Midterm Eco 251

Suppose a positive technological change in the production of disease-resistant corn caused the price of corn to fall. Holding everything else constant, how would this affect the market for wheat (a substitute for corn)?

• The demand for wheat would decrease and the equilibrium price of wheat would increase.

• The demand for wheat would increase because consumers could afford to buy more wheat and corn.

• The demand for wheat would decrease and the equilibrium price of wheat would decrease.

• The supply of wheat would increase and the equilibrium price of wheat would decrease. Price

Suppose the value of the price elasticity of demand is -3. What does this mean?

• A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent.

• A $1 increase in the price caused the quantity demanded to fall by 3 units.

• A 1 percent increase in the price of the good causes the quantity demanded to decrease by 3 percent.

• A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent.

Which of the following would cause a shift of the demand curve from D1 to D2?

• A decrease in income (for an inferior good).

• An increase in the price of a substitute good.

• An increase in income (for a normal good.)

• All of the above.

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised her price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is:

• Perfectly elastic.

• Unit elastic.

• Perfectly inelastic.

• Inelastic.

According to the law of supply,

• a. There is a positive relationship between price and quantity supplied.

• b. As the price of a product increases, firms will supply less of it to the market.

• c. As the price of a product increases, firms will supply more of it to the market.

• d. Both a. and c. are true.

When demand is price elastic, a fall in price causes total revenue to rise because:

• a. The percentage increase in quantity demanded is less than the percentage fall in price.

• b. The increase in quantity sold is large enough to offset the lower price.

• c. The demand curve shifts.

• d. When price falls, quantity sold increases so total revenue automatically rises.

What type of economic analysis is concerned with the way things should be?

• a. Marginal analysis.

• b. Rational behavior.

• c. Positive analysis.

• d. Normative analysis.

Select the phrase that correctly completes the following statement. 'A positive change in technology caused an increase in the supply of OLED televisions. As a result

• a. the price of OLED televisions decreased and the demand for OLED televisions increased.

• b. the price of OLED televisions decreased. The lower price caused the supply of OLED televisions to decrease

• c. the equilibrium quantity of OLED televisions decreased

• d. the price of OLED televisions decreased and the quantity demanded of OLED televisions increased

Refer to the diagram above which shows various points on two different production possibilities frontiers for a nation. A movement fromX to Z

• a. is the result of advancements in food production technology.

• b. is the result of a decrease in preference for food products.

• c. is the result of advancements in plastic production technology.

• d. represents an increase in the demand for plastic products.

If the product represented is a normal good, a decrease in income would be represented by a change from

• a. A to B.

• b. B to A.

• c. D1 to D2.

• d. D2 to D1.