I.

Multiple Choice

Identify the choice that best completes the statement or answers the question.
____ 1.In a competitive market, the quantity of a product produced and the price of the product are determined
by
a. a single buyer.
b. a single seller.
c. one buyer and one seller working together.
d. all buyers and all sellers.

____ 2. Which of the following is not a characteristic of a perfectly competitive market?

a. Different sellers sell identical products.
b. There are many sellers.
c. Sellers must accept the price the market determines.
d. All of the above are characteristics of a perfectly competitive market.

____ 3. Which of the following is not a characteristic of a perfectly competitive market?

a. Sellers set the price of the product.
b. There are many sellers.
c. Buyers must accept the price the market determines.
d. All of the above are characteristics of a perfectly competitive market.

____ 4. The law of demand states that, other things equal,

a. when the price of a good falls, the demand for the good rises.
b. when the price of a good rises, the quantity demanded of the good rises.
c. when the price of a good rises, the demand for the good falls.
d. when the price of a good falls, the quantity demanded of the good rises.

Table 4-1
Price Aaron’s Angela’s Austin’s Alyssa’s
Quantity Quantity Quantity Quantity
Demanded Demanded Demanded Demanded
$0.00 20 16 4 8
$0.50 18 12 6 6
$1.00 14 10 2 5
$1.50 12 8 0 4
$2.00 6 6 0 2
$2.50 0 4 0 0
____ 5. Refer to Table 4-1. If these are the only four buyers in the market, then the market quantity demanded at
a price of $2 is
a. 0 units.
b. 3.5 units.
c. 6 units.
d. 14 units.
Table 4-2
Price Audrey’s Bob’s Chuck’s Dottie’s
Quantity Quantity Quantity Quantity
Demanded Demanded Demanded Demanded
$12 2 1 3 4
$10 4 4 4 5
 $8 6 7 5 6
$6 8 8 4 7
$4 10 9 3 8
$2 12 10 2 9
____ 6. Refer to Table 4-2. Whose demand does not obey the law of demand?
a. Audrey’s
b. Bob’s
c. Chuck’s
d. Dottie’s
____ 7. Which of the following events would cause a movement upward and to the left along the demand curve
for olives?
a. The number of buyers of olives decreases.
b. Consumer income decreases, and olives are a normal good.
c. The price of pickles decreases, and pickles are a substitute for olives.
d. The price of olives rises.
____ 8. You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been
wiped out by drought, and that this will cause the price of peanuts to double by the end of the year. As a
result,
a. your demand for peanut butter will increase, but not until the end of the year.
b. your demand for peanut butter increases today.
c. your demand for peanut butter decreases as you look for a substitute good.
d. your demand for peanut butter shifts left today.

Figure 4-2
price

A
P

B
P'

D
Q Q' quantity
____ 9. Refer to Figure 4-2. The movement from point A to point B on the graph shows
a. a decrease in demand.
b. an increase in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.

Figure 4-4

Panel (a) Panel (b)

price price

P'

D D' D
Q' Q quantity quantity

____ 10. Refer to Figure 4-4. The graphs show the demand for cigarettes. In Panel (b), the arrows are consistent
with which of the following events?
a. The price of cigarettes increased.
b. A tax was placed on cigarettes.
c. The prohibition of cigarette advertisements on television.
d. Tobacco and marijuana are complements and the price of marijuana decreased.
____ 11. A movement downward and to the left along a supply curve is called
a. an increase in supply.
b. a decrease in supply.
c. a decrease in quantity supplied.
d. an increase in quantity supplied.
____ 12. An increase in the price of oranges would lead to
a. an increased supply of oranges.
b. a reduction in the prices of inputs used in orange production.
c. an increased demand for oranges.
d. a movement up and to the right along the supply curve for oranges.
____ 13. What will happen in the rice market now if sellers expect higher rice prices in the near future?
a. The supply of rice will increase.
b. The supply of rice will decrease.
c. The supply of rice will be unaffected.
d. The demand for rice will decrease.
____ 14. In a given market, how are the equilibrium price and the market-clearing price related?
a. There is no relationship.
b. They are the same price.
c. The market-clearing price exceeds the equilibrium price.
d. The equilibrium price exceeds the market-clearing price.
____ 15. If there is a shortage of farm laborers, we would expect
a. the wage of farm laborers to increase.
b. the wage of farm laborers to decrease.
c. the price of farm commodities to decrease.
d. a decrease in the demand for substitutes for farm labor.

