CHAPTER 2

MULTIPLE CHOICE QUESTIONS (CHOOSE THE BEST ANSWER IN EACH

QUESTION)

PART 1
109. What would happen to the equilibrium price and quantity of lattés if the cost of producing steamed
milk, which is used to make lattés, rises?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.

Figure 4-8

110. Refer to Figure 4-8. All else equal, the premature deaths of thousands of turkeys would cause a
move from
a. Da to Db.
b. Db to Da.
c. x to y.
d. y to x.

111. If the demand for a product increases, then we would expect equilibrium price
a. to increase and equilibrium quantity to decrease.
 b. to decrease and equilibrium quantity to increase.
c. and equilibrium quantity both to increase.
d. and equilibrium quantity both to decrease.

112. Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen
over time. Which of the following explanations would be most consistent with this observation?
a. Consumers have experienced an increase in income, and beef-production technology has
improved.
b. The price of chicken has risen, and the price of steak sauce has fallen.
c. New medical evidence has been released that indicates a negative correlation between a
person's beef consumption and life expectancy.
d. The demand curve for beef must be positively sloped.

Figure 4-3

113. Refer to Figure 4-3. The shift from Da to Db is called

a. an increase in demand.
b. a decrease in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.

114. Which of the following is not a characteristic of a perfectly competitive market?

a. Different sellers sell identical products.
b. There are many buyers and sellers.
c. Sellers must accept the price the market determines.
 d. There is no free entry or exit.

Figure 4-4

115. Refer to Figure 4-4. The movement from point A to point B on the graph is caused by
a. a decrease in the price of the good.
b. an increase in the price of the good.
c. an advance in production technology.
d. a decrease in input prices.

116. Which of the following changes would not shift the supply curve for a good or service?
a. A change in production technology
b. A change in the price of the good or service
c. A change in expectations about the future price of the good or service
d. A change in input prices

117. If a surplus exists in a market, then we know that the actual price is
a. above the equilibrium price, and quantity supplied is greater than quantity demanded.
b. above the equilibrium price, and quantity demanded is greater than quantity supplied.
c. below the equilibrium price, and quantity demanded is greater than quantity supplied.
d. below the equilibrium price, and quantity supplied is greater than quantity demanded.

118. Today, producers changed their expectations about the future. This change
a. can cause a movement along the supply curve.
b. can affect future supply, but not today's supply.
 c. can affect today's supply.
d. cannot affect either today's supply or future supply.

Table 4-2

Quantity Demanded
Price (Units)
(Dollars per unit)
Bert Ernie Grover Oscar
0.00 20 16 6 8
0.50 18 12 4 6
1.00 14 10 2 5
1.50 12 8 0 4
2.00 6 6 0 2
2.50 0 4 0 0

119. Refer to Table 4-2. If these are the only four buyers in the market, then when the price
decreases from $1.50 to $1.00, the market quantity demanded
a. increases by 1.75 units.
b. decreases by 2 units.
c. increases by 7 units.
d. increases by 24 units.

120. Which of the following is not held constant in a supply schedule?

a. Production technology
b. The price of the good
c. The prices of inputs
d. Expectations

121. A decrease in the price of a good will

a. increase demand.
b. decrease demand.
c. decrease quantity demanded.
d. increase quantity demanded.

122. Which of the following changes would not shift the demand curve for a good or service?
a. A change in income.
b. A change in the price of the good or service.
c. A change in expectations about the future price of the good or service.
d. A change in the price of a related good or service.

123. Suppose there are six bait and tackle shops that sell worms in a lakeside resort town in Minnesota. If
we add the respective quantities that each shop would produce and sell at each of the six bait and tackle
shops when the price of worms is $2 per bucket, $2.50 per bucket, and $3 per bucket, and so forth, we
have found the
a. market demand curve.
b. market supply curve.
c. equilibrium curve.
d. surplus or shortage depending on market conditions.

124. The quantity demanded of a good is the amount that buyers are
a. willing to purchase.
b. willing and able to purchase.
c. willing, able, and need to purchase.
d. able to purchase.

125. A improvement in production technology will shift the

a. supply curve to the right.
b. supply curve to the left.
c. demand curve to the right.
d. demand curve to the left.

126. Equilibrium quantity must decrease when

a. demand increases and supply decreases.
b. demand decreases and supply increases.
c. demand increases and supply does not change.
d. both demand and supply decrease.

127. Oakley bakes muffins that he sells at the local farmer's market. If he purchases a new convection
oven that reduces the costs of baking muffins, the
a. supply of Oakley's muffins will increase.
b. supply of Oakley's muffins will decrease.
c. demand for Oakley's muffins will increase.
d. demand for Oakley's muffins will decrease.

Table 4-5

Quantity Supplied
Price (Cases of water)
(Dollars per case)
Aqueduct Springs Basin Mountain Cascade Waters Drop Good
0.00 0 0 0 0
2.00 100 40 60 100
4.00 200 80 120 200
6.00 300 120 180 300

128. Refer to Table 4-5. If the four suppliers listed are the only suppliers in this market and the market
demand schedule is:
 Price Quantity Demanded
(Dollars per case) (Cases of water)
0.00 350
2.00 300
4.00 250
6.00 200

The equilibrium price and quantity are

a. $0.00 and 350 cases.
b. $4.00 and 250 cases.
c. $2.00 and 300 cases.
d. $6.00 and 200 cases.

129. A competitive market is a market in which

a. an auctioneer helps set prices and arrange sales.
b. there are only a few sellers.
c. the forces of supply and demand do not apply.
d. no individual buyer or seller has any significant impact on the market price.

130. The current price of blue jeans is $30 per pair, but the equilibrium price of blue jeans is $25 per pair.
As a result, which of the following statements is not true?
a. The quantity supplied of blue jeans exceeds the quantity demanded of blue jeans at the $30
price.
b. The equilibrium quantity of blue jeans exceeds the quantity demanded at the $30 price.
c. There is a surplus of blue jeans at the $30 price.
d. There is a shortage of blue jeans at the $30 price.

131. Suppose you like to make, from scratch, pies filled with bananas and vanilla pudding. You notice
that the price of bananas has increased. As a result, your demand for vanilla pudding would
a. decrease.
b. increase.
c. be unaffected.
d. change but you don't know how without more information.

132. The line that relates the price of a good and the quantity supplied of that good is called the supply
a. schedule, and it usually slopes upward.
b. schedule, and it usually slopes downward.
c. curve, and it usually slopes upward.
d. curve, and it usually slopes downward.

Figure 4-9
133. Refer to Figure 4-9. All else equal, an increase in the price of the pulp used in the paper production
process would cause a move from
a. x to y.
b. y to x.
c. Sa to Sb.
d. Sb to Sa.

134. Equilibrium price must decrease when

a. both demand and supply increase.
b. both demand and supply decrease.
c. demand does not change and supply increases.
d. demand increases and supply does not change.

135. Which of the following events would cause a movement upward and to the left along the demand
curve for olives?
a. The number of people who purchase olives decreases.
b. Consumer income decreases, and olives are a normal good.
c. The price of pickles decreases, and pickles are a substitute for olives.
d. The price of olives rises.

136. What would happen to the equilibrium price and quantity of lattés if coffee shops began using a
machine that reduced the amount of labor necessary to produce them?
a. Both the equilibrium price and quantity would increase.
 b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.

137. The market demand curve

a. shows the relationship between price and the number of buyers in a market.
b. represents the sum of the prices that all the buyers are willing to pay for a given quantity of the go
od.
c. is found by vertically adding the individual demand curves.
d. shows how the total quantity demanded of a good varies as price varies.

138. Which of the following events would cause the price of oranges to fall?
a. There is a shortage of oranges.
b. The FDA announces that bananas cause strokes, and oranges and bananas are substitutes.
c. The price of land throughout Florida decreases, and Florida produces a significant proportion
of the nation's oranges.
d. At the current price, quantity demanded is greater than quantity supplied.

139. Suppose the income of buyers in a market for an inferior good decreases and a technological
advancement occurs also. What would we expect to happen in the market?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be
ambiguous.
b. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
d. Equilibrium quantity and price would increase.

140. If the demand for a good falls when income falls, then the good is called
a. a normal good.
b. a regular good.
c. an ordinary good.
d. an inferior good.

141. A supply schedule is a table that shows the relationship between

a. price and quantity supplied.
b. input costs and quantity supplied.
c. quantity demanded and quantity supplied.
d. profit and quantity supplied.

142. When we move along a given demand curve,

a. only price is held constant.
b. income and price are held constant.
 c. all nonprice determinants of demand are held constant.
d. all determinants of quantity demanded are held constant.

143. Which of the following demonstrates the law of demand?

a. After Roberto got a raise at work, he bought more pretzels at $1.50 per pretzel than he did
before his raise.
b. Benjamin buys fewer muffins at $0.75 per muffin than at $1 per muffin, other things equal.
c. Ashlyn buys more donut holes at $0.25 per donut hole than at $0.50 per donut hole, other
things equal.
d. Tiana buys fewer Snickers at $0.60 per candy bar after the price of M&Ms falls to $0.50 per
bag.

144. If the number of buyers in a market decreases, then

a. demand will increase.
b. demand will decrease.
c. supply will increase.
d. supply will decrease.

Figure 4-6

145. Refer to Figure 4-6. The shift from S' to S could be caused by
a. an increase in the number of sellers.
b. an increase in input prices.
c. a decrease in the number of buyers.
d. an increase in the price of the good.
Figure 4-10

146. Refer to Figure 4-10. Which of the following movements would illustrate the effect of an increase
in the incomes of parents with school-aged children on the market for soccer lessons?
a. Point C to Point D
b. Point A to Point D
c. Point A to Point B
d. Point C to Point B

147. Which of the following events would cause both the equilibrium price and equilibrium quantity of
number two grade potatoes to increase if number two grade potatoes are an inferior good?
a. An increase in consumer income
b. A decrease in consumer income
c. Greater government restrictions on agricultural chemicals
d. Fewer government restrictions on agricultural chemicals

Figure 4-2

Consumer 1 Consumer 2
148. Refer to Figure 4-2. If these are the only two consumers in the market, then the market quantity
demanded at a price of $6 is
a. 19 units.
b. 4 units.
c. 6 units.
d. 13 units.

149. Which of the following would shift the demand curve for gasoline to the right?
a. A decrease in the price of gasoline
b. An increase in consumer income, assuming gasoline is a normal good
c. An increase in the price of cars, a complement for gasoline
d. A decrease in the expected future price of gasoline

150. Suppose sunflowers are currently selling for $45 per dozen, but the equilibrium price of sunflowers
is $25 per dozen. We would expect a
a. shortage to exist and the market price of sunflowers to increase.
b. shortage to exist and the market price of sunflowers to decrease.
c. surplus to exist and the market price of sunflowers to increase.
d. surplus to exist and the market price of sunflowers to decrease.

