Question 1

Suppose that goods X and Y are substitutes and the price of good Y falls. We would then expect
A)the quantity of good Y demanded to increase and the demand for good X to increase also.
B)an increase in the demand for good X and a decrease in the quantity of good Y demanded.
C)an increase in the quantity demanded of good Y and a decrease in the demand for good X.
D)an increase in the demand for both good X and good Y.

Accepted Answer

When the price of a substitute good (Y) falls, consumers are more likely to purchase more of good Y (increasing the quantity demanded of Y) and less of good X, leading to a decrease in the demand for good X.

Question 2

For a normal good, an increase in consumer income will lead to I. a movement down the demand curve
II. a rightward shift in the demand curve
III. a reduction in supply
A)I only
B)II only
C)III only
D)Both II and III

Accepted Answer

An increase in consumer income leads to an increase in demand for normal goods. This results in a rightward shift in the demand curve as consumers are willing to buy more goods at each price than before. There is no relation between changes in consumer income and supply of a good. Hence, options I and III can be eliminated.

Question 3

All of the following will affect the position of the demand curve EXCEPT
A)income.
B)taste and preference.
C)changes in expectations of future relative prices.
D)prices of resources used to produce the product.

Accepted Answer

The position of the demand curve is determined by factors such as income, taste and preference, and changes in expectations of future relative prices. However, the prices of resources used to produce the product affect the position of the supply curve, not the demand curve.

Question 4

Suppose an individual experiences a permanent increase in income. As a result of this increased income, further assume that the individual eats dinner at restaurants more frequently each month. This information suggests that dinners at restaurants for this individual are
A)an inferior good.
B)a substitute good.
C)a normal good.
D)both complimentary and inferior.

Accepted Answer

The fact that the individual is consuming more dinners at restaurants as their income increases suggests that dinners at restaurants are a normal good, as the demand for this good has increased as the individual's income has increased. If dinners at restaurants were an inferior good, we would expect the individual to consume less of them as their income increased.

Question 5

Which of the following statements is FALSE?
A)An increase in income causes an increase in the demand for a normal good.
B)An increase in income causes a decrease in the demand for an inferior good.
C)A decrease in income causes the demand curve for a normal good to shift to the left.
D)An increase in income causes the demand curve for an inferior good to shift to the right.

Accepted Answer

An increase in income causes the demand for an inferior good to decrease, not increase. Therefore, statement D is false.

Question 6

Which of the following statements is FALSE?
A)If there is an increase in the demand for a product, consumers want to buy more of the product at each and every possible price.
B)A decrease in demand shifts the demand curve leftward toward the origin, while a decrease in quantity demanded involves a movement upward along a particular demand curve.
C)If the price of a good rises, quantity demanded of the good decreases and the demand curve shifts toward the origin as long as supply is static.
D)A change in the demand for a product is caused by factors other than changes in the product's price.

Accepted Answer

If the price of a good rises, the quantity demanded of the good decreases, but the demand curve itself does not shift. Shifts in the demand curve are caused by factors other than changes in the price, such as changes in consumer tastes or income levels.

Question 7

In economic terminology, an inferior good is a good
A)that no one will purchase.
B)that doesn't work properly.
C)that has no monetary value.
D)for which demand increases as income decreases.

Accepted Answer

An inferior good is a good for which demand increases as income decreases. This means that as people's income decreases, they tend to purchase more of the inferior good because they cannot afford to purchase higher-quality substitutes. Examples of inferior goods include generic brand groceries, fast food, and public transportation.

Question 8

Fashion trends are a nonprice determinant for demand because
A)they cause a movement along the demand curve.
B)they influence people's tastes and preferences in clothing.
C)they change the supply of accessories.
D)they do not affect demand.

Accepted Answer

Fashion trends can influence people's tastes and preferences in clothing, which can lead to a shift in the demand curve rather than just a movement along it. This makes it a nonprice determinant for demand.

Question 9

If two goods are substitutes, then
A)an increase in the price of one causes the demand for the other to fall.
B)there is an inverse relationship between changes in the price of one good and changes in the demand for the other.
C)if the price of one good falls, the demand for the other good falls also.
D)changes in the quantity demanded of one good will not affect the demand for the other.

Accepted Answer

Substitute goods are those that can be used in place of each other. When the price of one substitute good falls, consumers are more likely to purchase it over its substitute, leading to a decrease in demand for the other good.

Question 10

Assume that coffee and tea are substitutes. Given a downward sloping demand curve for tea, an increase in the price of tea will cause
A)an increase in the demand for coffee.
B)a decrease in the demand for coffee.
C)a leftward shift of the demand curve for tea.
D)a leftward shift in the demand for coffee.

Accepted Answer

Since coffee and tea are substitutes, an increase in the price of tea would make consumers switch their preferences to coffee, leading to an increase in the demand for coffee.

Question 11

Which one of the following is NOT a determinant of demand?
A)prices of related goods
B)cost of inputs in production
C)income
D)future price expectations

Accepted Answer

The cost of inputs in production is a determinant of supply, not demand. The other choices listed affect consumer demand for goods and services.

Question 12

An inferior good is one for which
A)demand increases as income increases.
B)demand decreases as income increases.
C)the demand curve is vertical.
D)the demand curve slopes up.

