1.         Rational consumers will attempt too:

A.        Maximize profits

*B.       Maximize utility

C.        Maximize demand

D.        There is no concrete goal for rational consumers

E.         Two of the above are correct

 

2.         Rational producers will attempt too:

*A.      Maximize profits

B.         Maximize utility

C.        Maximize demand

D.        There is no concrete goal for rational producers

E.         Two of the above are correct

 

3.         What is the difference between Demand and Quantity Demanded?

A.        Demand only deals with one price, while Quantity Demanded deals with all prices.

*B.       Quantity Demanded deals with only one price, Demand while deals with all prices.

C.        Demand only deals with one product, while Quantity Demanded deals with all products.

D.        Demand only deals with one product, while Quantity Demanded deals with all products.

 

4.         What is the difference between Supply and Quantity Supplied?

A.        Supply only deals with one price, while Quantity Supplied deals with all prices.

*B.       Quantity Supplied deals with only one price, Supply while deals with all prices.

C.        Supply only deals with one product, while Quantity Supplied deals with all products.

D.        Supply only deals with one product, while Quantity Supplied deals with all products.

 

5.         Why are Demand Curves downward sloping?

A.        Because a direct relationship exists between price and quantity.

B.         Because a direct relationship exists between product and quality.

*C.      Because an inverse relationship exists between price and quantity.

D.        Because an inverse relationship exists between product and quality.

 

6.         Resources serve as:

A.        A means of production

B.         A source of income

C.        A medium of exchange

D.        All off the above are correct

*E.       Only a and b are correct

 

7.         Price in the United States economy measures

*A.      Value

B.         Utility

C.        Scarcity

D.        Demand

 

8.         Consider the market for bananas. Which one of the following best represents the Law of Demand as it applies to bananas.

a.         An increase in the price of bananas will lead to an decrease in the demand for bananas.

b.         An increase in the price of bananas will lead to an increase in the quantity supplied of bananas.

*c.       A decrease in the price of bananas will lead to an increase in the quantity demanded of bananas.

d.         None of the above.

 

9.         Consider the market for shoes. Which of the following best represents the Law of Supply as it relates to the market for shoes?

a.         A decrease in the price of a pair of shoes will lead to an increase in the number of pairs of shoes that individuals would like to buy.

*b.       A decrease in the price of a pair of shoes will lead to a decrease in the number of shoes that sellers would like to sell.

c.         An increase in the price of shoes will lead to an increase in the supply of shoes.

d.         Feet stink sometimes.

 

10.       Ceteris Paribus, a decrease in price will generate:

a.         an increase in demand

*b.       an increase in quantity demanded

c.         a decrease in demand

d.         a decrease in quantity demanded

 

11.       If a "sane" person puts a sharp stick in their eye, is that person rational?

a.         yes because the action was heroic

b.         no because putting a sharp stick in your eye is never rational

*c.       yes if that action maximized their utility

d.         no, because that person would be encountering diminishing marginal returns on utility

 

Use the following information to answer questions 12 - 23

QD = 260 - 10P and  QS = 160 + 40P

 

12.       What is the market equilibrium price?

a.         $1

*b.       $2

c.         $5

d.         $10

 

13.       What is the equilibrium quantity?

a.         210 units

b.         220 units

c.         230 units

*d.       240 units

 

14.       At a price of $4.00, what is the logical conclusion(s):

a.         Qs = 220 units

*b.       Qd = 220 units

c.         a shortage of 100 units

d.         Qd = 560 units

 

15.       At a price of $4.00, what is the logical conclusion(s):

*a.       Qs = 320 units

b.         Qd = 560 units

c.         a shortage of 100 units

d.         Qs = 560 units.

 

16.       At a price of $4.00, what is the logical conclusion(s):

a.         Qs = 220 units

b.         Qd = 560 units

c.       a shortage of 100 units

*d.         a surplus of 100 units

 

17.       At a price of $1.00, what is the logical conclusion(s):

a.         Qs = 250 units

b.         Qd = 200 units

*c.       a shortage of 50 units

d.         Qd = 450 units

 

18.       At a price of $1.00, what is the logical conclusion(s):

*a.       Qs = 200 units

b.         Qd = 450 units

c.         a surplus of 40 units

d.         a shortage of 40 units   

 

19.       At a price of $1.00, what is the logical conclusion(s):

a.         Qs = 220 units

*b.       Qd = 250 units

c.         a shortage of 40 units

d.         a surplus of 40 units

 

20.       If the government sets a price floor at 50 cents, what is the logical conclusion(s):

a.         Qs = 220 units

b.         Qd = 255 units

c.         a shortage of 75 units

d.         A and C are correct

*e.       the market will ignore and return to equilibrium

 

21.       If the government sets a price ceiling at 50 cents, what is the logical conclusion(s):

a.         Qs = 220 units

b.         Qd = 255 units

c.         a shortage of 75 units

*d.       B and C are correct

e.         the market will ignore and return to equilibrium

 

22.       If the government sets a price floor at $5.00, what is the logical conclusion(s):

a.         Qs = 360 units

b.         Qd = 210 units

c.         a surplus of 150 units

*d.       A, B and C are correct

e.         the market will ignore and return to equilibrium

 

23.       If the government sets a price ceiling at $5.00, what is the logical conclusion(s):

a.         Qs = 360 units

b.         Qd = 210 units

c.         a surplus of 150 units

d.         A and C are correct

*e.       the market will ignore and return to equilibrium

 

Practice Questions

 

Use the following information to answer next four questions:

Price                Qd                   Qs

$19                  110                  150

$18                  120                  140

$17                  130                  130

$16                  140                  120

$15                  150                  110

$14                  160                  100

 

The equilibrium price is:

a.         $10

b.         $19

*c.       $17

d.         $15

 

The equilibrium quantity is:

a.         120 units

b.         140 units

*c.       130 units

d.         150 units

 

At a price of $19:

a.         Qd = 110 units

b.         Qd is 40 units greater than Qs

c.         Qs is 40 units greater than Qd

d.         both A & B are correct

*e.       Both A & C are correct

At a price of $14:

a.         Qs = 100 units

b.         Qd is 60 units greater than Qs

c.         Qs is 60 units greater than Qd

*d.       both A & B are correct

e.         Both A & C are correct

 

EX:      Qd = 750 - 20P and Qs = 600 + 10P

a.         What is the equilibrium price?

b.         What is the equilibrium quantity

c.         What is the logical conclusion at a price of $10?

d.         What is the logical conclusion at a price of $2?

e.         What is the logical conclusion at a price ceiling of $4?

f.          What is the logical conclusion at a price floor of $4?

 

Answers to above questions

a.         P = $5

b.         Q = 650 units

c.         Qd = 550, Qs = 700 and a there is a surplus of 150 units

d.         Qd = 710, Qs = 620 and a there is a shortage of 90 units

e.         Qd = 670, Qs = 640 and a there is a shortage of 30 units

f.          floors set below the equilibrium price are ignored