151. A group of buyers and sellers of a particular good or service is called a(n)
a. coalition.
 b. economy.
c. market.
d. competition.

152. Which of the following would not increase in response to a decrease in the price of ironing boards?
a. The quantity of irons demanded at each possible price of irons
b. The equilibrium quantity of irons
c. The equilibrium price of irons
d. The quantity of irons supplied at each possible price of irons

Figure 4-8

153. Refer to Figure 4-8. All else equal, an increase in the income of buyers who consider turkey to be
an inferior good would cause a move from
a. Da to Db.
b. Db to Da.
c. x to y.
d. y to x.

Figure 4-10
154. Refer to Figure 4-10. Which of the following movements would illustrate the effect of an increase
in the price of beach towels on the market for bathing suits?
a. Point C to Point D
b. Point A to Point D
c. Point A to Point B
d. Point C to Point B

155. Warrensburg is a small college town in Missouri. At the end of August each year, the market
demand for fast food in Warrensburg
a. increases.
b. decreases.
c. remains constant, but we observe a movement downward and to the right along the demand
curve.
d. remains constant, but we observe a movement upward and to the left along the demand curve.

156. Suppose scientists provide evidence that people who drink energy drinks are more likely to have a
heart attack than people who do not drink energy drinks. We would expect to see
a. no change in the demand for energy drinks.
b. a decrease in the demand for energy drinks.
c. an increase in the demand for energy drinks.
d. a decrease in the supply of energy drinks.

157. Which of the following would shift the supply of umbrellas to the left?
a. Rainfall is expected to be unusually low in the coming year.
 b. The price of an umbrella increases by $12.
c. The cost of the fabric used to make umbrellas decreases.
d. The number of firms making umbrellas decreases.

Figure 4-4

158. Refer to Figure 4-4. The movement from point A to point B on the graph is called
a. a decrease in supply.
b. an increase in supply.
c. an increase in the quantity supplied.
d. a decrease in the quantity supplied.

159. If a decrease in income increases the demand for a good, then the good is
a. a substitute good.
b. a complementary good.
c. a normal good.
d. an inferior good.

Figure 4-6
160. Refer to Figure 4-6. The shift from S' to S in the market for chocolate cake could be caused by
a. an increase in the price of butter.
b. a decrease in the price of flour.
c. an increase in income.
d. an increase in the price of chocolate cake.

161. If consumers often purchase croissants to eat while they drink their cappuccinos at local coffee
shops, what would happen to the equilibrium price and quantity of cappuccinos if the price of croissants
rises?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.

162. An increase in the price of a good will

a. increase supply.
b. decrease supply.
c. decrease quantity supplied.
d. increase quantity supplied.

Table 4-4

Price Quantity Supplied

(Dollars per unit) (Units)
 Firm A Firm B Firm C Firm D
0 0 0 0 0
2 2 3 4 5
4 4 6 8 10
6 6 9 12 15
8 8 12 14 20
10 10 15 16 25

163. Refer to Table 4-4. If these are the only four sellers in the market, then when the price
decreases from $8 to $6, the market quantity supplied
a. decreases by 20 units.
b. decreases by 12 units.
c. increases by 33 units.
d. decreases by 42 units.

164. Currently you purchase ten frozen pizza per month. You will graduate from college in December,
and you will start a new job in January. You have no plans to purchase frozen pizzas in January. For you,
frozen pizzas are
a. a substitute good.
b. a normal good.
c. an inferior good.
d. a complementary good.

165. A demand schedule is a table that shows the relationship between

a. quantity demanded and quantity supplied.
b. income and quantity demanded.
c. price and quantity demanded.
d. price and income.

166. A monopoly is a market with one

a. seller, and that seller is a price taker.
b. seller, and that seller sets the price.
c. buyer, and that buyer is a price taker.
d. buyer, and that buyer sets the price.

167. Suppose that a decrease in the price of good X results in fewer units of good Y being demanded.
This implies that X and Y are
a. complementary goods.
b. normal goods.
c. inferior goods.
d. substitute goods.

168. When the quantity demanded has increased at every price, it might be because
 a. the number of buyers in the market has decreased.
b. income has increased, and the good is an inferior good.
c. the costs incurred by sellers producing the good have decreased.
d. the price of a complementary good has decreased.

169. What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the
price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers
negotiate higher wages?
a. Price will fall, and the effect on quantity is ambiguous.
b. Price will rise, and the effect on quantity is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
d. Quantity will rise, and the effect on price is ambiguous.

Figure 4-7

170. Refer to Figure 4-7. At a price of $15, there would be a

a. surplus of 400 units.
b. surplus of 200 units.
c. shortage of 400 units.
d. shortage of 200 units.

171. Which of the following is not held constant in a demand schedule?

a. Income
b. Tastes
 c. Price
d. Expectations

Figure 4-5
Firm A Firm B

172. Refer to Figure 4-5. If these are the only two sellers in the market, then the market quantity supplied
at a price of $6 is
a. 12 units.
b. 9 units.
c. 8 units.
d. 21 units.

Table 4-4

Quantity Supplied
Price (Units)
(Dollars per unit)
Firm A Firm B Firm C Firm D
0 0 0 0 0
2 2 3 4 5
4 4 6 8 10
6 6 9 12 15
8 8 12 14 20
10 10 15 16 25
173. Refer to Table 4-4. If these are the only four sellers in the market, then the market quantity supplied
at a price of $10 is
a. 25 units.
b. 41 units.
c. 71 units.
d. 66 units.

174. A likely example of complementary goods for most people would be

a. apple juice and orange juice.
b. tennis balls and basketballs.
c. coffee and sugar.
d. butter and margarine.

175. Pizza is a normal good if the demand

a. for pizza rises when income rises.
b. for pizza rises when the price of pizza falls.
c. curve for pizza slopes upward.
d. curve for pizza shifts to the right when the price of burritos rises, assuming pizza and burritos
are substitutes.

Figure 4-1
176. Refer to Figure 4-1. The movement from point A to point B on the graph is caused by
a. an increase in price.
b. a decrease in price.
c. a decrease in the price of a substitute good.
d. an increase in income.

177. If something happens to alter the quantity supplied at any given price, then
a. we move along the supply curve.
b. the supply curve shifts.
c. the supply curve becomes steeper.
d. the supply curve becomes flatter.

178. When we move along a given supply curve,

a. only price is held constant.
b. technology and price are held constant.
c. all nonprice determinants of supply are held constant.
d. all determinants of quantity supplied are held constant.

179. If scientists discover that steamed milk, which is used to make lattés, prevents heart attacks, what
would happen to the equilibrium price and quantity of lattés?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.

Figure 4-7
180. Refer to Figure 4-7. At what price would there be an excess supply of 400 units of the good?
a. $40
b. $30
c. $35
d. $25

181. Two goods are complements when a decrease in the price of one good
a. decreases the quantity demanded of the other good.
b. decreases the demand for the other good.
c. increases the quantity demanded of the other good.
d. increases the demand for the other good.

182. Soup is an inferior good if the demand

a. for soup falls when the price of a substitute for soup rises.
b. for soup rises when the price of soup falls.
c. curve for soup slopes upward.
d. for soup falls when income rises.

183. Which of the following is not a determinant of the demand for a particular good?
a. The prices of related goods
b. Income
c. Tastes
d. The prices of the inputs used to produce the good
Figure 4-10

184. Refer to Figure 4-10. Which of the following movements would illustrate the effect of an improved
high-speed mixer that allows bakers to produce cakes in less time on the market for cakes?
a. Point C to Point D
b. Point A to Point D
c. Point A to Point B
d. Point C to Point B

185. Which of the following events would unambiguously cause a decrease in the equilibrium price of
cotton shirts?
a. An increase in the price of wool shirts and a decrease in the price of raw cotton
b. A decrease in the price of wool shirts and a decrease in the price of raw cotton
c. An increase in the price of wool shirts and an increase in the price of raw cotton
d. A decrease in the price of wool shirts and an increase in the price of raw cotton

Figure 4-1
186. Refer to Figure 4-1. It is apparent from the figure that the
a. good is inferior.
b. demand for the good decreases as income increases.
c. demand for the good conforms to the law of demand.
d. good is a normal good.

187. Suppose that when the price of a 16 oz. to-go cup of gourmet coffee is $4.25, students purchase 750
cups per day. If the price decreases to $3.75 per cup, which of the following is the most likely outcome?
a. Students would purchase fewer than 750 cups per day.
b. Student would continue to purchase 750 cups per day.
c. Students would purchase more than 750 cups per day.
d. We do not have enough information to answer this question.

Table 4-6

Price Quantity Demanded Quantity Supplied

(Dollars per unit) (Units) (Units)
5 30 80
4 40 65
3 50 50
2 60 35
1 70 20
188. Refer to Table 4-6. If the price were $4, a
a. shortage of 10 units would exist, and price would tend to rise.
b. surplus of 25 units would exist, and price would tend to fall.
c. shortage of 25 units would exist, and price would tend to rise.
d. surplus of 10 units would exist, and price would tend to fall.

189. Suppose the number of buyers in a market increases and a technological advancement occurs also.
What would we expect to happen in the market?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be
ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be
ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.

190. Which of the following events could cause an increase in the supply of ceiling fans?
a. The number of sellers of ceiling fans increases.
b. There is an increase in the price of air conditioners, and consumers regard air conditioners and
ceiling fans as substitutes.
c. There is an increase in the price of the motor that powers ceiling fans.
d. The average temperature rises over time.

191. An example of a perfectly competitive market would be the

a. cable TV market.
b. soybean market.
c. breakfast cereal market.
d. shampoo market.

192. A likely example of substitute goods for most people would be

a. tennis balls and tennis rackets.
b. televisions and subscriptions to cable television services.
c. coffee and sugar.
d. iced tea and lemonade.

193. If Christopher expects to earn a higher income next month, he may choose to
a. save more now and spend less of his current income on goods and services.
b. save less now and spend more of his current income on goods and services.
c. decrease his current demand for goods and services.
d. move along his current demand curves for goods and services.

Figure 4-7
194. Refer to Figure 4-7. Equilibrium price and quantity are, respectively,
a. $30 and 500 units.
b. $20 and 300 units.
c. $25 and 400 units.
d. $15 and 200 units.

195. A baker recently has come to expect higher prices for bread in the near future. We would expect
a. the baker to supply more bread now than she was supplying previously.
b. the baker to supply less bread now than she was supplying previously.
c. the demand for bread to fall.
d. no change in the baker's current supply of bread; instead, future supply will be affected.

196. At the equilibrium price, the quantity of the good that buyers are willing and able to buy
a. is greater than the quantity that sellers are willing and able to sell.
b. exactly equals the quantity that sellers are willing and able to sell.
c. is less than the quantity that sellers are willing and able to sell.
d. could be greater or less than the quantity that sellers are willing and able to sell.

