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Indicate whether the sentence or statement is true or false.

1. A perfectly competitive market consists of products that are all slightly different from one
another.

2. In a perfectly competitive market, each seller has a negligible impact on the market price.

3. The law of demand states that an increase in the price of a good decreases the demand for
that good.

4. If apples and oranges are substitutes, an increase in the price of apples will decrease the
demand for oranges.

5. If golf clubs and golf balls are complements, an increase in the price of golf clubs will
decrease the demand for golf balls.

6. If consumers expect the price of shoes to rise, there will be an increase in the demand for
shoes today.

7. The law of supply states that an increase in the price of a good increases the quantity
supplied of that good along its supply curve.

8. An increase in the price of steel will shift the supply of cars to the right.

9. When the price of a good is below the equilibrium price, it causes a surplus (i.e. an excess
supply) of this good.

10. The market supply curve is the horizontal summation of the individual supply curves.

11. If there is a shortage (i.e. an excess demand) of a good, then the price of that good tends
to fall.

12. If pencils and paper are complements, an increase in the price of pencils causes the
demand for paper to decrease or shift to the left.

13. If Coke and Pepsi are substitutes, an increase in the price of Coke will cause an increase
in the equilibrium price and quantity in the market for Pepsi.

14. An advance in the technology employed to manufacture roller blades will result in a
decrease in the equilibrium price and an increase in the equilibrium quantity in the
market for roller blades.

15. If there is an increase in supply accompanied by a decrease in demand for coffee, then
there will be a decrease in both the equilibrium price and quantity in the market for
coffee.

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
16. A perfectly competitive market has
a. firms that set their own prices.
b. only one seller.
c. at least a few sellers.
d. many buyers and sellers.
e. none of these answers.

17. If an increase in the price of blue jeans leads to an increase in the demand for
tennis shoes, then blue jeans and tennis shoes are
a. complements.
b. inferior goods.
c. normal goods.
d. none of these answers.
e. substitutes.

18. The law of demand states that an increase in the price of a good
a. increases the supply of that good.
b. decreases the quantity demanded for that good along its demand curve.
c. decreases the demand for that good.
d. increases the quantity supplied of that good along its supply curve.
e. none of these answers.

19. The law of supply states that an increase in the price of a good
a. none of these answers.
b. increases the quantity supplied of that good along its supply curve.
c. increases the supply of that good.
d. decreases the demand for that good.
e. decreases the quantity demanded for that good along its demand curve.

20. If an increase in consumer incomes leads to a decrease in the demand for camping
equipment, then camping equipment is
a. a normal good.
b. none of these answers.
c. an inferior good.
d. a substitute good.
e. a complementary good.

21. That the supply curve of ice cream cones is upward sloping indicates that
a. the marginal cost of providing ice cream cones increasesas more cones are
produced.
b. as the price of ice cream cones increases, the production technology is upgraded.
c. as the price increases, the opportunity cost of making icecream cones decreases.
d. all of the above.
e. none of the above.

22. Which of the following shifts the demand for watches to the right?
a. an increase in the price of watches
b. none of these answers
c. a decrease in the price of watch batteries if watch batteries and watches are
complements
d. a decrease in consumer incomes if watches are a normal good
e. a decrease in the price of watches

23. All of the following shift the supply of watches to the right except
a. an advance in the technology used to manufacture watches.
b. an increase in the price of watches.
c. All of these answers cause an increase in the supply of watches.
d. a decrease in the wage of workers employed to manufacture watches.
e. manufacturers' expectation of lower watch prices in the future.

24. If the price of a good is above the equilibrium price,


a. there is a surplus (i.e. an excess supply) and the price will rise.
b. there is a shortage (i.e. an excess demand) and the price will fall.
c. there is a shortage (i.e. an excess demand) and the price will rise.
d. the quantity demanded is equal to the quantity supplied and the price remains
unchanged.
e. there is a surplus (i.e. an excess supply) and the price will fall.

