Question 1 of 43

If a price decrease from Php50 to Php40 results in a decrease in quantity supplied from 14 units to 10
units, the price elasticity of supply is

 1.00
 0.67
 0.45
 1.50
 2.50

Question 2 of 43

Which of the following statements best describes the relationship between short-run supply elasticity
and long-run supply elasticity?

 For many products, long-run supply is likely to be more price elastic than short-run supply.
 For many products, long-run supply is likely to be less price elastic than short-run supply.
 For products that can be recycled, long-run supply is likely to be more price elastic than short-
run supply.
 All the choices are true

Question 3 of 43

If entrepreneurs are going to make a profit, they must

 Be able to purchase resources at lower prices than their competitors.

 Figure out how to charge higher prices than other firms in the market.
 Produce a lower quality product than rival firms.
 Supply products that consumers value more highly than the cost of the resources required for
their production

Question 4 of 43

Suppose the price of a certain good fell from $1 to $.50 and the quantity demanded increased from 250
to 750 units. Over this range of the demand curve, the elasticity of demand is:

 0.75
 1.2
 1.0
 1.5

Question 5 of 43
For a typical product, a decrease in consumer income will cause the market demand for the product to

 Increase, which is a shift to the right of the demand curve.

 Decrease, which is a shift to the right of the demand curve.
 Decrease, which is a shift to the left of the demand curve.
 Increase, which is a shift to the left of the demand curve.

Question 6 of 43

According to economic theory, which of the following would most likely cause the demand curve for
hamburgers to decrease?

 A drop in the price of hot dogs

 An increase in the price of hamburgers
 A drop in the price of hamburgers
 A technological advance reducing the production cost of making hamburgers

Question 7 of 43

Suppose the price of gasoline and other petroleum products declined sharply. Which of the following
will most likely occur as the result of the lower petroleum prices?

 An increase in demand for home insulation products

 An increase in demand for gasoline
 An increase in demand for larger, more powerful automobiles
 An increase in demand for solar heating systems

Question 8 of 43

A decrease in the price of leather used to make shoes would cause the

 Supply of shoes to decrease

 Demand for shoes to decrease
 Supply of shoes to increase
 Demand for shoes to increase

Question 9 of 43

When economics say the quantity supplied of a product has decreased, they mean the

 Price of the product has fallen, and consequently, suppliers are producing less of it.
 Supply curve has shifted to the left.
 Price of the product has risen, and consequently, suppliers are producing more of it.
  Supply curve has shifted to the right.

Question 10 of 43

Which of the following statements is true?

 A positive cross-price elasticity for two goods and would arise if and were demand
complements.
 A negative cross-price elasticity for two goods would arise if and were demand complements.
 The price elasticity of demand is positive when there is an inverse relationship between price
and quantity demanded.
 A positive income elasticity indicates that demand for a good rises as consumer income falls.

Question 11 of 43

Which of the following would cause an increase in the price of gasoline and an expansion in the
equilibrium quantity?

 An increase in the popularity and use of Sport Utility Vehicles that consume a lot of gasoline
per mile driven
 The introduction of a miracle carburetor that substantially improves the gas mileage of
automobiles
 An increase in the price of crude oil, a key ingredient required for the production of gasoline
 A recession that substantially reduces the income of households

Question 12 of 43

If the market price is above the equilibrium price, there will be a tendency for price to decrease, causing

 Both quantity demanded and quantity supplied to decrease until they are equal.
 Both quantity demanded and quantity supplied to increase until they are equal.
 The quantity demanded to decrease and the quantity supplied to increase until they are equal.
 The quantity demanded to increase and the quantity supplied to decrease until they are
equal.

Question 13 of 43

Consider the supply curve Qs = 40 + 2P +6a. If the value of i rises, the supply curve will

 Shift to the left

 Not shift at all
 Shift to the right
 Rotate so it becomes upward sloping
Question 14 of 43

If demand is elastic, an increase in price

 Will decrease total profit

 Will have an indeterminate effect on total revenue
 Will decrease total revenue
 Will increase total revenue

Question 15 of 43

Which of the following would lead to an increase in the demand for fast food in Cavite?

 A decrease in the average price charged by sit-down restaurants

 An increase in Cavite’s population
 A decrease in average consumer income in Cavite
 A front page newspaper article in Cavite stating that fast food is very bad for your health

Question 16 of 43

If the United Auto Workers union can obtain a substantial wage increase for auto workers, there will be

 A decrease in the supply of automobiles, which is a shift to the right of the supply curve
 An increase in the supply of automobiles, which is a shift to the left of the supply curve
 An increase in the supply of automobiles, which is a shift to the right of the supply curve
 A decrease in the supply of automobiles, which is a shift to the left of the supply curve

Question 17 of 43

Which of the following would most likely increase the supply of beef?

