Sample Questions
Chapter 4
Q. 1 Define the equilibrium of a market. Describe the forces that move a market toward its equilibrium.
Q. 2 Does a change in producers’ technology lead to a movement along the supply curve or to a shift in
the supply curve? Does a change in price lead to a movement along the supply curve or to a shift in the
supply curve? Show with the help of diagrams.
Q. 3 Petrol and car are complements because they are often used together. When the price of petrol rises,
what happens to the supply, demand, quantity supplied, quantity demanded, and price in the market for
cars?
Q. 4 Hari’s income declines, and as a result, he buys more of coal as cooking fuel to cook his food at home.
Is coal an inferior or a normal good? What happens to Hari’s demand curve for coal?
Q. 5 Does a change in consumers’ tastes lead to a movement along the demand curve or to a shift in the
demand curve? Does a change in price lead to a movement along the demand curve or to a shift in the
demand curve? Explain your answers with diagrams.
Q. 6 Using supply-and-demand diagrams, show the effect of the following events on the market for
sweatshirts. (Use diagrams)
a. A hurricane in South Carolina damages the cotton crop. b. The price of leather jackets falls.
c. All colleges require morning exercise in appropriate attire. d. New knitting machines are invented.
Q. 7 Over the past 40 years, technological advances have reduced the cost of computer chips. How do you
think this has affected the market for computers? For computer software? For typewriters?
Q. 8 “An increase in the demand for notebooks raises the quantity of notebooks demanded but not the
quantity supplied.” Is this statement true or false? Explain.
Q. 9 Ketchup is a complement for hot dogs. If the price of hot dogs rises, what happens in the market for
ketchup? For tomatoes? For tomato juice? For orange juice?
Chapter 5
Q. 10 Define the price elasticity of supply. Explain why the price elasticity of supply might be different in
the long run than in the short run.
Q. 11 How might a drought that destroys half of all farm crops be good for farmers? If such a drought is
good for farmers, why don’t farmers destroy their own crops in the absence of a drought?
Q. 12 A storm destroys half the soya beans crop. Is this event more likely to hurt soya beans farmers if the
demand for soya beans is very elastic or very inelastic? Explain.
Q. 13 Define the price elasticity of demand and the income elasticity of demand. List and explain the four
determinants of the price elasticity of demand discussed in the chapter.
Q. 14 For each of the following pairs of goods, which good would you expect to have more elastic demand
and why?
a. required textbooks or mystery novels b. Beethoven recordings or classical music recordings in general
c. subway rides during the next 6 months or subway rides during the next 5 years
d. Mixed Juice or water
Q. 15 A price change causes the quantity demanded of a good to decrease by 30 percent, while the total
revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic? Explain.
Chapter 6.
Q. 16 The government has decided that the free-market price of cheese is too low.
a. Suppose the government imposes a binding price floor in the cheese market. Draw a supply-and
demand diagram to show the effect of this policy on the price of cheese and the quantity of cheese sold.
Is there a shortage or surplus of cheese?
b. Producers of cheese complain that the price floor has reduced their total revenue. Is this possible?
Explain.
c. In response to cheese producers’ complaints, the government agrees to purchase all the surplus cheese
at the price floor. Compared to the basic price floor, who benefits from this new policy? Who loses?
Q. 17 In a supply-and-demand diagram, show how a tax on car buyers of $1,000 per car affects the
quantity of cars sold and the price of cars. In another diagram, show how a tax on car sellers of $1,000 per
car affects the quantity of cars sold and the price of cars. In both of your diagrams, show the change in
the price paid by car buyers and the change in the price received by car sellers.
Q. 18 What determines how the burden of a tax is divided between buyers and sellers? Why?