197. Two goods are substitutes when a decrease in the price of one good
a. decreases the demand for the other good.
b. decreases the quantity demanded of the other good.
c. increases the demand for the other good.
d. increases the quantity demanded of the other good.
198. A group of buyers and sellers of a particular good or service is called
a. a coalition.
b. an economy.
c. a market.
d. a competition.

Figure 4-1

199. Refer to Figure 4-1. The movement from point A to point B on the graph shows
a. a decrease in demand.
b. an increase in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.

200. Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal
government increases the minimum wage by $1.00 per hour, then it is likely that the
a. demand for bicycle assembly workers will increase.
b. supply of bicycles will shift to the right.
c. supply of bicycles will shift to the left.
d. firm must increase output to maintain profit levels.

201. Who gets scarce resources in a market economy?

a. The government
 b. Whoever the government decides gets them
c. Whoever wants them
d. Whoever is willing and able to pay the price

202. If a seller in a competitive market chooses to charge more than the going price, then
a. the sellers' profits must increase.
b. the owners of the raw materials used in production would raise the prices for the raw
materials.
c. other sellers would also raise their prices.
d. buyers will make purchases from other sellers.

Figure 4-3

203. Refer to Figure 4-3. The shift from Da to Db in the market for pita chips could be caused by
a. a decrease in the price of pita chips.
b. a decrease in income, assuming that pita chips are a normal good.
c. an announcement by the FDA that pita chips cause cancer.
d. an increase in the price of a popcorn.

204. If something happens to alter the quantity demanded at any given price, then
a. the demand curve becomes steeper.
b. the demand curve becomes flatter.
c. the demand curve shifts.
d. we move along the demand curve.
Figure 4-10

205. Refer to Figure 4-10. Which of the following movements would illustrate the effect of an increase
in the price of Kevlar, a material used to make bullet-proof vests, on the market for bullet-proof vests?
a. Point C to Point D
b. Point A to Point D
c. Point A to Point B
d. Point C to Point B

206. The line that relates the price of a good and the quantity demanded of that good is called the demand
a. schedule, and it usually slopes upward.
b. schedule, and it usually slopes downward.
c. curve, and it usually slopes upward.
d. curve, and it usually slopes downward.

Table 4-1

Price Quantity Demanded

(Dollars per unit) (Units)
16 100
22 Q1

207. Refer to Table 4-1.If the law of demand applies to this good, then Q1 could be
a. 60.
 b. 90.
c. 120.
d. 50.

Figure 4-3

208. Refer to Figure 4-3. The shift from Db to Da in the market for tortilla chips could be caused by
a. a decrease in the price of tortilla chips.
b. a decrease in income, assuming that tortilla chips are a normal good.
c. an announcement by the FDA that tortilla chips lower cholesterol.
d. an increase in the price of a chex mix.

209. If the supply of a product increases, then we would expect equilibrium price
a. to increase and equilibrium quantity to decrease.
b. to decrease and equilibrium quantity to increase.
c. and equilibrium quantity to both increase.
d. and equilibrium quantity to both decrease.

Table 4-5

Quantity Supplied
Price (Cases of water)
(Dollars per case)
Aqueduct Springs Basin Mountain Cascade Waters Drop Good
0.00 0 0 0 0
2.00 100 40 60 100
 4.00 200 80 120 200
6.00 300 120 180 300

210. Refer to Table 4-5. If the four suppliers listed are the only suppliers in this market and the market
quantity demanded is 390 cases when the price is $2.00, which of the following statements is correct?
a. There is a shortage of 90 cases at a price of $2.00.
b. The market is in equilibrium at a price of $2.00.
c. There is a surplus of 90 cases at a price of $2.00.
d. There is a surplus of 80 cases at a price of $2.00.

211. You lose your job and, as a result, you buy fewer iTunes music downloads. This shows that you
consider iTunes music downloads to be
a. a substitute good.
b. an inferior good.
c. a normal good.
d. a complementary good.

212. Which of the following events would cause a movement downward and to the left along the supply
curve for kiwis?
a. The number of sellers of kiwis decreases.
b. There is a destruction of technological machinery that increases the cost of producing kiwis.
c. The price of soil increases, and soil is an input in the production of kiwis .
d. The price of kiwis falls.

213. Suppose there is a flood in St. Louis, Missouri, that destroys several beer bottling facilities. Which of
the following would not be a direct result of this event?
a. Sellers would not be able to produce and sell as much as before at each relevant price.
b. The supply would decrease.
c. Buyers would not be willing to buy as much as before at each relevant price.
d. The equilibrium price would rise.

214. The market supply curve

a. shows how supply changes when consumer income changes.
b. is determined by finding the average quantity supplied by sellers at each possible price.

c. represents the sum of the prices that all the sellers are willing to accept for a given quantity of the
good.
d. shows how the total quantity supplied of a good varies as the price of that good varies.

215. Suppose that demand for a good increases and, at the same time, supply of the good decreases. What
would happen in the market for the good?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be
ambiguous.
 b. Equilibrium price would increase, but the impact on equilibrium quantity would be
ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.

216. What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean
pickers fell and the price of tea fell?
a. Price would fall, and the effect on quantity would be ambiguous.
b. Price would rise, and the effect on quantity would be ambiguous.
c. Quantity would fall, and the effect on price would be ambiguous.
d. Quantity would rise, and the effect on price would be ambiguous.

Figure 4-9

217. Refer to Figure 4-9. All else equal, an increase in the use of laptop computers for note-taking would
cause a move from
a. x to y.
b. y to x.
c. Sa to Sb.
d. Sb to Sa.

Table 4-2
 Quantity Demanded
Price (Units)
(Dollars per unit)
Bert Ernie Grover Oscar
0.00 20 16 6 8
0.50 18 12 4 6
1.00 14 10 2 5
1.50 12 8 0 4
2.00 6 6 0 2
2.50 0 4 0 0

218. Refer to Table 4-2. If these are the only four buyers in the market, then the market quantity
demanded at a price of $2.00 is
a. 6 units.
b. 12 units.
c. 2 units.
d. 14 units.

219. If muffins and bagels are substitutes, a higher price for bagels would result in
a. an increase in the demand for bagels.
b. a decrease in the demand for bagels.
c. an increase in the demand for muffins.
d. a decrease in the demand for muffins.

220. The quantity supplied of a good is the amount that

a. buyers are willing and able to purchase.
b. sellers are able to produce.
c. buyers and sellers agree will be brought to market.
d. sellers are willing and able to sell.

221. Assume Ren buys coffee beans in a competitive market. It follows that
a. Ren has a limited number of sellers from which to buy coffee beans.
b. Ren will negotiate with sellers whenever he buys coffee beans.
c. Ren cannot influence the price of coffee beans even if he buys a large quantity of them.
d. Ren might have trouble finding coffee beans at his local store.

222. Which of the following demonstrates the law of supply?

a. When leather became more expensive, belt producers decreased their supply of belts.
b. When car production technology improved, car producers increased their supply of cars.
c. When sweater producers expected sweater prices to rise in the near future, they decreased
their current supply of sweaters.
d. When ketchup prices rose, ketchup sellers increased their quantity supplied of ketchup.
223. What will happen in the market for shotgun-shell ammunition now if buyers expect higher shotgun-
shell prices in the near future?
a. The demand for shotgun-shell ammunition will increase.
b. The demand for shotgun-shell ammunition will decrease.
c. The demand for shotgun-shell ammunition will be unaffected.
d. The supply of shotgun-shell ammunition will increase.

224. The law of demand states that, other things equal, when the price of a good
a. falls, the demand for the good rises.
b. rises, the quantity demanded of the good rises.
c. rises, the demand for the good falls.
d. falls, the quantity demanded of the good rises.

Table 4-3

Price Quantity Supplied

(Dollars per unit) (Units)
9 160
17 Q1

225. Refer to Table 4-3. If the law of supply applies to this good, then Q1 could be
a. 110.
b. 140.
c. 160.
d. 170.

226. Suppose the United States had a short-term shortage of farmers. Which market mechanisms would
adjust to remove the shortage?
a. The government would provide tax incentives to encourage people to become farmers.
b. The government would subsidize the production of food.
c. The prices of food and the wages of farmers would adjust.
d. There are no market mechanisms to remove the shortage.

227. What would happen to the equilibrium price and quantity of macaroni and cheese if consumers'
incomes fall and macaroni and cheese is an inferior good?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.

228. If the number of sellers in a market increases, then the

a. demand in that market will increase.
b. supply in that market will increase.
c. supply in that market will decrease.
 d. demand in that market will decrease.

Table 4-6

Price Quantity Demanded Quantity Supplied

(Dollars per unit) (Units) (Units)
5 30 80
4 40 65
3 50 50
2 60 35
1 70 20

229. Refer to Table 4-6. The equilibrium price and quantity, respectively, are
a. $2 and 65 units.
b. $3 and 50 units.
c. $3 and 60 units.
d. $4 and 50 units.

230. Suppose an increase in the price of rubber coincides with an advance in the technology of tire
production. As a result of these two events, the demand for tires
a. decreases, and the supply of tires increases.
b. is unaffected, and the supply of tires decreases.
c. is unaffected, and the supply of tires increases.
d. is unaffected, and the supply of tires could increase, decrease, or stay the same.

Figure 4-6
231. Refer to Figure 4-6. The shift from S' to S is called
a. an increase in supply.
b. a decrease in quantity supplied.
c. a decrease in supply.
d. an increase in quantity supplied.

232. The law of supply states that, other things equal, when the price of a good
a. falls, the supply of the good rises.
b. rises, the quantity supplied of the good rises.
c. rises, the supply of the good falls.
d. falls, the quantity supplied of the good rises.

233. Which of the following is not an example of a market?

a. A small town has only one seller of water.
b. In the United States, a sick person cannot legally purchase a lung.
c. In Georgia, there are many buyers and sellers of peaches.
d. The availability of internet shopping has expanded the shoe choices for buyers who do not live
near large cities.

PART 2
79. If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a
a. 0.50 percent decrease in the quantity demanded.
 b. 2.00 percent decrease in the quantity demanded.
c. 50.00 percent decrease in the quantity demanded.
d. 100.00 percent decrease in the quantity demanded.

80. Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an
increase in the demand for cheese causes the price of cheese to increase by 15 percent, then the quantity
supplied of cheese will increase by
a. 0.4 percent in the short run and 4.6 percent in the long run.
b. 1.7 percent in the short run and 0.7 percent in the long run.
c. 9 percent in the short run and 21 percent in the long run.
d. 25 percent in the short run and 10.7 percent in the long run.

Scenario 5-2
Milk has an inelastic demand, and steak has an elastic demand.
Suppose that a mysterious increase in bovine infertility decreases both the
population of dairy cows and the population of beef cattle by 50 percent.
81. Refer to Scenario 5-2. Total consumer spending on milk will
a. increase, and total consumer spending on steak will increase.
b. decrease, and total consumer spending on steak will decrease.
c. decrease, and total consumer spending on steak will increase.
d. increase, and total consumer spending on steak will decrease.

