1. Other things being equal, suppose that the demand for the iPad Air significantly increased. The increase in demand will cause
a. A surplus of iPad Air devices.
b. A fall in the market clearing price for the Surface device, a substitute for the iPad Air.
c. A higher equilibrium quantity, but a lower equilibrium price of iPad Air devices.
d. A higher equilibrium price and higher equilibrium quantity of iPad Air devices.
2. Ceteris Paribas, a reduction in price tends to cause which of the following?
a. A reduction in supply and an increase in demand.
b. An increase in supply and an increase in demand.
c. An increase in quantity supplied and a reduction in quantity demanded.
d. A reduction in quantity supplied and an increase in quantity demanded.
3. Price control, rent control, minimum wage are government polices which tend to
a. Promotes the attainment of unhindered market equilibrium.
b. Allows the quantity demanded to adjust to equality with aggregate supply.
c. Creates excess quantities demanded or excess quantities supplied.
d. Pushes prices to market clearing levels more rapidly than private market forces.
4. Economists assume people behave rationally, which means that people
a. Don’t intentionally make decisions that make themselves worse off.
b. Never make mistakes.
c. Have the necessary information to always make correct decisions.
d. Always understand the consequences of their decisions.
5. According to the figure above, if a steel mill is required to address the cost of pollution, the equilibrium quantity of steel will most likely be
a. Q1
b. Q2
c. Q2-Q1
d. None of the above.
6. Which of the following statements is a positive economic statement?
a. The Congress should pass the president’s tax package.
b. Tax rebates always give too much favor to rich people.
c. The President’s budget included an increase in unemployment insurance payments.
d. None of the above.
7. In economic analysis a direct relationship occurs when
a. The two variable being compared change in opposite directions, or when one goes up and the other goes down.
b. A change in one of the variable causes a change in the other variable in any direction.
c. The two variable being compared change in the same direction, or when one goes up the other also goes up.
d. The two variables have no identifiable relationship with each other.
8. The intersection of the “x” axis and the “y” axis is called the
a. The origin.
b. The “zero” point.
c. “meeting point”.
d. The corresponding point.
9. In order for an economy to increase its production possibilities, the economy must
a. Increase its inputs
b. Increase its wants.
c. Reduce output.
10. In a price system, changes in prices
a. Make it difficult for the system to function well.
b. Imply that people have made mistakes in the past.
c. Signal to policy makers what foods and services should and should not be taxed.
d. Signal to all market participants what goods are relatively more or less scarce.
11. Refer to the graph above. Assume that the initial demand and supply curves in the above figure are DA and SA respectively. The initial equilibrium price and quantity are
a. P1 and E.
b. P3 and F.
c. P1 and G.
d. P2 and F.
12. Using the graph above, if the federal government offered a subsidy to this industry, the new price and quantity demanded will be
a. P1 and E.
b. P3 and F.
c. P1 and G.
d. P2 and F
13. Using the graph above, following the government subsidy, demand for the product increases. The new price and quantity demanded will be
a. P1 and E.
b. P3 and F.
c. P1 and G.
d. P2 and F
14. All other factors being constant, a reduction in price tends to cause which of the following?
a. An increase in supply and an increase in demand.
b. A reduction in supply and an increase in demand.
c. An increase in quantity supplied and a reduction in quantity demanded.
d. A reduction in quantity supplied and an increase in quantity demanded.
15. The rationing function of prices refers to
a. The situation when government must intervene in a market when there is a large shortage or surplus.
b. The synchronization of decisions by buyers and sellers that leads to equilibrium.
c. The synchronization of decisions by buyers and sellers through the direction of government agencies.
d. The situation when only the rich get the goods they want.
16. How would you draw a government imposed price floor would be drawn on a supply and demand curve graph? (you may either draw the price floor, or describe where you would draw the curve).
17. What is the result of an agricultural support price established above the equilibrium price?
a. There will be excess quantity supplied of the product involved.
b. The market gravitates toward and remains in equilibrium.
c. There will be excess quantity demanded the product in this market.
d. Since the support price is set above the equilibrium price, it will have not impact on the market price.
18. Government payment of a per-unit subsidy for medical care causes
a. The market supply curve to shift upward.
b. The market demand curve to shift downward.
c. An increase in the quantity of medical care demanded above the quantity demanded in the absence of the subsidy.
d. A reduction in the price that providers of medical care receive for each unit of care provided.
19. Suppose that an early frost damages the Florida orange crop. As a result, the price of California oranges increases. Ceteris paribus, which one of the following statements best explains this situation?
a. The supply of Florida oranges decreased, causing their price to increase, and thus causing the demand for California oranges to increase.
b. The supply of Florida oranges decreased, causing the supply of California oranges to decrease, which resulted in a higher price.
c. The supply of Florida oranges decreased, causing their price to increase, and thus causing the demand for California oranges to increase.
d. The demand for Florida oranges fell because of the freeze, and this led to a higher demand for California oranges.
20. Prices play a role in a market
a. Because they distribute scarce goods to those consumers who value them most highly.
b. Because when prices are in equilibrium, product shortages or surpluses can occur.
c. Because they help eliminate poverty.
d. Because they eliminate scarcity.
21. Price floors are designed to
a. Establish a minimum allowable price.
b. Allow free market prices to be achieved.
c. Create shortages where none existed before.
d. None of the above.
22. Price floors
a. Provide free market incentives for producers.
b. Create surpluses by setting the price above equilibrium.
c. Create shortages by setting the price above equilibrium.
d. Are used by advocates of the free market.
23. A change in an equilibrium price can result from
I. A change in demand
II. A change in supply
a. I only
b. II only
c. Both I and II
d. Neither I nor II
24. With reference to the difference between a change in demand and a change in quantity demanded, which of the following is true?
a. If a good’s price goes down, then demand for the good will decrease.
b. If a good’s price goes down, then quantity demanded will increase.
c. If demand increases, then the demand curve will shift to the left.
d. If price rises and quantity demanded decreases, then the demand curve will shift to the left.
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