Clayton State University - ECON 6100

1)Demand and supply analysis is particularly important if

1. 1. the success of your firm is closely linked to the profitability of your primary industry
   2. the success of your firm is independent of the profitability of your primary industry
   3. the success of your firm is unlikely
   4. demand and supply analysis is unimportant

2. If movie theatres decided to increase the price for the movie tickets, holding other factors constant, what would happen to the demand for popcorn in the theatres?
   1. the demand for popcorn would shift to the left because popcorn and movies are substitute goods.
   2. the demand for popcorn would shift to the left because popcorn and movies are complementary goods.
   3. the demand for popcorn would shift to the right because popcorn and movies are substitute goods.
   4. the demand for popcorn would shift to the right because popcorn and movies are complementary goods.

3. Changes in the price of a product can cause
   1. A movement along the demand curve
   2. A shift of the demand curve
   3. A shift of the supply curve
   4. All of the above

4. After the housing bubble burst, consumer confidence plummeted and housing sales dropped to all-time lows. This caused the demand curve for normal goods to shift
   1. inwards
   2. outwards
   3. stay constant
   4. none of the above

5. The change in any factor other than                   would shift the demand curve
   1. Weather
   2. interest rate
   3. Price
   4. all of the above

6. An increase in the price of a substitute shifts the demand curve to the            
   1. right
   2. left
   3. it does not change the demand curve

1. 4. none of the above

7. An increase in the price of a complement shifts the demand curve to the
   1. right
   2. left
   3. it does not change the demand curve
   4. none of the above

8. A decrease in the price of a substitute shifts the demand curve to the            
   1. right
   2. left
   3. it does not change the demand curve
   4. none of the above

9. A decrease in the price of a complement shifts the demand curve to the
   1. right
   2. left
   3. it does not change the demand curve
   4. none of the above

10. An increase in demand could arise from which of the following factors
    1. an increase in income
    2. a decrease in the price of a complement
    3. an increase in the price of a substitute
    4. all of the above

11. An increase in demand could arise from which of the following factors
    1. an increase in income
    2. a decrease in the price of a substitute
    3. an increase in the price of a complement
    4. all of the above

12. Assuming that beer is a normal good, what will happen to the demand for beer near college towns if student income increased?
    1. Demand will fall because students love these beers
    2. Demand will fall

1. 3. Demand will rise
   4. Supply would rise

13. A recent medical study shows that peanuts are one of the leading causes of high cholesterol. This would cause the demand for peanuts to
    1. Shift to the left
    2. Shift to the right
    3. go down the demand curve
    4. not change

14. The change in quantity demanded derived from a change in price is
    1. the movement along a demand curve
    2. the movement along a supply curve
    3. a shift in the demand curve
    4. a shift in the supply curve

15. Recent research suggested that there are large health benefits from consuming cooked tomatoes. Holding other things constant, this will cause
    1. The demand curve for tomatoes to shift to the right
    2. The demand curve for tomatoes to shift to the left
    3. The supply curve for tomatoes to shift to the right
    4. The supply curve for tomatoes to shift to the left

16. How does an increase in income affect the market for bus rides (inferior good)?
    1. The demand curve for bus rides to shift to the right
    2. The demand curve for bus rides to shift to the left
    3. The supply curve for bus rides to shift to the right
    4. The supply curve for bus rides to shift to the left

17. An increase in income causes the demand for inferior goods to                            and the price of inferior goods to

                             .

1. 1. Increase; increase
   2. Increase; decrease
   3. Decrease; increase
   4. Decrease, decrease

18. An increase in income causes the demand of normal goods to                    and the price of normal goods to
    1. Increase; increase
    2. Increase; decrease
    3. Decrease; increase
    4. Decrease, decrease

19. How does an increase in income affect the market for iPads (normal good)?
    1. The demand curve for iPads shifts to the right
    2. The demand curve for iPads shifts to the left
    3. The supply curve for iPads shifts to the right
    4. The supply curve for iPads shifts to the left

20. You lose your job and as a result your demand for steak falls. This implies that you consider steaks to be a
    1. Complementary good
    2. Normal good
    3. Inferior good
    4. Substitute good