82. For which of the following goods is the income elasticity of demand likely lowest?
a. Clothing
b. Apples
c. Diamond earrings
d. Limousines

83. Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which
of the following statements is correct?
a. The flatter supply curve represents a supply that is inelastic relative to the supply represented
by the steeper supply curve.
b. The steeper supply curve represents a supply that is inelastic relative to the supply represented
by the flatter supply curve.
c. Given two prices with which to calculate the price elasticity of supply, that elasticity would be
the same for both curves.
d. A decrease in demand will increase total revenue if the steeper supply curve is relevant, while
a decrease in demand will decrease total revenue if the flatter supply curve is relevant.

84. Suppose the price of a bag of frozen chicken nuggets decreases from $6.60 to $6.50 and, as a result,
the quantity of bags demanded increases from 600 to 620. Using the midpoint method, the price elasticity
of demand for frozen chicken nuggets in the given price range is
a. 0.47.
b. 0.03.
c. 2.15.
 d. 0.02.

85. Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the
money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per
cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is
elastic, what is your advice to her?
a. Leave the price at 25 cents and be patient.
b. Raise the price to increase total revenue.
c. Lower the price to increase total revenue.
d. There isn't enough information given to answer this question.

86. If the demand for donuts is elastic, then a decrease in the price of donuts will
a. increase total revenue of donuts sellers.
b. decrease total revenue of donuts sellers.
c. not change total revenue of donuts sellers.
d. change total revenue of donuts sellers but in an unknown way without more information.

87. For a good that is a luxury, demand

a. tends to be inelastic.
b. tends to be elastic.
c. has unit elasticity.
d. cannot be represented by a demand curve in the usual way.

88. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately
0.55. Which of the following events is consistent with a 20 percent decrease in the quantity of the good
demanded?
a. An increase of 11.0 percent in the price of the good
b. An increase of 36.36 percent in the price of the good
c. An increase in the price of the good from $11.00 to $20
d. An increase in the price of the good from $20 to $31.00

89. Cross-price elasticity of demand measures how

a. the price of one good changes in response to a change in the price of another good.
b. the quantity demanded of one good changes in response to a change in the quantity demanded
of another good.
c. the quantity demanded of one good changes in response to a change in the price of another
good.
d. strongly normal or inferior a good is.

Scenario 5-2
Milk has an inelastic demand, and steak has an elastic demand.
Suppose that a mysterious increase in bovine infertility decreases both the
population of dairy cows and the population of beef cattle by 50 percent.
90. Refer to Scenario 5-2. The equilibrium price will
a. decrease in both the milk and steak markets.
 b. increase in the milk market and decrease in the steak market.
c. decrease in the milk market and increase in the steak market.
d. increase in both the milk and steak markets.

91. Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised
the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating
Service is
a. 0.11.
b. 0.47.
c. 1.12.
d. 2.11.

92. When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased
from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds.
Using the midpoint method, we can conclude that for Heather, macaroni
a. and soy-burgers are both normal goods with income elasticities equal to 1.
b. is an inferior good and soy-burgers are normal goods; both have income elasticities of 1.
c. is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an
income elasticity of 1.
d. and soy-burgers are both inferior goods with income elasticities equal to -1.

93. If the price of walnuts rises, many people would switch from consuming walnuts to consuming cashe
ws. But if the price of salt rises, people would have difficulty purchasing something to use in its place.
These examples illustrate the importance of
a. the availability of close substitutes in determining the price elasticity of demand.
b. a necessity versus a luxury in determining the price elasticity of demand.
c. the definition of a market in determining the price elasticity of demand.
d. the time horizon in determining the price elasticity of demand.

94. Metta says that she will spend exactly $25 each month on new apps for her mobile device, regardless
of the price of apps. Metta's demand for apps is
a. perfectly elastic.
b. unit elastic.
c. perfectly inelastic.
d. somewhat inelastic, but not perfectly inelastic.

95. Which of the following was not a reason OPEC failed to keep the price of oil high?
a. Over the long run, producers of oil outside of OPEC responded to higher prices by increasing
oil exploration and by building new extraction capacity.
b. Consumers responded to higher prices with greater conservation.
c. Consumers replaced old inefficient cars with newer efficient ones.
d. The agreement OPEC members signed allowed each country to produce as much oil as each
wanted.

Figure 5-6
96. Refer to Figure 5-6. Along which of these segments of the supply curve is supply most elastic?
a. AB
b. CD
c. AC
d. EF

97. If the price of milk rises, when is the price elasticity of demand likely to be the highest?
a. Immediately after the price increase
b. One month after the price increase
c. Three months after the price increase
d. One year after the price increase

Figure 5-3
98. Refer to Figure 5-3. Using the midpoint method, between prices of $70 and $80, price elasticity of
demand is about
a. 3.00.
b. 0.40.
c. 0.13.
d. 0.33.

99. The price elasticity of supply measures how much

a. the quantity supplied responds to changes in input prices.
b. the quantity supplied responds to changes in the price of the good.
c. the price of the good responds to changes in supply.
d. sellers respond to changes in technology.

100. Which of the following statements is not correct?

a. Advocates for drug-interdiction policies that reduce the supply of illegal drugs argue that the
demand for illegal drugs may be more responsive in the long run than in the short run.
b. The demand for illegal drugs is price inelastic.
c. Drug interdiction efforts that reduce the supply of illegal drugs may increase drug-related
crimes.
d. The quantity of illegal drugs demanded is very responsive to changes in price.

101. If the price elasticity of supply is 0.6, and a price increase led to a 3.7 percent increase in quantity
supplied, then the price increase is about
 a. 0.16 percent.
b. 2.22 percent.
c. 6.17 percent.
d. 5.17 percent.

102. You are in charge of the local city-owned aquatic center. You need to increase the revenue generated
by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The
city manager recommends reducing the price of a day pass. You realize that
a. the mayor thinks demand is elastic, and the city manager thinks demand is inelastic.
b. both the mayor and the city manager think that demand is elastic.
c. both the mayor and the city manager think that demand is inelastic.
d. the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

Figure 5-3

103. Refer to Figure 5-3. The maximum value of total revenue corresponds to a price of
a. $20.
b. $50.
c. $70.
d. $100.

Figure 5-7
104. Refer to Figure 5-7. Using the midpoint method, what is the price elasticity of supply between point
B and point C?
a. 1.44
b. 1.29
c. 0.96
d. 0.69

Scenario 5-1

Suppose the demand function for good X is given by: Qdx = 15 − 0.5Px − 0.8Py where Qdx is the
quantity demanded of good X, Px is the price of good X, and Py is the price of good Y, which is related to
good X.
105. Refer to Scenario 5-1. Using the midpoint method, if the price of good X is constant at $10 and the
price of good Y decreases from $10 to $8, the cross-price elasticity of demand is about
a. 0.57, and X and Y are substitutes.
b. −0.22, and X and Y are complements.
c. −0.80, and X and Y are complements.
d. −2.57, and X and Y are complements.

106. A manufacturer produces 350 units when the market price is $10 per unit and produces 460 units
when the market price is $14 per unit. Using the midpoint method, for this range of prices, the price
elasticity of supply is about
a. 1.23.
b. 0.27.
 c. 0.81.
d. 0.33.

107. Last year, Shemar bought 7 shirts when his income was $32,000. This year, his income is $45,000,
and he purchased 4 shirts. Holding other factors constant and using the midpoint method, it follows that
Shemar's income elasticity of demand is about
a. –0.62, and Shemar regards shirts as normal goods.
b. –0.62, and Shemar regards shirts as inferior goods.
c. –1.62, and Shemar regards shirts as normal goods.
d. –1.62, and Shemar regards shirts as inferior goods.

Figure 5-2

108. Refer to Figure 5-2. If the price increases in the region of the demand curve between points C to B,
we can expect total revenue to
a. decrease.
b. stay the same.
c. increase.
d. first decrease, then increase until total revenue is maximized.

Figure 5-5
109. Refer to Figure 5-5. Using the midpoint method, the price elasticity of demand between point X and
point Y is
a. 0.4.
b. 1.
c. 2.
d. 2.5.

110. Refer to Figure 5-5. If the price decreased from $36 to $12, total revenue would
a. increase by $4,800, and demand is elastic between points X and Z.
b. increase by $7,200, and demand is elastic between points X and Z.
c. decrease by $4,800, and demand is inelastic between points X and Z.
d. decrease by $7,200, and demand is inelastic between points X and Z.

111. For which pairs of goods is the cross-price elasticity most likely to be positive?
a. Peanut butter and jelly
b. Bicycle frames and bicycle tires
c. Pens and pencils
d. Digital college textbooks and iPhones

112. When large changes in price lead to no changes in quantity demanded, demand is perfectly
a. inelastic, and the demand curve will be vertical.
b. inelastic, and the demand curve will be horizontal.
c. elastic, and the demand curve will be vertical.
 d. elastic, and the demand curve will be horizontal.

113. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy
aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the
midpoint method, the government policy should have reduced smoking by
a. 30 percent.
b. 40 percent.
c. 80 percent.
d. 250 percent.

114. Suppose the cross-price elasticity of demand between peanut butter and jelly is −2.50. This implies
that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to
a. fall by 8 percent.
b. fall by 50 percent.
c. rise by 8 percent.
d. rise by 50 percent.

Table 5-4

Supply Curve A Supply Curve B Supply Curve C

Price $1.00 $2.00 $1.00 $3.00 $2.00 $5.00
Quantity Supplied 500 600 600 900 400 700

115. Refer to Table 5-4. Using the midpoint method, which of the three supply curves represents the
least elastic supply?
a. Supply curve A
b. Supply curve B
c. Supply curve C
d. All three supply curves have the same elasticity.

116. Which of the following statements is not correct concerning government attempts to reduce the flow
of illegal drugs into the country? Drug interdiction
a. raises prices and total revenue in the drug market.
b. can increase drug-related crime.
c. shifts the demand curve for drugs to the left.
d. shifts the supply curve of drugs to the left.

117. In January, the price of dark chocolate candy bars was $2.00, and Willy's Chocolate Factory
produced 80 pounds. In February, the price of dark chocolate candy bars was $2.50, and Willy's produced
110 pounds. In March, the price of dark chocolate candy bars was $3.00, and Willy's produced 140
pounds. Using the midpoint method, the price elasticity of supply of Willy's dark chocolate candy bars
was about
a. 0.70 when the price increased from $2.00 to $2.50 and 0.76 when the price increased from
$2.50 to $3.00.
 b. 0.88 when the price increased from $2.00 to $2.50 and 1.08 when the price increased from
$2.50 to $3.00.
c. 1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from
$2.50 to $3.00.
d. 1.50 when the price increased from $2.00 to $2.50 and 1.18 when the price increased from
$2.50 to $3.00.