 An increase in the cost of transporting beef products to the consumer market

 Lower prices for chicken, a substitute for beef
 Lower prices of grains used to feed cattle
 New medical research suggesting that beef causes more health problems than was previously
thought

Question 18 of 43

Following the September 11, 2001 terrorist attacks, the price of American flags increased, and many
more were bought and sold than usual. This would be illustrated graphically as
  A decrease in the supply of American flags.
 An increase in the supply of American flags.
 An increase in the demand for American flags.
 A decrease in the demand for American flags

Question 19 of 43

Which of the following would most likely increase the price of automobiles?

 The United Auto Workers union obtaining a substantial wage increase for auto workers
 A decrease in the price of steel used to produce automobiles
 An increase in the price of gasoline
 A decrease in consumer income

Question 20 of 43

Over the past 20 years, both the quantity of health care provided and health care prices have been rising
rapidly. Economic theory would suggest that the observed data could best be explained as

 A sharp increase in both supply and demand.

 An increase in supply, while demand remained relatively constant.
 A decrease in both supply and demand.
 An increase in demand, while supply remained relatively constant.

Question 21 of 43

When an economy goes into a recession, incomes generally fall and the price of resources like lumber
often declines. How would the combination of lower incomes and lower lumber prices impact the
market for housing?

 Demand would decrease, supply would increase, and housing prices would fall.
 Both demand and supply would increase, and the impact on housing prices would be uncertain.
 Demand would increase, supply would decrease, and housing prices would rise.
 Both demand and supply would decrease, and the impact on housing prices would be uncertain.

Question 22 of 43

Let the price elasticity of demand for a soft drink be –2. In the year 2005, the per capita consumption of
soft drinks was about 500 cans per person, and the average price was $1.00 per can. If we suppose that
demand for the soft drink is linear, Qd = a – bP, where a and b are constants, Qd is quantity demanded
and P is price, an estimate of the demand equation could be:

 Qd = 1000 – 1500P
  Qd = 1500 – 1000P
 Qd = 100 – 2P
 Qd = 1500 – 2P

Question 23 of 43

If air travel and bus travel are substitutes,

 An increase in the price of bus travel will decrease the demand for air travel.
 An increase in the price of bus travel will generally have no effect on the demand for air travel.
 An increase in the price of bus travel will shift the demand curve for air travel to the left.
 A decrease in the price of bus travel will decrease the demand for air travel.

Question 24 of 43

Suppose the price of lumber used to make furniture increases while the price of plastic remains
constant. Which of the following is most likely to occur?

 An increase in the supply of and lower prices for wood furniture products
 A decrease in the demand for plastic furniture products
 A decrease in the supply of and higher prices for wood furniture products
 An increase in the demand of and higher prices for wood furniture products

Question 25 of 43

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

 The demand for beef would decrease, decreasing beef prices.

 The supply of beef would increase, decreasing beef prices.
 The demand for beef would increase, increasing beef prices.
 The supply of beef would decrease, increasing beef prices.

Question 26 of 43

If a large percentage increase in the price of a good results in a small percentage increase in the quantity
supplied of the good, supply is said to be

 Relatively inelastic.
 Relatively elastic.
 Of unitary elasticity.
 Perfectly inelastic.
Question 27 of 43

“If gasoline sales were taxed at a higher rate, the price of gasoline would rise. Consequently, the
demand for gasoline would decline. As a result of the higher gasoline prices, the demand for a fuel-
efficient automobiles would increase.” The statements are

 Incorrect; the high gasoline prices would cause the quantity demanded of gasoline, not the
demand, to fall.
 Incorrect; demand is confused with quantity demanded for both gasoline and fuel-efficient cars.
 Incorrect; these statements confuse a change in demand with a shift in supply.
 Essentially correct

Question 28 of 43

Suppose demand is given by Qd = 1000 – 25P and supply is given by Qs = 75P. At the equilibrium price
and quantity, the price elasticity of demand is

 -1/3
 -10
 -3
 -25

Question 29 of 43

When there is excess supply of a product in a market,

 Price must be above the equilibrium price.

 Producers will expand output and sales will rise.
 Price will tend to rise.
 Price must be below the equilibrium price.

