WorksheetsChapter 3 Test Review
Total questions: 46
Worksheet time: 26mins
What two factors must be present for consumers to consume and producers to produce at any given price?
(a)
Describe a realistic example of the law of demand operating in the production of a good or service (change in quantity demanded).
(a)
Describe a realistic example of the law of supply operating in the production of a good or service (change in quantity supplied).
(a)
Explain the difference between a change in quantity supplied or demanded and a change in supply or demand.
(a)
Define equilibrium or market clearing price.
(a)
Explain and evaluate the price system in a free market economy (10 points – bonus possible).
(a)
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.
The price of bread and the price of lobster each go up by 20 percent. What will most likely happen to demand for each good?
Demand for both goods will go to zero
Demand for lobster will increase more than demand for bread.
Demand for both goods will rise.
Demand for lobster will fall more than the demand for bread.
Knowing whether its products are elastic or inelastic can help a company maximize its
available substitutes.
quantity size.
total revenue.
price of goods.
Why does an economist create a market demand schedule?
to show how various conditions can change the demand for a good
to have an idea of how a market would change if conditions in an area changed
to learn what demands the market will make under unusual conditions
to predict how people will change their buying habits when prices change
A hot summer causes demand for ice cream to go up. What happens next?
Stores import ice cream from overseas.
Ice cream factories make less ice cream.
Workers at ice cream factories go on strike and stop production.
The price of ice cream rises leading to increase in supply
The price of cranberry juice suddenly increases. As a result, Glenda begins drinking more apple juice, which is less expensive, but tastes just as good to her. In this case, Glenda’s elastic demand is due to
relative importance.
change over time
availability of substitutes.
necessities versus luxuries.
What does it mean when you have demand for a good or service?
You are willing and able to buy the good at the given price.
You want the good but may not have the money for it.
You can afford the good but may be unwilling to buy it.
You are able to buy the good but not at the given price.
Cruz likes to chew one piece of sugarless gum each day. The cost of gum is only a tiny fraction of his weekly budget. The company that makes his favorite gum doubles its prices. In response, Cruz will probably
give up chewing gum.
try many different brands
buy a cheaper brand.
pay the doubled cost.
How does a person’s perception of a good as a necessity or a luxury affect his or her purchase of it?
If a good is perceived as a luxury, demand becomes inelastic
A good that is perceived as expensive will no longer be considered a necessity
People who have a lot of money will buy goods even if they think they are a luxury.
A good that is perceived as a necessity will be purchased even if the price rises.
The graph above shows a shift in the market demand curve for a certain brand of shirt. What does the new market demand curve predict?
whether the quantity of shirts demanded goes down as price goes up
the long-term popularity of certain shirt brands
the highest or lowest future prices for these shirts
how nonprice factors reduce the number of shirts people will buy
In a certain country, the price of meat increases dramatically. At first, most people continue to pay the extra price, but after a while consumers begin to adjust their habits to eat less meat. This situation of inelastic demand followed by elastic demand is an example of
relative importance.
necessities versus luxuries.
availability of substitutes.
change over time.
When the price of a product goes down, what happens?
Existing firms continue their usual output but earn less.
New firms enter the market as older ones drop out.
Existing producers expand, and new producers enter the market.
Some producers produce less, and others drop out of the market.
Suppose the supply of walnuts is inelastic. What will growers do if the price changes?
They will quickly produce more walnuts, even if there is a small increase in price.
They will produce more walnuts when the price drops.
They will not soon produce more walnuts, even if the price doubles.
They will have to respond to decreasing marginal returns of labor.
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.
inferior.
static.
elastic.
Why is demand for milk inelastic?
It is considered a luxury, not a necessity.
There are many substitutes for milk.
Milk is considered to be an essential staple drink by many.
Buying milk takes a large portion of income.
Which of the following is the best example of the law of supply?
A food producer increases the number of acres of wheat he grows to supply a milling company.
A milling company builds a new factory to process flour to export.
When the price of a sandwich rises, the sandwich shop increases the quantity supplied.
A catering company buys a new dishwasher to make its work easier.
