Chapter 3 Test Review

What two factors must be present for consumers to consume and producers to produce at any given price?

Describe a realistic example of the law of demand operating in the production of a good or service (change in quantity demanded).

Describe a realistic example of the law of supply operating in the production of a good or service (change in quantity supplied).

Explain the difference between a change in quantity supplied or demanded and a change in supply or demand.

Define equilibrium or market clearing price.

Explain and evaluate the price system in a free market economy (10 points – bonus possible).

In the cartoon McDonalds would be an example of which of the following?

• complementary good

• substitute good

• normal good

• inferior good

Which is an example of the law of demand at work?

• Demand for pizza rises when the price of pizza falls.

• The price of pizza falls when demand for pizza falls.

• The price of pizza goes up when the price of cheese goes up.

• Demand for pizza goes down when tacos become more popular.

A restaurant owner has not changed menu prices in a year. One month ago, the owner noticed that sales for all lunch items had fallen by 50 percent. Which of the following most likely caused the demand curve to shift?

• Gas prices decreased.

• Area population increased.

• A local newspaper praised the restaurant’s food.

• A nearby factory shut down.

A demand curve is accurate only as long as ceteris paribus is true. What does this Latin phrase mean?

• Demand for goods remains elastic

• Goods are used in place of one another.

• Supply can keep up with prices.

• All things other than price stay constant.