25. If the price of a good is below the equilibrium price,


a. there is a shortage (i.e. an excess demand) and the price will rise.
b. the quantity demanded is equal to the quantity supplied and the price remains
unchanged.
c. there is a shortage (i.e. an excess demand) and the price will fall.
d. there is a surplus (i.e. an excess supply) and the price will rise.
e. there is a surplus (i.e. an excess supply) and the price will fall.

26. If the price of a good is equal to the equilibrium price,


a. there is a shortage (i.e. an excess demand) and the price will fall.
b. the quantity demanded is equal to the quantity supplied and the price remains
unchanged.
c. there is a surplus (i.e. an excess supply) and the price will rise.
d. there is a shortage (i.e. an excess demand) and the price will rise.
e. there is a surplus (i.e. an excess supply) and the price will fall.

27. An increase (rightward shift) in the demand for a good will tend to cause
a. an increase in the equilibrium price and quantity.
b. none of these answers.
c. an increase in the equilibrium price and a decrease in the equilibrium quantity.
d. a decrease in the equilibrium price and an increase in the equilibrium quantity.
e. a decrease in the equilibrium price and quantity.

28. A decrease (leftward shift) in the supply for a good will tend to cause
a. an increase in the equilibrium price and quantity.
b. a decrease in the equilibrium price and an increase in the equilibrium quantity.
c. none of these answers.
d. a decrease in the equilibrium price and quantity.
e. an increase in the equilibrium price and a decrease in the equilibrium quantity.

29. Suppose there is an increase in both the supply and demand for personal computers. In
the market for personal computers, we would expect
a. the equilibrium quantity to rise and the equilibrium price to rise.
b. the equilibrium quantity to rise and the equilibrium price to fall.
c. the equilibrium quantity to rise and the equilibrium price to remain constant.
d. the change in the equilibrium quantity to be ambiguous and the equilibrium price
to rise.
e. the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous.

30. Suppose there is an increase in both the supply and demand for personal computers.
Further, suppose the supply of personal computers increases more than demand for
personal computers. In the market for personal computers, we would expect
a. the change in the equilibrium quantity to be ambiguous and the equilibrium price
to fall.
b. the equilibrium quantity to rise and the equilibrium price to rise.
c. the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous.
d. the equilibrium quantity to rise and the equilibrium price to fall.
e. the equilibrium quantity to rise and the equilibrium price to remain constant.

31. Which of the following statements is true about the impact of an increase in the price of
lettuce?
a. Both the demand for lettuce will decrease and the equilibrium price and quantity
of salad dressing will fall.
b. The supply of lettuce will decrease.
c. The demand for lettuce will decrease.
d. The equilibrium price and quantity of salad dressing will fall.
e. The equilibrium price and quantity of salad dressing will rise.

32. Suppose a frost destroys much of the Florida orange crop. At the same time, suppose
consumer tastes shift toward orange juice. What would we expect to happen to the
equilibrium price and quantity in the market for orange juice?
a. Price will decrease; quantity is ambiguous.
b. The impact on both price and quantity is ambiguous.
c. Price will increase; quantity will increase.
d. Price will increase; quantity will decrease.
e. Price will increase; quantity is ambiguous.

33. Suppose consumer tastes shift toward the consumption of apples. Which of the following
statements is an accurate description of the impact of this event on the market for apples?
a. There is an increase in the quantity demanded of apples along the demand curve
and in the supply for apples.
b. There is an increase in the demand and supply of apples.
c. There is an increase in the demand for apples and a decrease in the supply of
apples.
d. There is a decrease in the quantity demanded of apples along the demand curve
and an increase in the supply for apples.
e. There is an increase in the demand for apples and an increase in the quantity
supplied of apples along the supply curve.

34. Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near
future. What would we expect to happen to the equilibrium price and quantity in the
market for wheat today?
a. The impact on both price and quantity is ambiguous.
b. Price will decrease; quantity is ambiguous.
c. Price will increase; quantity will decrease.
d. Price will increase; quantity is ambiguous.
e. Price will increase; quantity will increase.

35. An inferior good is one for which an increase in income causes a(n)
a. decrease in supply.
b. increase in demand.
c. increase in supply.
d. decrease in demand.