118. For a particular good, a 10 percent increase in price causes a 5 percent decrease in quantity
demanded. Which of the following statements is most likely applicable to this good?
a. There are many close substitutes for this good.
b. The market for the good is broadly defined.
c. The good is a luxury.
d. The relevant time horizon is long.

119. Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers
are to a change in price, the
a. steeper the demand curve will be.
b. flatter the demand curve will be.
c. further to the right the demand curve will sit.
d. closer to the vertical axis the demand curve will sit.

120. When the price of candy bars is $1.20, the quantity demanded is 490 per day. When the price falls to
$1.00, the quantity demanded increases to 500. Given this information and using the midpoint method, we
know that the demand for candy bars is
a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly inelastic.

121. If the price elasticity of supply is 0.7, and price increased by 24 percent, quantity supplied would
a. increase by 34.29 percent.
b. increase by 16.80 percent.
c. decrease by 34.29 percent.
d. decrease by 16.80 percent.

122. Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk
production of dairy cows. If the demand for milk is relatively inelastic, the discovery will
a. raise both price and total revenues.
b. lower both price and total revenues.
c. raise price and lower total revenues.
d. lower price and raise total revenues.

123. When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of
good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the
price elasticity of demand for good A is
 a. 1.50, and an increase in price will result in an increase in total revenue for good A.
b. 1.50, and an increase in price will result in a decrease in total revenue for good A.
c. 0.67, and an increase in price will result in an increase in total revenue for good A.
d. 0.67, and an increase in price will result in a decrease in total revenue for good A.

124. Demand is said to be inelastic if

a. buyers respond substantially to changes in the price of the good.
b. demand shifts only slightly when the price of the good changes.
c. the quantity demanded changes only slightly when the price of the good changes.
d. the price of the good responds only slightly to changes in demand.

Figure 5-3

125. Refer to Figure 5-3. At a price of $70 per unit, sellers' total revenue equals
a. $900.
b. $1,050.
c. $1,200.
d. $1,020.

Scenario 5-2
Milk has an inelastic demand, and steak has an elastic demand.
Suppose that a mysterious increase in bovine infertility decreases both the
population of dairy cows and the population of beef cattle by 50 percent.
126. Refer to Scenario 5-2. The change in equilibrium price will be
 a. greater in the milk market than in the steak market.
b. greater in the steak market than in the milk market.
c. the same in the milk and steak markets.
d. unknown without more information.

Figure 5-2

127. Refer to Figure 5-2. The section of the demand curve at point B represents the
a. unit section of the demand curve.
b. elastic section of the demand curve.
c. inelastic section of the demand curve.
d. perfectly elastic section of the demand curve.

128. Goods with many close substitutes tend to have

a. more elastic demands.
b. less elastic demands.
c. price elasticities of demand that are unit elastic.
d. income elasticities of demand that are negative.

Scenario 5-2
Milk has an inelastic demand, and steak has an elastic demand.
Suppose that a mysterious increase in bovine infertility decreases both the
population of dairy cows and the population of beef cattle by 50 percent.
129. Refer to Scenario 5-2. The equilibrium quantity will
 a. increase in both the milk and steak markets.
b. increase in the milk market and decrease in the steak market.
c. decrease in the milk market and increase in the steak market.
d. decrease in both the milk and steak markets.

130. Cadence says that she would smoke one pack of cigarettes each day regardless of the price. If she is
telling the truth, Cadence's
a. demand for cigarettes is perfectly inelastic.
b. price elasticity of demand for cigarettes is infinite.
c. income elasticity of demand for cigarettes is 0.
d. demand for cigarettes is unit elastic.

131. Which of the following statements is valid when the market supply curve is vertical?
a. Market quantity supplied does not change when the price changes.
b. Supply is perfectly elastic.
c. An increase in market demand will increase the equilibrium quantity.
d. An increase in market demand will not increase the equilibrium price.

Figure 5-4

132. Refer to Figure 5-4. If rectangle D is larger than rectangle A, then which of the following
is not correct?
a. Demand is elastic between prices P1 and P2.
b. A decrease in price from P2 to P1 will cause an increase in total revenue.
 c. The magnitude of the percentage change in price between P1 and P2 is smaller than the
magnitude of the corresponding percent change in quantity demanded.
d. An increase in price from P1 to P2 will cause an increase in total revenue.

Table 5-1

Price Elasticity
Good
of Demand
A 1.9
B 0.8

133. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?
a. A is a luxury and B is a necessity.
b. A is a good after an increase in income and B is that same good after a decrease in income.
c. A has fewer substitutes than B.
d. A is a good immediately after a price increase and B is that same good three years after the
price increase.

134. Income elasticity of demand measures how

a. the quantity demanded changes as consumer income changes.
b. consumer purchasing power is affected by a change in the price of a good.
c. the price of a good is affected when there is a change in consumer income.
d. many units of a good a consumer can buy given a certain income level.

135. Demand is said to be price elastic if

a. the price of the good responds substantially to changes in demand.
b. demand shifts substantially when income or the expected future price of the good changes.
c. buyers do not respond much to changes in the price of the good.
d. buyers respond substantially to changes in the price of the good.

136. If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana.
If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in
a. higher prices and higher total revenue from marijuana sales.
b. higher prices but lower total revenue from marijuana sales.
c. the same price and higher total revenue from marijuana sales.
d. the same price but lower total revenue from marijuana sales.

137. For which of the following goods is the income elasticity of demand likely highest?
a. Water
b. Diamonds
c. Doctor's visits
d. Toilet paper
138. Which of the following is likely to have the most price inelastic demand?
a. Running shoes
b. Athletic shoes
c. Nike running shoes
d. Nike ZoomX running shoes

139. If a 16 percent increase in price for a good results in a 7 percent decrease in quantity demanded, the
price elasticity of demand is
a. 2.29.
b. 0.16.
c. 0.44.
d. 0.07.

140. Which of the following statements about agriculture in the United States is correct?
a. From the 1950s to today, agricultural output has approximately doubled.
b. Because technological improvements increase the supply of a product for which demand is
inelastic, an individual farmer would be better off not adopting the new technology.
c. Increasing the supply of agricultural products typically benefits consumers but harms farmers
as a group.
d. Technological improvements typically increase both supply and revenue for individual
farmers.

141. If the cross-price elasticity of two goods is positive, then the two goods are
a. complements.
b. substitutes.
c. normal goods.
d. inferior goods.

142. A decrease in supply will cause the largest increase in price when
a. both supply and demand are inelastic.
b. both supply and demand are elastic.
c. demand is elastic and supply is inelastic.
d. demand is inelastic and supply is elastic.

Table 5-2

Price Quantity Demanded

(Dollars per unit) (Units)
200 0
160 30
120 60
80 90
40 120
0 150
143. Refer to Table 5-2. Using the midpoint method, if the price falls from $160 to $120, the price
elasticity of demand is
a. zero.
b. unit elastic.
c. inelastic.
d. elastic.

144. Which of the following could be the price elasticity of demand for a good for which a decrease in
price would increase total revenue?
a. 0.3
b. 0.0
c. 1
d. 2.6

Scenario 5-2
Milk has an inelastic demand, and steak has an elastic demand.
Suppose that a mysterious increase in bovine infertility decreases both the
population of dairy cows and the population of beef cattle by 50 percent.
145. Refer to Scenario 5-2. The change in equilibrium quantity will be
a. greater in the milk market than in the steak market.
b. greater in the steak market than in the milk market.
c. the same in the milk and steak markets.
d. unknown without more information.

146. If a 39 percent change in price results in a 35 percent change in quantity supplied, then the price
elasticity of supply is about
a. 1.11, and supply is elastic.
b. 1.11, and supply is inelastic.
c. 0.90, and supply is inelastic.
d. 0.90, and supply is elastic.

147. The price elasticity of demand measures

a. buyers' responsiveness to a change in the price of a good.
b. the extent to which demand increases as additional buyers enter the market.
c. how much more of a good consumers will demand when incomes rise.
d. the movement along a supply curve when there is a change in demand.

Figure 5-1
148. Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to
a. 0.33.
b. 0.67.
c. 1.5.
d. 2.67.

149. You and your college roommate eat three packages of Ramen noodles each week. After graduation
last month, both of you were hired at several times your college income. You still enjoy Ramen noodles
very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods
she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would
a. be negative, and your roommate's would be positive.
b. be positive, and your roommate's would be negative.
c. be zero, and your roommate's would approach infinity.
d. approach infinity, and your roommate's would be zero.

Figure 5-7
150. Refer to Figure 5-7. If, holding the supply curve fixed, there were an increase in demand that
caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would
a. increase.
b. decrease.
c. remain unchanged.
d. The effect on total revenue cannot be determined from the given information.

151. The supply of a good will be more elastic, the

a. more the good is considered a luxury.
b. broader is the definition of the market for the good.
c. larger the number of close substitutes for the good.
d. longer the time period being considered.

152. Which of the following is not a determinant of the price elasticity of demand for a good?
a. Whether a good is a necessity or a luxury
b. The flatness of the supply curve for the good
c. The time horizon
d. The definition of the market for the good

153. Which of the following is likely to have the most price elastic demand?
a. Ice cream
b. Frozen yogurt
c. Häagen-Dazs® vanilla bean ice cream
 d. Vanilla ice cream

Figure 5-1

154. Refer to Figure 5-1. Between point A and point B on the graph, demand is
a. perfectly elastic.
b. inelastic.
c. unit elastic.
d. elastic, but not perfectly elastic.

155. Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,
a. the equilibrium price increases, and the equilibrium quantity is unchanged.
b. the equilibrium quantity decreases, and the equilibrium price is unchanged.
c. the equilibrium quantity and the equilibrium price both are unchanged.
d. buyers' total expenditure on the good is unchanged.

Table 5-3

Income Quantity of Good X Quantity of Good Y

(Dollars) Purchased Purchased
30,000 2 20
40,000 6 10

156. Refer to Table 5-3. Using the midpoint method, the income elasticity of demand for good Y is
a. 2.33, and good Y is a normal good.
 b. −2.33, and good Y is an inferior good.
c. −0.43, and good Y is a normal good.
d. −0.43, and good Y is an inferior good.

Figure 5-6

157. Refer to Figure 5-6. Using the midpoint method, what is the price elasticity of supply between
points D and E?
a. 0.53
b. 0.12
c. 0.22
d. 1.89

158. The demand for grape-flavored Hubba Bubba bubble gum is likely
a. inelastic because there are many close substitutes for grape-flavored Hubba Bubba.
b. elastic because there are many close substitutes for grape-flavored Hubba Bubba.
c. inelastic because the market is broadly defined.
d. elastic because the market is broadly defined.

