Demand & Law of Demand

Question 1

Which of the following is not a determinant of a consumer’s demand for a commodity?

a. Income
b. Population
c. Prices of related goods
d. Tastes

Answer 1

b. Population

Question 2

The law of demand refers to the:

a. inverse relationship between the price of a commodity and the quantity demanded of the commodity per time period.
b. direct relationship between the desire a consumer has for a commodity and the amount of the commodity that the consumer demands.
c. inverse relationship between a consumer’s income and the amount of a commodity that the consumer demands.
d. direct relationship between population and the market demand for a commodity.

Answer 2

a. inverse relationship between the price of a commodity and the quantity demanded of the commodity per time period.

Question 3

If the price of a good increases, then

a. the demand for complementary goods will increase.
b. the demand for the good will increase.
c. the demand for substitute goods will increase.
d. the demand for the good will decrease.

Answer 3

c. the demand for substitute goods will increase.

Question 4

If consumer income declines, then the demand for

a. normal goods will increase.
b. inferior goods will increase.
c. substitute goods will increase.
d. complementary goods will increase.

Answer 4

b. inferior goods will increase.

Question 5

Which of the following will cause a decrease in quantity demanded while leaving demand unchanged?

a. An increase in the price of a complementary good.
b. An increase in income when the good is inferior.
c. A decrease in the price of a substitute good.
d. An increase in the price of the good.

Answer 5

d. an increase in the price of the good.

Question 6

Which of the following will not decrease the demand for a commodity?

a. The price of a substitute decreases
b. Income falls and the good is normal
c. The price of a complement increases
d. The commodity’s price increases

Answer 6

d. The commodity’s price increases

Question 7

Demand curves have a negative slope because

a. firms tend to produce less of a good that is more costly to produce.
b. the substitution effect always leads consumers to substitute higher quality goods for lower quality goods.
c. the substitution effect always causes consumers try to substitute away from the consumption of a commodity when the commodity’s price rises.
d. an increase in price reduces real income and the income effect always causes consumers to reduce consumption of a commodity when income falls.

Answer 7

c. the substitution effect always causes consumers try to substitute away from the consumption of a commodity when the commodity’s price rises.

Question 8

If a good is normal, then a decrease in price will cause a substitution effect that is

a. positive and an income effect that is positive.
b. positive and an income effect that is negative.
c. negative and an income effect that is positive.
d. negative and an income effect that is negative.

Answer 8

a. positive and an income effect that is positive.

Question 9

If the consumption decisions of individual consumers are independent, then

a. the market demand curve will be flatter because of the bandwagon effect.
b. the market demand curve will be steeper because of the snob effect.
c. the market demand curve will not be equal to the horizontal summation of the demand curves of individual consumers.
d. none of the above is correct.

Answer 9

d. none of the above is correct.

Question 10

If the demand curve for a firm’s output is perfectly elastic, then the firm is

a. a monopolist.
b. perfectly competitive.
c. an oligopolist.
d. monopolistically competitive.

Answer 10

b. perfectly competitive.

Question 11

Firms in an industry that produces a differentiated product

a. are either monopolists or oligopolists.
b. are either monopolistically competitive or perfectly competitive.
c. are either monopolistically competitive or oligopolists.
d. are either perfectly competitive or oligopolists.

Answer 11

c. are either monopolistically competitive or oligopolists.

Question 12

The type of industry organization that is characterized by recognized interdependence and non-price competition among firms is called

a. monopoly.
b. perfect competition.
c. oligopoly.
d. monopolistic competition.

Answer 12

c. oligopoly

Question 13

The demand by a firm for inputs used in the production of a commodity that the firm offers for sale

a. is called a derived demand.
b. is directly related to the demand for the commodity.
c. is negatively sloped.
d. is all of the above.

Answer 13

d. all of the above.

Question 14

If the price elasticity of demand for a firm’s output is elastic, then the firm’s marginal revenue is

a. positive, and an increase in price will cause total revenue to increase.
b. positive, and an increase in price will cause total revenue to decrease.
c. negative, and an increase in price will cause total revenue to increase.
d. negative, and an increase in price will cause total revenue to decrease.

Answer 14

b. positive, and an increase in price will cause total revenue to decrease.

Question 15

If a firm that produces carrots operates in a perfectly competitive industry, then

a. the demand for the firm’s carrots must be horizontal.
b. the demand by individual consumers for carrots must be horizontal.
c. the market demand for carrots must be horizontal.
d. all of the above must be true.

Answer 15

a.

Question 16

If a firm raises its price by 10% and total revenue remains constant, then

a. the price elasticity of demand for its output is unitary.
b. marginal revenue is equal to zero.
c. quantity demanded has decreased by 10%.
d. all of the above are correct.

Answer 16

d.

Question 17

The price elasticity of demand for a good will tend to be more elastic if

a. the good is broadly defined (e.g., the demand for food as opposed to the demand for carrots).
b. the good has relatively few substitutes.
c. a long period of time is required to fully adjust to a price change in the good.
d. none of the above are true.

Answer 17

d.

Question 18

If a good is inferior, then

a. the income elasticity of demand will be negative.
b. the income elasticity of demand will be zero.
c. the income elasticity of demand will be positive.
d. a decrease in income will cause demand to decrease.

Answer 18

a.

Question 19

If two goods are complements, then

a. the cross-price elasticity of demand will be negative.
b. the cross-price elasticity of demand will be zero.
c. the cross-price elasticity of demand will be positive.
d. an increase in the price of one good will increase demand for the other.

Answer 19

a.

Question 20

The cross-price elasticity of demand between two differentiated goods produced by firms in the same industry will be

a. negative and large.
b. negative and small.
c. positive and large.
d. positive and small.

Answer 20

c.

Question 21

Which of the following is viewed by firms as an advantage of electronic commerce over traditional commerce?

a. Consumers have the ability to easily compare product prices.
b. The cost of executing a transaction is much lower.
c. Firms have the ability to gather useful information about buyers.
d. Firms can reduce their reaction times to changing market conditions and increase their sales reach.

Answer 21

a.

Question 22

Electronic commerce is a significant market channel for the sale of

a. travel services.
b. books.
c. computer products.
d. All of the above.

Answer 22

d.