• the higher the price, the larger the quantity produced.

• if the price of a good rises, some firms will produce less.

• if the price of a good falls, new firms may enter the market.

The change in output from adding one more worker is the

• marginal product of labor.

• increasing marginal returns.

• diminishing marginal returns.

• negative marginal returns.

Marginal cost is

• total revenue minus total cost.

• total revenue plus total cost.

• the cost of producing one more unit of a good.

• the difference between fixed and variable costs.

A subsidy is

• a tax on the production or sale of a good. .

• a government payment to support a business or market.

• a form of government regulation.

• illustrated by the market supply curve

A market is in equilibrium when

• quantity demanded is greater than quantity supplied.

• quantity supplied is greater than quantity demanded.

• quantity supplied and quantity demanded are equal.

• the government takes action to bring it into equilibrium

Rationing is a common form of distribution in

• a centrally planned economy.

• a free market economy.

• a price-based system. a market based on competition.

• a price-based system.

• a market based on competition.