159. A good will have a more inelastic demand, the

a. greater the availability of close substitutes.
b. broader the definition of the market.
c. longer the period of time.
d. more it is regarded as a luxury.
160. A key determinant of the price elasticity of supply is the
a. time horizon.
b. income of consumers.
c. price elasticity of demand.
d. importance of the good in a consumer’s budget.

Figure 5-4

161. Refer to Figure 5-4. Total revenue when the price is P1 is represented by
a. areas B + D.
b. areas A + B.
c. areas C + D.
d. area D.

162. Suppose that when the price of good X increases from $610 to $710, the quantity demanded of good
Y decreases from 51 to 15. Using the midpoint method, the cross-price elasticity of demand is about
a. 7.20, and X and Y are substitutes.
b. –0.14, and X and Y are complements.
c. 0.14, and X and Y are substitutes.
d. –7.20, and X and Y are complements.

Table 5-2

Price Quantity Demanded

(Dollars per unit) (Units)
200 0
160 30
120 60
80 90
40 120
0 150

163. Refer to Table 5-2. Using the midpoint method, if the price falls from $160 to $120, the absolute
value of the price elasticity of demand is
a. 0.43.
b. 2.33.
c. 0.29.
d. 0.67.

164. Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded
of a good. The income elasticity of demand for the good is
a. negative, and the good is an inferior good.
b. negative, and the good is a normal good.
c. positive, and the good is a normal good.
d. positive, and the good is an inferior good.

165. Suppose demand is given by the equation:

QD = 50 - 5P

Using the midpoint method, what is the price elasticity of demand between $1 and $2?

166. Suppose a market has the demand function Qd=20-0.5P. Using the midpoint method, what is the
price elasticity of demand between $30 and $40?

Price Quantity Demanded

$0 50
$2 40
$4 30
$6 20
48 10

213. Consider the following pairs of goods. For which of the two goods would you expect the demand to
be more price elastic? Why?
a. water or diamonds
b. insulin or nasal decongestant spray
c. food in general or breakfast cereal
d. gasoline over the course of a week or gasoline over the course of a year
e. personal computers or IBM personal computers
PART 3
167. Suppose the government imposes a 50-cent tax on the sellers of packets of chewing gum. The tax
would
a. shift the supply curve upward by less than 50 cents.
b. raise the equilibrium price by 50 cents.
c. create a 50-cent tax burden each for buyers and sellers.
d. discourage market activity.

168. If the government imposes a binding price ceiling on a market, then the price paid by buyers will
a. decrease, and the quantity sold in the market will decrease.
b. increase, and the quantity sold in the market will increase.
c. increase, and the quantity sold in the market will decrease.
d. decrease, and the quantity sold in the market will increase.

169. Suppose there is currently a tax of $80 per ticket on airline tickets. Sellers of airline tickets are
required to pay the tax to the government. If the tax is reduced from $80 per ticket to $64 per ticket, then
the
a. demand curve will shift upward by $16, and the price paid by buyers will decrease by less
than $16.
b. demand curve will shift upward by $16, and the price paid by buyers will decrease by $16.
c. supply curve will shift downward by $16, and the effective price received by sellers will
increase by less than $16.
d. supply curve will shift downward by $16, and the effective price received by sellers will
increase by $16.

170. A shortage results when a

a. nonbinding price ceiling is imposed on a market.
b. nonbinding price ceiling is removed from a market.
c. binding price ceiling is imposed on a market.
d. binding price ceiling is removed from a market.

Figure 6-6
171. Refer to Figure 6-6. When a certain price control is imposed on this market, the resulting quantity
of the good that is actually bought and sold is such that buyers are willing and able to pay a maximum of
P1 dollars per unit for that quantity and sellers are willing and able to accept a minimum of P2 dollars per
unit for that quantity. If P1 − P2 = $3, then the price control is
a. only a price ceiling of $3.00.
b. only a price ceiling of $6.00.
c. only a price floor of $6.00.
d. either a price ceiling of $3.00 or a price floor of $6.00.

172. If the government levies a $700 tax per motorcycle on sellers of motorcycles, then the price paid by
buyers of motorcycles would
a. increase by more than $700.
b. increase by exactly $700.
c. increase by less than $700.
d. decrease by an indeterminate amount.

173. A price ceiling is

a. often imposed on markets in which “cutthroat competition” would prevail without a price
ceiling.
b. a legal maximum on the price at which a good can be sold.
c. often imposed when sellers of a good are successful in their attempts to convince the
government that the market outcome is unfair without a price ceiling.
d. imposed to make sure everyone can earn a fair wage.
174. Rent control
a. serves as an example of how a social problem can be alleviated or even solved by government
policies.
b. serves as an example of a price ceiling.
c. is regarded by most economists as an efficient way of helping the poor.
d. is the most efficient way to allocate scarce housing resources.

Figure 6-10
The vertical distance between points A and B represents the tax in the market.

175. Refer to Figure 6-10. The amount of the tax per unit is
a. $6.
b. $8.
c. $14.
d. $18.

Figure 6-13
176. Refer to Figure 6-13. What is the amount of the tax per unit?
a. $1
b. $2
c. $3
d. $4

Figure 6-14
177. Refer to Figure 6-14. The buyers will bear the highest share of the tax burden compared to sellers if
the demand is
a. D1, and the supply is S1.
b. D2, and the supply is S1.
c. D1, and the supply is S2.
d. D2, and the supply is S2.

178. When OPEC raised the price of crude oil in the 1970s, it caused the
a. demand for gasoline to increase.
b. demand for gasoline to decrease.
c. supply of gasoline to increase.
d. supply of gasoline to decrease.

179. The goal of rent control is to

a. facilitate controlled economic experiments in urban areas.
b. help landlords by assuring them a low vacancy rate for their apartments.
c. help the poor by assuring them an adequate supply of apartments.
d. help the poor by making housing more affordable.

180. The presence of a price control in a market for a good or service usually is an indication that
a. an insufficient quantity of the good or service was being produced in that market to meet the
public’s need.
 b. the usual forces of supply and demand were not able to establish an equilibrium price in that
market.
c. policymakers believed that the price that prevailed in that market in the absence of price
controls was unfair to buyers or sellers.
d. policymakers correctly believed that price controls would generate no inequities of their own
once imposed.

Figure 6-13

181. Refer to Figure 6-13. How is the burden of the tax shared between buyers and sellers? Buyers bear
a. three-fourths of the burden, and sellers bear one-fourth of the burden.
b. two-thirds of the burden, and sellers bear one-third of the burden.
c. one-half of the burden, and sellers bear one-half of the burden.
d. one-fourth of the burden, and sellers bear three-fourths of the burden.

Figure 6-5
182. Refer to Figure 6-5. Which of the following statements is not correct?
a. When the price is $10, quantity supplied equals quantity demanded.
b. When the price is $6, there is a surplus of 8 units.
c. When the price is $12, there is a surplus of 4 units.
d. When the price is $16, quantity supplied exceeds quantity demanded by 12 units.

183. The price paid by buyers in a market will decrease if the government
a. increases a binding price floor in that market.
b. increases a binding price ceiling in that market.
c. decreases a tax on the good sold in that market.
d. increases a tax on the good sold in that market.

184. You receive a paycheck from your employer, and your pay stub indicates that $300 was deducted to
pay the FICA (Social Security/Medicare) tax. Which of the following statements is correct?
a. You will owe $300 per paycheck to pay the FICA tax for the remainder of the fiscal year
regardless of your wages.
b. Your employer is required by law to pay $150 to match half the $300 deducted from your
check.
c. This type of tax is an example of a sales tax.
d. The $300 that you paid is not necessarily the true burden of the tax that falls on you, the
employee.

Figure 6-7
185. Refer to Figure 6-7. If the government imposes a price ceiling at $15, it would be
a. binding if market demand is Demand A or Demand B.
b. nonbinding if market demand is Demand A or Demand B.
c. binding if market demand is Demand A and nonbinding if market demand is Demand B.
d. nonbinding if market demand is Demand A and binding if market demand is Demand B.

186. Consider the U.S. market for tea, a market in which the government has imposed a nonbinding price
ceiling. Which of the following events could convert the price ceiling from a nonbinding to a binding
price ceiling?
a. A government study that shows that consuming tea increases the incidence of cancer.
b. A large increase in the size of the tea plant crop; tea leaves are used to produce tea.
c. Chinese tea plant producers refuse to ship to tea producers in the United States.
d. A sharp drop in consumer income; tea is a normal good.

Figure 6-11
187. Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. Which of the
following is correct?
a. One-fourth of the burden of the tax will fall on buyers, and three-fourths of the burden of the
tax will fall on sellers.
b. One-third of the burden of the tax will fall on buyers, and two-thirds of the burden of the tax
will fall on sellers.
c. One-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will
fall on sellers.
d. Two-thirds of the burden of the tax will fall on buyers, and one-third of the burden of the tax
will fall on sellers.

188. Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. What will be the new
equilibrium quantity in this market?
a. Less than 60 units
b. 60 units
c. Between 60 units and 100 units
d. Greater than 100 units

189. The minimum wage was instituted to ensure workers

a. a middle-class standard of living.
b. employment.
c. a minimally adequate standard of living.
d. unemployment compensation.
190. The federal government uses the revenue from the FICA (Federal Insurance Contribution Act) tax to
pay for
a. unemployment compensation.
b. the salaries of members of Congress.
c. Social Security and Medicare.
d. housing subsidies for low-income people.

191. The imposition of a binding price ceiling on a market causes

a. quantity demanded to be greater than quantity supplied.
b. quantity demanded to be less than quantity supplied.
c. quantity demanded to be equal to quantity supplied.
d. the price of the good to be greater than its equilibrium price.

192. Consider the market for gasoline. Buyers

a. and sellers would lobby for a price ceiling.
b. and sellers would lobby for a price floor.
c. would lobby for a price ceiling, whereas sellers would lobby for a price floor.
d. would lobby for a price floor, whereas sellers would lobby for a price ceiling.

Figure 6-14

193. Refer to Figure 6-14. Suppose D1 represents the demand curve for paperback novels, D2 represents
the demand curve for gasoline, and S1 is representative of the supply curve for paperback novels as well
as the supply curve for gasoline. After the imposition of the $2 tax on paperback novels and on gasoline,
the
a. buyers of gasoline bear a higher burden of the $2 tax than buyers of paperback novels.
b. sellers of gasoline bear a higher burden of the $2 tax than sellers of paperback novels.
c. buyers of gasoline bear an equal burden of the $2 tax as buyers of paperback novels.
d. buyers of gasoline bear a lower burden of the $2 tax than buyers of paperback novels.

194. In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that
a. OPEC raised the price of crude oil in world markets.
b. U.S. gasoline producers raised the price of gasoline.
c. the U.S. government maintained a price ceiling on gasoline.
d. Americans typically commuted long distances.

