Section One: Multiple Choice
1. If a 20% decrease in the price of long-distance phone calls leads to a 35% increase in the quantity of calls demanded, you may conclude that the demand for phone calls is a.
2. Which of the following pairs are examples of substitutes? a.
Popcorn and soda
Automobiles and bicycles
Boats and fishing tackle
Wine and cheese
3. If a price in a competitive market is “too high to clear the market,” what does this usually mean? Assume upward-sloping supply curves. a.
No producer can cover the costs of production at that price. b.
Quantity supplied exceeds quantity demanded at that price. c.
Producers are leaving the industry.
Consumers are willing to buy all the units produced at that price.
4. Which of the following statements is incorrect? Assume upward-sloping supply curves. a.
If the supply curve shifts left and the demand remains constant, equilibrium price will rise. b.
If the demand curve shifts left and the supply increases, equilibrium price will rise. c.
If the supply curve shifts right and the demand curve shifts left, equilibrium price will fall. d.
If the demand curve shifts right and the supply curve shifts left, price will rise.
Section Two: Short Answer (250 words or less)
Define elasticity of demand. Provide an example.
Elasticity of demand is the measurement of how much the quantity demanded of a good responds to a change in the price of that good, which is computed as the percentage change in quantity demanded divided by the percentage change in price.
Examples may vary.
Define the law of diminishing marginal utility. Provide an example.
The law of diminishing marginal utility analyzes the increase of consumption for a given product. As the user increases the use of the product, the measured utility for each additional consumed product begins to decrease at a variable rate.
Examples may vary.
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