Table 4-7

The demand schedule below pertains to sandwiches demanded per week.

Price Charlie’s Maxine’s Quinn’s

Quantity Quantity Quantity
Demanded Demanded Demanded
$3 3 4 3
$5 1 2 x

____ 16. Refer to Table 4-7. Suppose Charlie, Maxine, and Quinn are the only demanders of sandwiches. Also
suppose the following:
• x=2
• the current price of a sandwich is $3.00
• the market quantity supplied of sandwiches is 4
• the slope of the supply curve is 2
Then
a. there is currently a shortage of 6 sandwiches and the equilibrium price of a sandwich is
less than $3.00.
b. there is currently a shortage of 6 sandwiches and the equilibrium price of a sandwich is
$5.00.
c. there is currently a surplus of 6 sandwiches and the equilibrium price of a sandwich is less
than $3.00.
d. there is currently a surplus of 6 sandwiches and the equilibrium price of a sandwich is
$5.00.
 Figure 4-11
price
20
S
18

16

14

12

10

2
D

1 2 3 4 5 6 7 8 9 10 quantity

____ 17. Refer to Figure 4-11. At a price of $4, which of the following is correct?
a. there is a surplus of 3 units
b. there is a surplus of 6 units
c. there is a shortage of 3 units
d. there is a shortage of 6 units

Figure 4-13
The diagram below pertains to the supply of paper in university markets.
price
S
A

S
B
x

quantity

____ 18. Refer to Figure 4-13. All else equal, the return of college students to campus in the fall would cause a
move
a. from x to y.
b. from y to x.
c. from SA to SB.
d. from SB to SA.
____ 19. If the supply of a product increases, then we would expect
a. equilibrium price to increase and equilibrium quantity to decrease.
b. equilibrium price to decrease and equilibrium quantity to increase.
c. equilibrium price and equilibrium quantity both to increase.
d. equilibrium price and equilibrium quantity both to decrease.
____ 20. Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton
shirts?
a. an increase in the price of wool shirts and a decrease in the price of raw cotton
b. a decrease in the price of wool shirts and a decrease in the price of raw cotton
c. an increase in the price of wool shirts and an increase in the price of raw cotton
d. a decrease in the price of wool shirts and an increase in the price of raw cotton

II. There is one mistake in each of the following sentences. Find and correct them
1. A movement upward and to the left along a given demand curve is called a decrease in demand.
2. When Mario's income decreases, he buys more pasta. For Mario, pasta is a normal good.
3. Baseballs and baseball bats are substitute goods.
4. A decrease in the price of a product and an increase in the number of buyers in the market affect
the demand curve in the same way.
5. Most studies have found that tobacco and marijuana are substitutes
6. An increase in the price of ink will shift the supply curve for pens to the right
7. When a seller expects the price of its product to decrease in the future, the seller's supply curve
shifts left now.
8. Price will rise to eliminate a surplus.
9. A decrease in supply will cause an increase in price, which will cause a decrease in demanded.
10. The actions of buyers and governments naturally move markets toward equilibrium.

Problem 2: The following table gives the daily supply and demand for hot dogs at a sporting event:

Price, $ Quantity demanded Quantity supplied

2.1 800 7200

1.8 1,600 4,800

1.6 2,400 2,400

1.4 3,200 800

1.2 4,100 200

a. What is the equilibrium price of hot dog? What make you think so?
b. If the organizers of the sporting event decide to set the price at $1.8, how many hot dogs will be
sold?
c. The statement “In economics, normal good is the name for a good which a normal individual can
afford” is True or False? Explain.
Problem 3

Consider the market for backpacks at Hunter College. Suppose the supplycurve is:QS= 2P

And the demand curve is:QD= 100 - 3P

a. Draw the supply and demand curves on a graph.

b. Solve for the equilibrium price and quantity.
c. Suppose there is a rise in the student population at Hunter, and thedemand for backpacks changes
to: QD= 200 - 3P. Draw the new demand curve on your original graph.
d. Suppose the price is still at the previous equilibrium level. Then, willthere be a shortage or a
surplus? How big will the shortage or surplus be?
e. Solve for the new equilibrium price and quantity.