195. Which of the following is not correct?

a. Taxes levied on sellers and taxes levied on buyers are not equivalent.
b. A tax places a wedge between the price that buyers pay and the price that sellers receive.
c. The wedge between the buyers’ price and the sellers’ price is the same, regardless of whether
the tax is levied on buyers or sellers.
d. In the new after-tax equilibrium, buyers and sellers share the burden of the tax.

196. Rent-control laws dictate

a. the exact rent that landlords must charge tenants.
b. only a maximum rent that landlords may charge tenants.
c. only a minimum rent that landlords may charge tenants.
d. both a minimum rent and a maximum rent that landlords may charge tenants.

Figure 6-14
197. Refer to Figure 6-14. Suppose D1 represents the demand curve for gasoline in both the short run
and long run, S1 represents the supply curve for gasoline in the short run, and S2 represents the supply
curve for gasoline in the long run. After the imposition of the $2 tax, the price paid by buyers will be
a. higher in the long run than in the short run.
b. higher in the short run than in the long run.
c. equivalent in the short run and the long run.
d. unable to be determined without additional information.

Table 6-1
The following table contains the demand schedule and supply schedule for a market for a particular good.
Suppose sellers of the good successfully lobby Congress to impose a price floor $2 above the equilibrium
price in this market.

Price Quantity Demanded Quantity Supplied

(Dollars per unit) (Units) (Units)
0 15 0
1 13 3
2 11 6
3 9 9
4 7 12
5 5 15
6 3 18
198. Refer to Table 6-1. Following the imposition of a price floor $2 above the equilibrium price, irate
buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price
floor. The resulting market price is
a. $2.
b. $3.
c. $4.
d. $5.

199. If a tax is levied on the sellers of a product, then the demand curve will
a. shift down.
b. shift up.
c. become flatter.
d. not shift.

Figure 6-10
The vertical distance between points A and B represents the tax in the market.

200. Refer to Figure 6-10. The per-unit burden of the tax on buyers is
a. $6.
b. $8.
c. $14.
d. $24.

201. A legal minimum on the price at which a good can be sold is called a
a. price subsidy.
 b. price floor.
c. tax.
d. price ceiling.

Figure 6-13

202. Refer to Figure 6-13. Suppose buyers, rather than sellers, were required to pay this tax (in the same
amount per unit as shown in the graph). Relative to the tax on sellers, the tax on buyers would result in
a. buyers bearing a larger share of the tax burden.
b. sellers bearing a smaller share of the tax burden.
c. the same amount of tax revenue for the government.
d. an increase in the amount of tax revenue for the government.

203. In the housing market, supply and demand are

a. more elastic in the short run than in the long run, and so rent control leads to a larger shortage
of apartments in the short run than in the long run.
b. more elastic in the short run than in the long run, and so rent control leads to a larger shortage
of apartments in the long run than in the short run.
c. more elastic in the long run than in the short run, and so rent control leads to a larger shortage
of apartments in the short run than in the long run.
d. more elastic in the long run than in the short run, and so rent control leads to a larger shortage
of apartments in the long run than in the short run.

204. Under rent control, bribery is a potential mechanism to

a. bring the total price of an apartment (including the bribe) closer to the equilibrium price.
 b. allocate housing to the poorest individuals in the market.
c. force the total price of an apartment (including the bribe) to be less than the market price.
d. allocate housing to the most deserving tenants.

Figure 6-3

205. Refer to Figure 6-3. A government-imposed price of $24 in this market is an example of a
a. binding price ceiling that creates a shortage.
b. nonbinding price ceiling that creates a shortage
c. binding price floor that creates a surplus.
d. nonbinding price floor that creates a surplus.

206. To say that a price ceiling is nonbinding is to say that the price ceiling
a. results in a surplus.
b. is set above the equilibrium price.
c. causes quantity demanded to exceed quantity supplied.
d. is set below the equilibrium price.

Figure 6-8
207. Refer to Figure 6-8. When the price ceiling is enforced in this market, and the supply curve for
gasoline shifts from S1 to S2, the resulting quantity of gasoline that is bought and sold is
a. less than Q3.
b. Q3.
c. between Q1 and Q3
d. at least Q1.

208. Which of the following is correct?

a. Rent control and the minimum wage are both examples of price ceilings.
b. Rent control is an example of a price ceiling, and the minimum wage is an example of a price
floor.
c. Rent control is an example of a price floor, and the minimum wage is an example of a price
ceiling.
d. Rent control and the minimum wage are both examples of price floors.

209. Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that
the
a. demand is more inelastic than the supply.
b. supply is more inelastic than the demand.
c. government has required that buyers remit the tax payments.
d. government has required that sellers remit the tax payments.
210. Suppose the government wants to encourage Americans to exercise more, so it imposes a binding
price ceiling on the market for in-home treadmills. As a result,
a. the demand for treadmills will increase.
b. the supply of treadmills will decrease.
c. a shortage of treadmills will develop.
d. a surplus of treadmills will develop.

211. Suppose that in a particular market, the supply curve is highly inelastic and the demand curve is
highly elastic. If a tax is imposed in this market, then the
a. sellers will bear a greater burden of the tax than the buyers.
b. buyers will bear a greater burden of the tax than the sellers.
c. buyers and sellers are likely to share the burden of the tax equally.
d. buyers and sellers will not share the burden equally, but it is impossible to determine who will
bear the greater burden of the tax without more information.

212. A tax on the buyers of smart watches encourages

a. sellers to supply a smaller quantity at every price.
b. buyers to demand a smaller quantity at every price.
c. sellers to supply a larger quantity at every price.
d. buyers to demand a larger quantity at every price.

213. A $1.39 tax levied on the buyers of elderberry juice will shift the demand curve
a. upward by exactly $1.39.
b. upward by less than $1.39.
c. downward by exactly $1.39.
d. downward by less than $1.39.

Figure 6-1
Graph (a) Graph (b)
214. Refer to Figure 6-1. A binding price ceiling is shown in
a. graph (a) only.
b. graph (b) only.
c. both graph (a) and graph (b).
d. neither graph (a) nor graph (b).

215. Which of the following is not correct?

a. The economy contains many labor markets for different types of workers.
b. The impact of a minimum wage depends on the skill and experience of the worker.
c. A minimum wage would be binding for workers with high skills and much experience.
d. A minimum wage would not be binding if the equilibrium wage was above the minimum
wage.

216. Which of the following is not a result of rent control?

a. Fewer new apartments offered for rent
b. Less maintenance provided by landlords
c. Bribery
d. Higher quality housing

Figure 6-11
217. Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. How much will buyers
pay per unit after the tax is imposed?
a. $3
b. Between $3 and $5
c. Between $5 and $7
d. $7

218. Suppose the government imposes a 20-cent tax on the sellers of artificially-sweetened beverages.
The tax would shift
a. demand, raising both the equilibrium price and quantity in the market for artificially
sweetened beverages.
b. demand, lowering the equilibrium price and raising the equilibrium quantity in the market for
artificially sweetened beverages.
c. supply, raising the equilibrium price and lowering the equilibrium quantity in the market for
artificially sweetened beverages.
d. supply, lowering the equilibrium price and raising the equilibrium quantity in the market for
artificially sweetened beverages.

219. The Earned Income Tax Credit, a government program that supplements the incomes of low-wage
workers, is an example of a
a. minimum-wage law.
b. price ceiling.
c. wage subsidy.
d. rent subsidy.
220. When OPEC raised the price of crude oil in the 1970s, it caused the United States’
a. nonbinding price floor on gasoline to become binding.
b. binding price floor on gasoline to become nonbinding.
c. nonbinding price ceiling on gasoline to become binding.
d. binding price ceiling on gasoline to become nonbinding.

Figure 6-10
The vertical distance between points A and B represents the tax in the market.

221. Refer to Figure 6-10. The price that buyers pay after the tax is imposed is
a. $8.
b. $10.
c. $16.
d. $24.

222. In the market for apartments, rent control causes the quantity supplied
a. and quantity demanded to fall.
b. to fall and quantity demanded to rise.
c. to rise and quantity demanded to fall.
d. and quantity demanded to rise.

Figure 6-12
223. Refer to Figure 6-12. Suppose a tax of $98 per unit is imposed on this market. Which of the
following is correct?
a. Buyers and sellers will share the burden of the tax equally.
b. Sellers will bear more of the burden of the tax than buyers will.
c. Buyers will bear more of the burden of the tax than sellers will.
d. There is no tax burden.

224. If a tax is levied on the sellers of fish, then

a. buyers will bear the entire burden of the tax.
b. sellers will bear the entire burden of the tax.
c. buyers and sellers will share the burden of the tax.
d. the government will bear the entire burden of the tax.

225. If the government removes a binding price floor from a market, then the price paid by buyers will
a. increase, and the quantity sold in the market will increase.
b. increase, and the quantity sold in the market will decrease.
c. decrease, and the quantity sold in the market will increase.
d. decrease, and the quantity sold in the market will decrease.

226. A payroll tax is a

a. fixed number of dollars that every firm must pay to the government for each worker that the
firm hires.
 b. tax that each firm must pay to the government before the firm can hire workers and operate its
business.
c. tax on the wages that firms pay their workers.
d. tax on all wages above the minimum wage.

227. When a tax is placed on the sellers of a product, buyers pay

a. more, and sellers receive more than they did before the tax.
b. more, and sellers receive less than they did before the tax.
c. less, and sellers receive more than they did before the tax.
d. less, and sellers receive less than they did before the tax.

228. Under rent control, landlords can cease to be responsive to tenants' concerns about the quality of the
housing because
a. with rent control, the government guarantees landlords a minimum level of profit.
b. they become resigned to the fact that many of their apartments are going to be vacant at any
given time.
c. with shortages and waiting lists, they have no incentive to maintain and improve their
property.
d. with rent control, it becomes the government's responsibility to maintain rental housing.

229. A surplus results when a

a. nonbinding price floor is imposed on a market.
b. nonbinding price floor is removed from a market.
c. binding price floor is imposed on a market.
d. binding price floor is removed from a market.

Figure 6-2
230. Refer to Figure 6-2. The price ceiling causes quantity
a. supplied to exceed quantity demanded by 60 units.
b. supplied to exceed quantity demanded by 90 units.
c. demanded to exceed quantity supplied by 30 units.
d. demanded to exceed quantity supplied by 90 units.

Table 6-1
The following table contains the demand schedule and supply schedule for a market for a particular good.
Suppose sellers of the good successfully lobby Congress to impose a price floor $2 above the equilibrium
price in this market.

Price Quantity Demanded Quantity Supplied

(Dollars per unit) (Units) (Units)
0 15 0
1 13 3
2 11 6
3 9 9
4 7 12
5 5 15
6 3 18

231. Refer to Table 6-1. How many units of the good are purchased after the imposition of the price
floor?
a. 5
 b. 9
c. 10
d. 15

Figure 6-15
Graph (a) Graph (b) Graph (c)

232. Refer to Figure 6-15. In which market will the majority of the tax burden fall on buyers?
a. The market shown in graph (a).
b. The market shown in graph (b)
c. The market shown in graph (c)
d. The tax burden on buyers is the same for all three graphs.

