Supply, Demand, and Price Elasticity Quiz
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.elastic.
2. Which of the following pairs are examples of substitutes? a.Popcorn and Soda
b.Automobiles and bicycles
c.Boats and fishing tackle
d.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.
d.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 remain constant, equilibrium price will rise. b.If the demand curve shifts left and the supply increase, 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)
1.Define elasticity of demand. Provide an example.
2.Define the law of diminishing marginal utility. Provide an example.
3.Demonstrate, using supply and demand analysis, the effect on the equilibrium price and quantity of new hybrid automobiles when the following occurs. Using graphs similar to the notes in Week One, describe the change in the equilibrium price and quantity, and explain your answer. Is the equilibrium price higher or lower, or is the change indeterminate? Is the...