Question 30 of 43

Suppose that demand and supply in the market for Goya is linear, with a historic market price of $.50
per pound and 10 million pounds sold. In 2004, a news item raised health fears about the chocolates.
That year, the market price fell to $.45 per pound and only 8 million pounds traded. An estimate for the
equation of Goya would be:

 Qs = -10+40P
 This information only related to demand, and so cannot be used to generate a supply equation.
 Qs = 40P
 Qs = 30 + 40P
Question 31 of 43

Suppose the cross-price elasticity for two goods is negative. The two goods are

 Normal
 Inferior
 Substitutes
 Complements

Question 32 of 43

If the quantity of a good supplied is highly sensitive to the price of the good, this is illustrated by a

 Demand curve that is relatively flat (more horizontal)

 Supply curve that is relatively steep (more vertical)
 Demand curve that is relatively steep (more vertical)
 Supply curve that is relatively flat (more horizontal)

Question 33 of 43

If there is an increase in both the supply and demand for a good, which of the following will necessarily
occur?

 The equilibrium quantity will increase.

 The price of the good will increase.
 The price of the good will decrease.
 The equilibrium quantity will decrease.

Question 34 of 43

All things constant, a decrease in bus, train, and airplane fares will

 Shift the demand curve for automobiles to the left.

 Cause a movement along the demand curve for automobiles.
 Have no impact on the demand curve for automobiles.
 Shift the demand curve for automobiles to the right.

Question 35 of 43

A typhoon damaged much of the housing in Samar. Shortly thereafter, the price of plywood rose
significantly. The events suggests that

 An increase in the supply of plywood caused the price of plywood to rise.

 A decrease in the supply of plywood caused the price of the plywood to rise.
  A decrease in the demand of the plywood caused the price of the plywood to rise.
 An increase in the demand for plywood caused the price of the plywood to rise.

Question 36 of 43

Which of the following would cause an unambiguous increase in the equilibrium price in a market?

 A leftward shift in supply and a rightward shift in demand.

 A rightward shift in supply and leftward shift in demand.
 A rightward shift in supply and a rightward shift in demand.
 A leftward shift in supply and a leftward shift in demand.

Question 37 of 43

Gasoline in the long run will generally exhibit

 Less elasticity of demand than with regard to insulin for diabetics.

 Less elasticity of demand than in the short run.
 Greater elasticity of demand that for jewelry.
 Greater elasticity of demand than in the short run.

Question 38 of 43

Which of the following is most likely to lead to an increase in the rental price of apartments near your
campus?

 Lower prices for the bricks used in the construction of apartments.

 The building of a new large dormitory on the college campus.
 Lower property taxes on apartment buildings
 An unexpected increase in enrollment at your college

Question 39 of 43

Which of the following explanations supports the statement that long-run supply curves are likely to be
more elastic than short-run supply curves?

 Firms are able to adjust variable inputs in the short-run.

 Firms prefer to hire workers rather than capital.
 Firms have more flexibility in the short-run.
 Firms are able to adjust fixed inputs in the long-run but not in the short-run.

Question 40 of 43
Which of the following is the most likely effect of lower apple juice prices on the price and quantity
purchased of orange juice, a substitute product?

 The price of orange juice will increase, and the quantity purchased will fall.
 The price of orange juice will fall, and the quantity purchased will increase.
 The price of orange juice will increase, and the quantity purchase will increase.
 The price of orange juice will fall, and the quantity purchased will fall.

Question 41 of 43

An income elasticity of demand for milk of 0.1 could mean that

 As income rises by 50 percent, quantity demanded rises by 25 percent.

 As income rises by 20 percent, quantity demanded rises by 10 percent.
 As income rises by 100 percent, quantity demanded rises by 1 percent.
 As income rises by 10 percent, quantity demanded rises by 1 percent.

Question 42 of 43

Which of the following would most likely cause the current demand for natural gas to decrease?

 An increase in consumer income

 The expectation that the price of natural gas will rise sharply next month
 An increase in the price of natural gas
 A decrease in the price of electricity, a substitute for natural gas

Question 43 of 43

Consider the following demand and supply curves: Qd = 100 - 2P, and Qs = 1/2P, calculate the
equilibrium P and Q for this initial situation and assuming the supply curve changes to Qs = 1/2P + 10.
Which of the following is correct?

 The initial equilibrium is P = 40, Q = 20 and the new equilibrium is P = 36, Q = 28.
 The initial equilibrium is P = 40, Q = 20 and the new equilibrium remains the same.
 The initial equilibrium is P = 40, Q = 20 and the new equilibrium is P = 38, Q = 28.
 The initial equilibrium is P = 40, Q = 20 and the supply curve shifts left.