21. While you were an intern you bought 5 packages of hot dogs a month. After acquiring a full-time job with a considerably higher salary, you stopped purchasing hot dogs. For you, hot dogs are a
    1. Complementary good
    2. Normal good
    3. Inferior good
    4. Substitute good

22. The wages for Nike workers increases. At the same time, we see the price for Adidas shoes increase. This would cause the price for Nike shoes      and the quantity demanded for Nike shoes                          .
    1. Uncertain; decreases
    2. Decreases; increases
    3. Decreases; uncertain
    4. Increases; uncertain

23. Firm X both produces automobiles and owns gas stations. If decides to decrease the gas to induce higher sales for the automobiles, it means that
    1. the gas and the automobiles are complements
    2. the gas and the automobiles are substitutes
    3. the gas and the automobiles are not related in demand

1. 4. none of the above

24. Peter’s Pizzeria sells both pizzas and wings. It wants to increase the sales of its pizzas. If it decides to increase the price of the wings, it is assuming that
    1. the pizza and the wings are substitutes
    2. the pizza and the wings are complements
    3. the pizza and the wings are unrelated in demands
    4. it cannot increase the sales of its pizzas

25. Holding other factors constant, if bad weather destroys the annual crop for carrots, it causes the supply curve for carrots to
    1. Shift to the left, causing the prices of carrots to rise
    2. Shift to the left, causing the prices of carrots to fall
    3. Stay the same
    4. The supply curve does not shift. Only the demand curve shifts.

26. All these factors would shift the supply curve of tobacco, except
    1. Bad weather
    2. Change in the price of tobacco
    3. Changes in the wages of agricultural workers
    4. A tax charged on the production of tobacco

27. How does an increase in the price of laptop memory chips affect the market of laptops?
    1. The demand curve for laptops shifts to the right
    2. The demand curve for laptops shifts to the left
    3. The supply curve for laptops shifts to the right
    4. The supply curve for laptops shifts to the left

28. A supply curve describes
    1. the relationship between price and quantity demanded
    2. the relationship between price and quantity supplied
    3. the relationship between a group of buyers and sellers
    4. none of the above

29. A supply curve slopes upwards because

1. 1. the higher the price the lower the quantity that the sellers are willing to supply
   2. the higher the price the higher the quantity that the sellers are willing to supply
   3. the quantity supplied in insensitive to price
   4. an increase in price brings the quantity sold down to zero

30. Which of the following factors would shift the supply curve for ice cream to the right?
    1. a new cooling technology emerges
    2. the price per unit increases
    3. the number of producers in the market for ice cream increase
    4. Both A&C

31. Which of the following would shift the supply of Florida Oranges to the left?
    1. a hurricane in Florida destroying a major part of the crop
    2. an increase in the price of water per unit, a major input, used to irrigate the orange trees
    3. one of the orange grooves shuts down
    4. all of the above

32. A recent medical study reports new benefits of cycling. Simultaneously, the price of the parts needed to make bikes falls. The demand curve would                                                                                and the supply curve would       
    1. Shift to the right, shift to the left
    2. shift to the left, shift to the right
    3. shift to the left, shift to the left
    4. shift to the right, shift to the right

33. Suppose the demand for pens increases and the supply for pens decreases. What effect will it have on the equilibrium price for pens?
    1. It will rise
    2. It will fall
    3. Uncertain
    4. None

34. As the income of bus riders increased, the wages of bus drivers increased simultaneously. How does this affect the market for bus rides (inferior good)?
    1. The demand curve will shift to the left; the supply curve will shift to the left
    2. The demand curve will shift to the left; the supply curve will shift to the right
    3. The demand curve will shift to the right; the supply curve will shift to the left
    4. The demand curve will shift to the right; the supply curve will shift to the right

35. People like consuming peanut butter and jelly together. The price of peanuts increases. At the same time, we see the price for Jelly rise. How does this affect the market for peanut butter?
    1. The demand curve will shift to the left; the supply curve will shift to the left
    2. The demand curve will shift to the left; the supply curve will shift to the right
    3. The demand curve will shift to the right; the supply curve will shift to the left
    4. The demand curve will shift to the right; the supply curve will shift to the right

36. Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12,

$11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market, what is the equilibrium price in this market?

