Unit 4 (Microeconomics) Review

As the price of an item increases, the quantity demanded

• increases

• decreases

• stays the same

• can't be determined

Answer explanation

As the price of an item increases, consumers typically buy less of it due to the law of demand. Therefore, the quantity demanded decreases.

Which statement describes the law of demand?

• as price rises, quantity demanded decreases

• as price rises, demand decreases

• as price falls, quantity demanded decreases

• as price falls, demand decreases

Answer explanation

The law of demand states that as price rises, quantity demanded decreases. This means consumers buy less of a good when its price increases, making the first choice the correct statement.

A supply curve shows the relationship between quantity supplied and

• demand

• production costs

• price

• profit

Answer explanation

A supply curve illustrates how the quantity supplied of a good changes in response to changes in its price. Therefore, the correct answer is price, as it directly influences the quantity that producers are willing to supply.

A demand curve shows the relationship between quantity demanded and

• price

• expectations

• profit

• population

Answer explanation

A demand curve illustrates how the quantity demanded of a good changes in response to its price. Therefore, the correct answer is 'price', as it directly affects consumer purchasing behavior.

What benefit do households provide for businesses?

• They supply consumers and workers.

• They dictate the supply for certain goods.

• They develop scarce resources for business use.

• They help businesses save money by looking for bargains.

Answer explanation

Households provide businesses with consumers who buy goods and services, and workers who supply labor. This dual role is essential for the functioning of the economy, making the correct answer "They supply consumers and workers."

Which interaction illustrates the flow of services between a household and a business?

• A city operates and maintains public parks.

• A discount store establishes a clearance aisle.

• A disabled worker draws benefits from the government.

• A pizza business provides delivery for an additional fee.

Answer explanation

The correct choice, 'A pizza business provides delivery for an additional fee,' illustrates the flow of services as it shows a business offering a service directly to a household, highlighting the interaction between them.

According to the Law of Supply, the quantity of products entrepreneurs offer for sale depends mostly on…

• the price they can charge.

• the existence of subsidies.

• the legal environment.

• the quality of the product.

Answer explanation

According to the Law of Supply, the quantity supplied is directly related to the price. Higher prices incentivize entrepreneurs to offer more products for sale, making 'the price they can charge' the correct choice.

When Henry Ford perfected the assembly line, the supply curve for automobiles…

• shifted right.

• shifted left.

• didn't change.

• became obsolete.

Answer explanation

When Henry Ford perfected the assembly line, production efficiency increased, leading to a greater supply of automobiles. This increase in supply causes the supply curve to shift right.

At a given price, if quantity demanded is greater than quantity supplied, the price is below the

• equilibrium price

• demand price

• point of elasticity

• supply price

Answer explanation

When quantity demanded exceeds quantity supplied, it indicates a shortage, meaning the price is below the equilibrium price where supply equals demand. Thus, the correct answer is equilibrium price.

Supply is influenced by

• the cost of natural resources

• the cost of human resources

• profitability of other options

• all of these

Answer explanation

Supply is influenced by various factors, including the cost of natural resources, human resources, and the profitability of other options. Therefore, the correct answer is 'all of these'.