In the cartoon, if dog kisses and towels are complementary goods, then which of the following would likely happen if Odie lowered the price of kisses to fifty cents?
The demand for towels would decrease if the price stayed at $2.
The demand for towels would increase if the price stayed at $2.
The demand for towels would stay the same at $2.
The demand for towels would only change if the price for towels changes.
How can the demand for one good be affected by increased demand for an‐ other one?
A drop in the price for a good will increase demand for it and its substitute.
When goods are made by the same producer, increased demand for one will increase demand for the other.
If goods are substitutes, increased demand for one will increase demand for the other.
If goods are used together, increased demand for one will increase demand for the other
What can cause an entire demand curve to shift?
a decrease in price
a change in demographics
uncertainty about the future price
an increase in price
Fixed costs would include
salaried workers
energy costs.
raw materials.
corporate income tax
How does the substitution effect work when the price of an item drops?
The item becomes less and less popular as price drops.
Consumers buy the item even if they do not particularly want it.
The substitutes for the item also suffer a drop in prices.
Consumers buy the item as a substitute for other things
Businesses often use information such as age, income level, and occupation to sell products to certain groups of people. What is this type of information called?
complements
revenues
markets
demographics
A sports equipment company increases its production of volleyballs. It costs the company $4.00 to make 10 volleyballs and $4.10 to make 11 volleyballs. This 10 cent difference is an example of
total cost.
variable cost.
marginal cost.
fixed cost
Farmer Brown has ten dairy cows. She just invested in automatic milking ma‐ chines. What effect will this have on her supply?
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.
Her supply will go up, because of greater efficiency.
None, although she will raise prices to make up the lost revenue.
Which of the following will happen if the price of butter goes up?
The demand curve for butter moves to the right
The demand curve for margarine moves to the left.
The demand for butter increases.
The demand for margarine increases.
In July, an automobile company announces that next year’s models, with more features, will start to arrive in September or October. What is likely to happen to demand for this year’s model in August?
Demand will go to zero because everyone will want the new model
Demand will rise in anticipation of higher prices.
Demand will fall in anticipation of lower prices.
Demand will stay the same and price will stay the same.
You have been asked to write a newspaper story for the financial section about how the restaurants in your city are doing. Based on the graph, which of the following head‐ lines will you use?
Wholesale Prices Stay Steady
Government Lifts Meal Tax
Federal Minimum Wage Raised
High-End Restaurants Suffer
If a seller expects the price of a good to rise in the future, the seller will
increase the price of the good now.
store these goods until the price goes up.
increase production of the good.
place these goods on the market immediately
Which of the following factors is likely to have had the greatest im‐ pact on the change in supply shown in the graph?
stricter health code regulations
government farm subsidies
new technology for freezing food
lifting of import bans
Ultimately, the main factor that drives decisions about production is the
government regulations and rules
availability of natural resources
desire to maximize profits.
public need for better goods.
A corn farmer has a new machine to pick corn. How will the quantity he supplies change?
It will not change the quantity supplied
It will decrease as input costs decrease.
It will increase as input costs decrease
It will be reduced by the government.
The table shows the marginal product of labor at a shoe factory. In or‐ der to maximize marginal returns, how many workers should the factory have making these shoes?
2
4
6
8
According to the table, 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.
there are more workers than are needed, disrupting output.
there are fewer workers available to make more shoes.
the need for a greater supply of shoes has decreased.
How does an increase in an excise tax on cars affect the supply of cars?
Supply will stay the same
Supply will increase.
More cars will be made.
Fewer cars will be made.
Big Publisher Inc. is considering using e-mail instead of shipping printed materials to its long-distance workers. How will this move affect Big Publisher Inc.?
At first, supply will rise, but then it will decrease.
It should lower costs and increase supply
Supply and costs will probably both decrease.
Costs will drop, but supply will remain the same.
Gerda owns a grocery store that is struggling to stay in business? What is she most able to do to cut her operating costs.
stop paying her property taxes.
cut her rent costs in half.
stop selling perishable foods.
decrease hours for some workers.
Which of the following is an example of government influence on supply?
law of supply
market supply curve
subsidies
marginal costs