1. 1. 7
   2. 8
   3. 9
   4. 10

37. In the market for used cars we have 10 sellers, willing to sell at the prices of $1000, $2000, $3000, $4000, $5000,

$6000, $7000, $8000, $9000, $10000. If the equilibrium price in the market is $2500, how many cars would be sold?

1. 1. 1
   2. 2
   3. 3
   4. 4

38. In the market for used cars we have 10 sellers, willing to sell at the prices of $1000, $2000, $3000, $4000, $5000,

$6000, $7000, $8000, $9000, $10000. What could the market price be in order to induce five sellers to offer their cars for sale?

a. $4001

b. $5001

c. $6001

d. $7001

39. Which of the following statements is true
    1. a market equilibrium price is where quantity demanded equals quantity supplied
    2. a market equilibrium price is where the demand is higher than the supply
    3. a market equilibrium price is where the supply is higher than the demand
    4. none of the above

40. In a market where the equilibrium price is $7, any price lower than $7 would cause
    1. a balanced demand and supply
    2. an excess supply
    3. an excess demand
    4. none of the above

41. In a market where the equilibrium price is $7, any price higher than $7 would cause
    1. a balanced demand and supply
    2. an excess supply
    3. an excess demand
    4. none of the above

42. Excess demand of a product exerts                       pressure on prices
    1. Zero
    2. No
    3. Upward
    4. Downward

43. Excess supply of a product exerts                          pressure on prices
    1. Zero
    2. No
    3. Upward
    4. Downward

44. At the equilibrium price
    1. only sellers who value the product more than the equilibrium price would be willing to sell
    2. only buyers who value the product less than the equilibrium price would be willing to buy
    3. only buyers who value the product more than the equilibrium price would be willing to buy
    4. None of the parties would be willing to trade

45. Which of the following statements is true
    1. in market equilibrium there are unconsummated value-creating transactions
    2. in market equilibrium there are unconsummated wealth-destroying transactions
    3. in market equilibrium there are no unconsummated wealth-creating transactions
    4. none of the above

46. In the 1990s, many people had rising incomes. At the same time, there was a rise in the cost of lumber. This would cause the demand for houses to                                                                           and the supply for houses to       .
    1. Increase, increase
    2. Increase, decrease
    3. Decrease, increase
    4. Decrease, decrease

47. An increase in income causes, the price for ipads                                and the quantity demanded for ipads

                             .

1. 1. Increase; increase
   2. Increase; decrease
   3. Decrease; increase
   4. Decrease, decrease

48. A recent medical study reports new benefits of cycling. Simultaneously, the price of the parts needed to make bikes falls. If the change in supply is greater than the change in demand, the price will      and the quantity will

                      .

1. 1. Rise, rise
   2. Rise, fall
   3. Fall, rise
   4. Fall, fall

49. The wages for Nike workers increases. At the same time, we see the price for Adidas shoes increase. How does this affect the market for Nike shoes?
    1. The demand curve will shift to the left; the supply curve will shift to the left
    2. The demand curve will shift to the left; the supply curve will shift to the right
    3. The demand curve will shift to the right; the supply curve will shift to the left
    4. The demand curve will shift to the right; the supply curve will shift to the right

50. Firm X owns both tea and coffee plantations. It sells directly to the public. If the firm wants to increase the sales for the coffee, assuming that tea and coffee are substitutes, which of these strategies can it employ?
    1. Increase the price for the tea
    2. Offer free expedited shipping on the coffee
    3. Advertise the tea more heavily
    4. Both A&B

51. Peter’s Pizzeria sells both pizzas and wings. It wants to increase the sales of its pizzas. Assuming that the pizza and the

wings are complements, which of these strategies can it employ?

