Test: Supply & Demand

Which of the following graphs illustrates a simultaneous increase in demand and supply where it is unknown if price increased or decreased?

• A
• B
• C
• D

All of the following are necessary things to include when drawing a market graph EXCEPT

• a title.
• x-axis and y-axis labels.
• labels that identify the different curves.
• a legend.

Suppose the minimum wage is a price floor. When it is set above the equilibrium point,

• nothing will happen since the price floor is supposed to be set below the equilibrium point.
• the unemployment rate will drop dramatically.
• employers will increase the amount of people they hire.
• there will be an excess supply of labor, resulting in a surplus.

When people have more money, they tend to purchase

• more normal goods and fewer inferior goods.
• more normal goods and more inferior goods.
• fewer normal goods and fewer inferior goods.
• fewer normal goods and more inferior goods.

The law of supply states that

• as price increases, producers will supply more of a particular product.
• as price decreases, producers will supply more of a particular product.
• price has no effect on the amount producers supply.
• price increases will only affect the quantity supplied if the item is inelastic.

Consider the graph to the right. Why might equilibrium have changed from point A to point B?

• Consumer incomes increased and many lemonade stands had to shut down.
• The price of a substitute good for lemonade increased at a time when many lemonade stands were opening.
• Consumers expect the price of lemonade to rise in the future, so they are purchasing more lemonade now.
• Drinking lemonade went out of style at the same time as a decrease in the price of lemons and sugar.

The price elasticity of demand measures

• the amount of goods producers will supply at any given price.
• how often the demand curve increases or decreases.
• the responsiveness of a good’s price when the quantity demanded changes.
• how sensitive the quantity demanded is to a change in price.

Price ceilings usually create a ______________; while price floors usually create a _____________ .

• shortage; surplus.
• shortage; quota.
• surplus; shortage.
• quota; surplus.

All of the following are reasons why economists think price controls are inefficient EXCEPT

• resources are not allocated efficiently.
• resources are wasted.
• they promote illegal activity.
• they have environmental benefits.

The price of cocoa beans used in the production of chocolate has fallen. This will lead to

• an increase in the quantity demanded of chocolate.
• a decrease in the quantity demanded of chocolate.
• an increase in the supply of chocolate.
• a decrease in the supply of chocolate.