Figure 6-8
233. Refer to Figure 6-8. In 1973, OPEC restricted supply and U.S. government regulations limited the
price oil companies could charge for gasoline. Which of the following statements best relates the figure to
the events that occurred in the United States in the 1970s?
a. Buyers of gasoline paid a price of P1 before 1973; they paid a price of P2 after OPEC
increased the price of crude oil in 1973, and there was a shortage of gasoline at that price.
b. Buyers of gasoline paid a price of P1 before 1973; they paid a price of P3 after OPEC
increased the price of crude oil in 1973, and there was a shortage of gasoline at that price.
c. Buyers of gasoline paid a price of P2 before 1973; they paid a price of P3 after OPEC
increased the price of crude oil in 1973, with no shortage of gasoline at that price.
d. The price ceiling was binding before 1973; the price ceiling was no longer binding after
OPEC increased the price of crude oil in 1973.

234. Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is
highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of
picture frames by
a. less than $0.50.
b. $0.50.
c. between $0.50 and $1.
d. $1.

Figure 6-2

235. Refer to Figure 6-2. The price ceiling

a. causes a shortage of 60 units of the good.
 b. makes it necessary for sellers to ration the good using a mechanism other than price.
c. is not binding because it is set below the equilibrium price.
d. causes a shortage of 30 units of the good.

Figure 6-5

236. Refer to Figure 6-5. A government-imposed price of $12 in this market is an example of a
a. binding price ceiling that creates a shortage.
b. nonbinding price ceiling that creates a shortage.
c. binding price floor that creates a surplus.
d. nonbinding price floor that creates a surplus.

237. Minimum-wage laws dictate

a. the exact wage that firms must pay workers.
b. only a maximum wage that firms may pay workers.
c. only a minimum wage that firms may pay workers.
d. both a minimum wage and a maximum wage that firms may pay workers.

Figure 6-13
238. Refer to Figure 6-13. Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and
then pays the tax on that unit to the government. After paying the tax, Acme receives how much?
a. $8.00
b. $9.00
c. $10.50
d. $12.00

239. If a binding price floor is imposed on the drone market, then

a. the demand for drones will decrease.
b. the supply of drones will increase.
c. a surplus of drones will develop.
d. a shortage of drones will develop.

240. If the government wants to reduce the burning of fossil fuels, it should impose a tax on
a. only the buyers of gasoline.
b. only the sellers of gasoline.
c. either buyers or sellers of gasoline.
d. whichever side of the market is less elastic.

Figure 6-9
241. Refer to Figure 6-9. In this market, a minimum wage of $6 creates a labor
a. shortage of 12,000 worker hours.
b. shortage of 4,000 worker hours.
c. surplus of 12,000 worker hours.
d. surplus of 4,000 worker hours.

242. One disadvantage of government subsidies over price controls is that subsidies
a. prevent the attainment of equilibrium in the markets in which they are imposed.
b. make higher taxes necessary.
c. are always unfair to those with low incomes.
d. cause unemployment.

243. Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the
government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the
a. demand curve for physicals shifts to the right.
b. supply curve for physicals shifts to the left.
c. quantity demanded of physicals increases, and the quantity supplied of physicals decreases.
d. number of physicals performed stays the same.

Figure 6-7
244. Refer to Figure 6-7. Which of the following statements is not correct?
a. A government-imposed price of $20 would be a binding price floor if market demand is
Demand A and a binding price ceiling if market demand is Demand B.
b. A government-imposed price of $25 would be a binding price ceiling if market demand is
either Demand A or Demand B.
c. A government-imposed price of $10 would be a binding price ceiling if market demand is
either Demand A or Demand B.
d. A government-imposed price of $25 would be a binding price floor if market demand is
Demand A and a nonbinding price ceiling if market demand is Demand B.

245. Which of the following causes a surplus of a good?

a. Binding price ceiling
b. Binding price floor
c. Tax on the good
d. Nonbinding price control

246. A price floor is

a. a legal maximum on the price at which a good can be sold.
b. often imposed when buyers of a good are successful in their attempts to convince the
government that the market outcome is unfair without a price floor.
c. a source of efficiency in a market.
d. a legal minimum on the price at which a good can be sold.

247. If the government removes a tax on a good, then the price paid by buyers will
 a. increase, and the price received by sellers will increase.
b. increase, and the price received by sellers will decrease.
c. decrease, and the price received by sellers will increase.
d. decrease, and the price received by sellers will decrease.

Figure 6-4
Graph (a) Graph (b)

248. Refer to Figure 6-4. In graph (b), there will be

a. a shortage.
b. equilibrium in the market.
c. a surplus.
d. lines of people waiting to buy the good.

Figure 6-8
249. Refer to Figure 6-8. When the price ceiling is enforced in this market and the supply curve for
gasoline shifts from S1 to S2,
a. the market price will increase to P3.
b. a surplus will occur at the new market price of P2.
c. the market price will stay at P1.
d. a shortage will occur at the new market price of P2.

250. Most labor economists believe that the supply of labor is

a. less elastic than the demand, and, therefore, firms bear most of the burden of the payroll tax.
b. less elastic than the demand, and, therefore, workers bear most of the burden of the payroll
tax.
c. more elastic than the demand, and, therefore, workers bear most of the burden of the payroll
tax.
d. more elastic than the demand, and, therefore, firms bear most of the burden of the payroll tax.

251. If a price floor is not binding, then

a. there will be a surplus in the market.
b. there will be a shortage in the market.
c. there will be no effect on the market price or quantity sold.
d. the market will be less efficient than it would be without the price floor.

252. If a price floor is not binding, then

a. the equilibrium price is above the price floor.
 b. the equilibrium price is below the price floor.
c. there will be a surplus in the market.
d. there will be a shortage in the market.

253. Which of the following is not a rationing mechanism used by landlords in cities with rent control?
a. Waiting lists
b. Race
c. Price
d. Bribes

254. If a price ceiling is not binding, then

a. there will be a surplus in the market.
b. there will be a shortage in the market.
c. the market will be less efficient than it would be without the price ceiling.
d. there will be no effect on the market price or quantity sold.

255. The term tax incidence refers to

a. whether buyers or sellers of a good are required to send tax payments to the government.
b. whether the demand curve or the supply curve shifts when the tax is imposed.
c. the distribution of the tax burden between buyers and sellers.
d. widespread view that taxes (and death) are the only certainties in life.

256. Which of the following causes the price paid by buyers to be different than the price received by
sellers?
a. Binding price floor
b. Binding price ceiling
c. Tax on the good
d. Nonbinding price control

257. The burden of a luxury tax usually falls

a. more on the rich than on the middle class.
b. more on the poor than on the rich.
c. more on the middle class than on the rich.
d. equally on the rich, the middle class, and the poor.

258. Suppose buyers of fountain drinks are required to send $0.50 to the government for every
fountain drink they buy. Further, suppose this tax causes the effective price received by sellers of
fountain drinks to fall by $0.25 per fountain drink. Which of the following statements is correct?
a. This tax causes the supply curve for fountain drinks to shift downward by $0.50 at each
quantity.
b. The price paid by buyers is $0.25 per drink more than it was before the tax.
c. Forty percent of the burden of the tax falls on buyers.
d. This tax causes the demand curve for fountain drinks to shift downward by $0.50 at each
quantity.
259. When a tax is placed on the sellers of cell phones, the size of the cell phone market
a. and the effective price received by sellers both increase.
b. increases, but the effective price received by sellers decreases.
c. decreases, but the effective price received by sellers increases.
d. and the effective price received by sellers both decrease.

Figure 6-1
Graph (a) Graph (b)

260. Refer to Figure 6-1. The price ceiling shown in graph (a)
a. is not binding.
b. creates a surplus.
c. creates a shortage.
d. is binding.

261. If a nonbinding price floor is imposed on a market, then the

a. quantity sold in the market will decrease.
b. quantity sold in the market will stay the same.
c. price in the market will increase.
d. price in the market will decrease.

262. Which of the following statements is correct?

a. A tax levied on buyers will never be partially paid by sellers.
 b. Who bears the burden of a tax depends on the price elasticities of supply and demand.
c. Government can decide who ultimately pays a tax.
d. A tax levied on sellers always will be passed on completely to buyers.

263. Which of the following observations would be consistent with the imposition of a
binding price ceiling on a market? After the price ceiling is established,
a. a larger quantity of the good is demanded.
b. a smaller quantity of the good is demanded.
c. a larger quantity of the good is supplied.
d. the price rises above the previous equilibrium.

264. A tax on the sellers of coffee will increase the price of coffee paid by buyers,
a. increase the effective price of coffee received by sellers, and increase the equilibrium quantity
of coffee.
b. increase the effective price of coffee received by sellers, and decrease the equilibrium quantity
of coffee.
c. decrease the effective price of coffee received by sellers, and increase the equilibrium quantity
of coffee.
d. decrease the effective price of coffee received by sellers, and decrease the equilibrium
quantity of coffee.

265. Suppose the equilibrium price of a stick of deodorant is $4, and the government imposes a price floor
of $5 per stick. As a result of the price floor, the
a. demand curve for deodorant shifts to the left.
b. supply curve for deodorant shifts to the right.
c. quantity demanded of deodorant decreases, and the quantity of deodorant that firms want to
supply increases.
d. quantity supplied of deodorant stays the same.

266. Price ceilings and price floors that are binding

a. are desirable because they make markets more efficient and more fair.
b. cause surpluses and shortages to persist because price cannot adjust to the market equilibrium
price.
c. can have the effect of restoring a market to equilibrium.
d. are imposed because they can make the poor in the economy better off without causing
adverse effects.

Figure 6-9
267. Refer to Figure 6-9. In this market, a minimum wage of $6 is
a. binding and creates a labor shortage.
b. binding and creates unemployment.
c. nonbinding and creates a labor shortage.
d. nonbinding and creates neither a labor shortage nor unemployment.

268. When a tax is placed on the buyers of lemonade, the

a. sellers bear the entire burden of the tax.
b. buyers bear the entire burden of the tax.
c. burden of the tax will always be equally divided between the buyers and the sellers.
d. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is
not always equal.

269. Suppose sellers of cologne are required to send $1.50 to the government for every bottle of cologne
they sell. Further, suppose this tax causes the price paid by buyers of cologne to rise by $0.90 per bottle.
Which of the following statements is correct?
a. The effective price received by sellers is $0.60 per bottle less than it was before the tax.
b. Sixty percent of the burden of the tax falls on sellers.
c. This tax causes the demand curve for cologne to shift downward by $1.50 at each quantity of
cologne.
d. This tax does not change the quantity of cologne bought and sold.