1. In order to understand how the price of a good is determined in the free market, one must account for the desires of:
A. purchasers exclusively.
B. sellers exclusively.
C. governmental agencies exclusively
D. lobbyists exclusively.
E. purchasers and sellers.
2. Which of the following is NOT true of a demand curve?
A. It has negative slope.
B. It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant.
C. It relates the price of an item to the quantity demanded of that item.
D. It shows how an increase in price leads to an increase in quantity demanded of a good.
E. It shows that consumers tend to purchase less of a good as its price rises.
3. As coffee becomes more expensive, Joe starts drinking tea, therefore quantity demanded for coffee decreases. This is called
A. the income effect.
B. the change in equilibrium.
C. the substitution effect.
D. a shift in the supply curve.
E. a shift in the demand curve.
4. You can spend $5 for lunch and you would like to have two Double Cheeseburgers. When you get to the restaurant you, find out the price for Double Cheeseburger has increased from $2.50 to $2.99. You decide to have two single Cheeseburgers for lunch. This is best described as a(n)
A. substitution effect.
B. income effect.
C. buyer's reservation price.
D. seller's reservation price.
E. none of the above.
5. The buyer's reservation price of a particular good or service is the
A. minimum amount one would be willing to pay for it.
B. same as the market price.
C. maximum amount one would be willing to pay for it.
D. price at which one develops reservations about its quality.
E. price one must pay to ensure one gets it.
6. Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though,