1. 1. Increase the price of the wings
   2. Decrease the price of the wings
   3. Increase the quality of the pizza
   4. Both B & C

52. The law of supply states that, holding other factors constant, as price increases
    1. Quantity supplied increases
    2. Quantity supplied decreases
    3. Quantity demanded increases
    4. Quantity demanded decreases

53. An increase in the price of laptop memory chips causes the price for laptops                              and the quantity supplied for laptops            .
    1. Increase; increase
    2. Increase; decrease
    3. Decrease; increase
    4. Decrease, decrease

54. An increase in the income of bus riders, accompanied by a simultaneous increase in the wages of the bus drivers causes, the price for bus rides(an inferior good)                and the quantity demanded for bus rides                                                                                                                     .
    1. Decreases; decreases
    2. Increase; increases
    3. Uncertain, Decreases
    4. Uncertain, Increases

55. People like consuming peanut butter and jelly together. The price of peanuts increases. At the same time, we see the price for Jelly rise. This would make the price for peanut butter       and the quantity demanded for peanut butter             .
    1. Uncertain; decreases
    2. Decreases; increases
    3. Decreases; uncertain
    4. Increases; uncertain

56. An increase in price could occur due to a(n)
    1. Increase in demand and no change in supply
    2. Decrease in supply and no change in demand
    3. An increase in demand and decrease in supply

1. 4. All of the above

57. The information conveyed by changes in market prices is especially important in financial markets because
    1. It forces individual investors to reveal their information about the prospects of a security
    2. It assesses business decisions
    3. It helps firms forecast the future demand for products
    4. All of the above

58. Which of the following statements is true?
    1. A company can manipulate uncontrollable factors to increase the demand for its product
    2. A company can manipulate uncontrollable factors to increase the supply of its product
    3. A company cannot manipulate uncontrollable factors to increase the demand for its product
    4. A company cannot manipulate controllable factors to increase the demand for its product

59. Which of these is an example of a controllable factor for a firm that sells pizzas
    1. The price of the pizza
    2. The delivery rates of the pizza
    3. The quality of the wings sold by the street vendor across the street
    4. Both A & B

60. If a firm can create important complements to its original product, it has
    1. Created an uncontrollable factor that can change the demand for its product
    2. Created an uncontrollable factor that cannot change the demand for its product
    3. Created a controllable factor that can change the demand for its product
    4. Created a controllable factor that cannot change the demand for its product

61. Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12,

$11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. If there is a market maker in this market. What is the profit maximizing bid-ask spread per unit for a market maker?

1. 1. $6 bid; $12 ask
   2. $7 bid; $11 ask
   3. $8 bid; $10 ask
   4. $9 bid; $9 ask

62. Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12,

$11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. At the optimal bid-ask spread, how many transactions would the market maker undertake in this market

1. 1. two transacttions
   2. three transactions
   3. four transactions
   4. five transactions

63. Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12,

$11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. At the optimal bid, ask spread, what is the total profit that the market maker makes?

1. 1. $8

b. $12

c. $18

d. $20

64. Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12,

$11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. Now suppose competition among several market makers forces the spread down to $4. How many goods are traded?

1. 1. Four
   2. Five
   3. Six
   4. Seven

65. “Market making”
    1. is the action of bringing together high value buyers and low value sellers
    2. transfers goods from their low value uses to high value uses, creating wealth
    3. can not occur if the transaction costs are too high to prevent value creating transactions
    4. all of the above

66. To earn profits, the market maker must
    1. bid high, ask low
    2. bid low, ask high
    3. equalize the bid and ask price
    4. not create the market

67. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. What is the equilibrium price in the market without the market maker

a. $12

b. $11

c. $10

d. $9

68. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. What is the equilibrium quantity in the market
    1. 5 units
    2. 6 units
    3. 7 units
    4. 8 units

69. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker bought and sold at the equilibrium price, what is his profit
    1. $1

b. $2.5

c. $3

d. $0

70. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker wants to make three transactions, what should he bid (the suppliers)A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9,

$8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker wants to make three transactions, what should he bid (the suppliers)

1. 1. $9
   2. $8
   3. $7
   4. $6

71. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker wants to make three transactions, what should he ask (the buyers)

a. $12

b. $13

c. $14

d. $15

72. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker makes three transactions, what is his bid-ask spread per unit
    1. $4
    2. $5
    3. $6
    4. $7

73. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker makes three transactions, what is his total profit?

a. $12

b. $15

c. $18

d. $21

74. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker decides to only make one transaction what is his profit/bid-ask margin
    1. $8

b. $10

c. $12

d. $16

75. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. How many transactions must the market maker make if he wants to maximize his profits?
    1. 1
    2. 2
    3. 3
    4. 4

76. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker is free to choose the number of transactions he can make, what is his maximum profit?
    1. $8

b. $10

c. $18

d. $28