Problem set for week 5

Question 1

1. Demand and supply analysis is particularly important if
   a. the success of your firm is closely linked to the profitability of your primary industry
   b. the success of your firm is independent of the profitability of your primary industry
   c. the success of your firm is unlikely
   d. demand and supply analysis is unimportant

Answer 1

A

Question 2

2. An increase in the price of a substitute shifts the demand curve to the
   a. right
   b. left
   c. it does not change the demand curve
   d. none of the above

Answer 2

A

Question 3

3. An increase in the price of a complement shifts the demand curve to the
   a. right
   b. left
   c. it does not change the demand curve
   d. none of the above

Answer 3

B

Question 4

4. A recent medical study shows that peanuts are one of the leading causes of high cholesterol. This
   would cause the demand for peanuts to
   a. Shift to the left
   b. Shift to the right
   c. go down the demand curve
   d. not change

Answer 4

A

Question 5

5. How does an increase in income affect the market for bus rides (inferior good)?
   a. The demand curve for bus rides to shift to the right
   b. The demand curve for bus rides to shift to the left
   c. The supply curve for bus rides to shift to the right
   d. The supply curve for bus rides to shift to the left

Answer 5

B

Question 6

6. You lose your job and as a result your demand for steak falls. This implies that you consider steaks
   to be a
   a. Complementary good
   b. Normal good
   c. Inferior good
   d. Substitute good

Answer 6

B

Question 7

7. Holding other factors constant, if bad weather destroys the annual crop for carrots, it causes the
   supply curve for carrots to
   a. Shift to the left, causing the prices of carrots to rise
   b. Shift to the left, causing the prices of carrots to fall
   c. Stay the same
   d. The supply curve does not shift. Only the demand curve shifts

Answer 7

A

Question 8

8. Suppose the demand for pens increases and the supply for pens decreases. What effect will it have
   on the equilibrium price for pens?
   a. It will rise
   b. It will fall
   c. Uncertain
   d. None

Answer 8

A

Question 9

9. In the market for used cars we have 10 sellers, willing to sell at the prices of $1000, $2000, $3000,
   $4000, $5000, $6000, $7000, $8000, $9000, $10000. If the equilibrium price in the market is $2500,
   how many cars would be sold?
   a. 1
   b. 2
   c. 3
   d. 4

Answer 9

B

Question 10

10. In a market where the equilibrium price is $7, any price higher than $7 would cause
    a. a balanced demand and supply
    b. an excess supply
    c. an excess demand
    d. none of the above

Answer 10

B

Question 11

11. A recent medical study reports new benefits of cycling. Simultaneously, the price of the parts
    needed to make bikes falls. If the change in supply is greater than the change in demand, the price will
    _________ and the quantity will _________.
    a. Rise, rise
    b. Rise, fall
    c. Fall, rise
    d. Fall, fall

Answer 11

C

Question 12

12. Which of the following statements is true?
    a. A company can manipulate uncontrollable factors to increase the demand for its product
    b. A company can manipulate uncontrollable factors to increase the supply of its product
    c. A company cannot manipulate uncontrollable factors to increase the demand for its
    product
    d. A company cannot manipulate controllable factors to increase the demand for its product

Answer 12

C