Chapter 5: Supply Test

The price of home computers rises. According to the law of supply, manufacturers will respond to this price increase by

• increasing computer production.

• decreasing computer production.

• halting computer production.

• keeping computer production steady.

A sudden increase in fuel costs sparks a rise in both prices and demand for fuel-efficient cars. Yet it takes months for car companies to manufacture more cars. In this case, the supply for cars is

• inelastic.

• elastic.

• static.

• inferior.

Please use the chart to answer the following question. In order to maximize marginal returns, how many workers should the factory have making these shoes?

• 2

• 4

• 6

• 8

Please use the chart to answer the following question. When the eighth worker is hired, the marginal product of labor becomes negative. This is because...

• the workers are making more shoes than the demand.

• the need for a greater supply of shoes has decreased.

• there are fewer workers available to make more shoes.

• there are more workers than are needed, disrupting output.

An example of fixed costs would include...

• rent

• labor

• raw materials

• heating fuel

Which of these events would indicate a movement along a supply curve for batteries?

• A new law requires battery manufacturers to spend more money on environmentally safe batteries.

• Workers at a major battery factory go on strike and stop production.

• A new trade agreement enables stores to import foreign batteries.

If the supply of a good is inelastic, producers will:

• not change quantity supplied much if prices double.

• raise quantity supplied with a small price increase.

• increase quantity supplied in response to sharp drops in price.

• have diminishing marginal returns of labor.

A steel mill has fixed costs of 100 dollars per hour and variable costs of 50 per hour. What will happen to these costs if the mill closes?

• Both fixed and variable costs will remain the same even if output halts.

• The mill will no longer incur any costs because it will be closed.

• The fixed costs will decrease, but the variable costs will increase.

• The variable costs will drop to zero, but the fixed costs will stay the same.

Farmer Brown has ten dairy cows. Her feed costs go up, but milk production stays the same. What effect will this have on her supply?

• None, supply will remain the same although she will raise prices to make up the lost revenue.

• Her supply will go down, because her fixed costs have risen.

• Her supply will go up, because she won’t sell as much milk.

• Supply will remain the same, but she will have to sell more.

Big Publisher Inc. is considering using e-mail instead of shipping printed materials to workers. How will this move affect Big Publisher Inc.?

• Costs will drop, but supply will remain the same.

• Supply and costs will probably both decrease.

• It should lower costs and increase supply.

• At first, supply will rise, but then it will decrease.