Exercise 2.

1 (Demand and Supply)

1. If the price of chicken rises and the price of beef doesn't rise, consumers will respond by:
A)
substituting beef for chicken.
B)
substituting chicken for beef.
C)
reducing purchases of beef and chicken.
D)
increasing purchases of beef and chicken.
2. Which statement is not consistent with the law of supply?
A)
More of a good will be supplied, the higher the price, other things constant.
B)
Less of a good will be supplied, the lower the price, other things constant.
C)
Quantity supplied of a good is directly related to the good's price.
D)
Quantity supplied of a good is inversely related to the good's price.
3. Assume the graph below reflects demand in the automobile market. Which arrow best captures
the impact of increased consumer income on the automobile market?

4. Which of the following would be expected to cause an increase in the supply of fax machines?
A)
An increase in the number of business firms demanding fax machines.
B)
An increase in the price of fax machines.
C)
A decrease in the cost of manufacturing fax machines.
D)
The expectation that the price of fax machines will increase in future.

5. Given the graph below, the quantity that would be associated with the price of $1 in a supply
table would be:

A)
B)
C)
D)

3
2
1
0

6. The law of demand states that, other things constant, there is:
A)
an inverse relation between price and the quantity demanded.
B)
an inverse relation between price and demand.
C)
a direct relation between price and the quantity demanded.
D)
a direct relation between price and demand.
7. According to the law of supply:
A)
supply curves slope upward.
B)
supply curves slope downward.
C)
price and quantity supplied are negatively related.
D)
price and quantity supplied are inversely related.

8. Refer to the graph below. If consumers began purchasing more of this product due to a
decrease in price, this would be shown by arrow:

9. If a major magazine contained a review of your restaurant saying it was the best in the
Midwest, which of the following would most likely happen?
A)
demand would drop.
B)
demand would increase.

C)
D)

quantity demanded would increase.

quantity demanded would drop.

Structured questions
10. What will cause quantity demanded to rise?
11. What will cause a shift in demand?
12. draw a demand curve and demonstrate graphically the effect of a change in price on quantity
demanded.
13. demonstrate graphically the effect of a decline in income on demand
14. What will cause quantity supplied to decline?
15. demonstrate graphically the effect of a change in price on quantity supplied.
16. What will cause a change in supply?
17. demonstrate graphically the effect of a tax on supply.