Accepted Answer

An inferior good is a good for which demand decreases as income increases. This could be because as income increases, consumers may switch to purchasing higher quality or more expensive goods, resulting in a decrease in demand for the inferior good.

Question 13

If an increase in the incomes of people who live in the Los Angeles area leads to an increase in the demand for season tickets for games played by the Los Angeles Lakers professional basketball team, then these season tickets are
A)a normal good.
B)an inferior good.
C)an income complement.
D)an income substitute.

Accepted Answer

When the income of people increases, they tend to spend more on leisure activities and entertainment. The increase in the demand for season tickets for games played by the Los Angeles Lakers professional basketball team with an increase in income indicates that these season tickets are normal goods. Normal goods are those for which the demand increases as the income of people increases.

Question 14

Which of the following will cause a rightward shift of the demand curve?
A)a decrease in the cost of production
B)a decrease in the price of the good
C)an increase in the expected future price of the good
D)all of the above

Accepted Answer

An increase in the expected future price of the good will cause consumers to buy more of the good now, shifting the demand curve to the right. A decrease in the cost of production or a decrease in the price of the good may increase the quantity supplied, but it will not shift the demand curve.

Question 15

If the demand of a good is inversely related to income, it must be
A)a bad good.
B)an inferior good.
C)a normal good.
D)an everyday product.

Accepted Answer

An inferior good is a good for which demand decreases as income increases. This is because as consumers' income increases, they typically have more purchasing power and can afford higher-quality goods, making inferior goods less desirable.

Question 16

If goods X and Y are substitute goods, then an increase in the price of Y, other things being equal,
A)results in a decrease in the amounts of both X and Y consumed.
B)decreases the quantity demanded of Y, but has no effect on the amount of X consumed.
C)results in a decrease in the quantity of Y consumed, but increases the demand for X.
D)has no real effect on the quantity demanded of good Y, but increases the demand for X.

Accepted Answer

When two goods are substitutes, an increase in the price of one good will result in an increase in the demand for the other good. Therefore, an increase in the price of Y will lead to a decrease in the quantity of Y consumed and an increase in the demand for X as consumers switch to the substitute good. This means that the quantity of X consumed will increase.

Question 17

A demand curve for a normal good
A)slopes upward and to the right.
B)is constructed based on the assumption that income is rising.
C)is constructed based on the assumption that an inverse relationship exists between price and income.
D)shows the inverse relationship between price and quantity demanded.

Accepted Answer

A demand curve for a normal good shows the inverse relationship between price and quantity demanded. As the price of the good increases, the quantity demanded decreases, holding all other factors constant. This is because consumers may switch to alternative goods or reduce their overall spending on the good.

Question 18

If bagels and croissants are substitute goods, which of the following is likely to occur if the price of bagels has decreased?
A)The demand curve for bagels shifts to the right.
B)A leftward movement along the bagel demand curve.
C)The demand curve for croissants shifts to the right.
D)The demand curve for croissants shifts to the left.

Accepted Answer

When the price of bagels decreases, consumers are likely to buy more bagels instead of croissants, leading to a decrease in the demand for croissants. This is represented by a leftward shift in the demand curve for croissants.

Question 19

In economic terminology, a normal good is a good
A)on which a monetary value cannot be placed.
B)that is liked only by normal people.
C)for which demand increases when price increases.
D)for which demand increases when income increases.

Accepted Answer

A normal good is a good for which demand increases when income increases. This is because as people's income increases, they have more money to spend on goods and services, so they are able to purchase more of the normal good. Conversely, if their income were to decrease, people would have less money to spend on goods and services, so demand for normal goods would decrease.

Question 20

Sarah gets a salary increase of 20 percent. Before her raise, she purchased 5 pounds of hamburger and 1 pound of beef stew a month. After her raise, she consumes 2 pounds of hamburger and 3 pounds of beef stew a month. If everything else is held constant, we know that
A)hamburger is an inferior good and beef stew is a normal good for Sarah.
B)hamburger is a normal good and beef stew is an inferior good for Sarah.
C)both hamburger and beef stew are normal goods for Sarah.
D)both hamburger and beef stew are inferior goods for Sarah.

Accepted Answer

Sarah buys less hamburger and more beef stew after her salary increase, indicating hamburger is an inferior good and beef stew is a normal good for her.

Quiz 3: Demand and Supply

Suppose that goods X and Y are substitutes and the price of good Y falls. We would then expect

For a normal good, an increase in consumer income will lead to I. a movement down the demand curve II. a rightward shift in the demand curve III. a reduction in supply

All of the following will affect the position of the demand curve EXCEPT

Suppose an individual experiences a permanent increase in income. As a result of this increased income, further assume that the individual eats dinner at restaurants more frequently each month. This information suggests that dinners at restaurants for this individual are

Which of the following statements is FALSE?

Which of the following statements is FALSE?

In economic terminology, an inferior good is a good

Fashion trends are a nonprice determinant for demand because

If two goods are substitutes, then

Assume that coffee and tea are substitutes. Given a downward sloping demand curve for tea, an increase in the price of tea will cause

Which one of the following is NOT a determinant of demand?

An inferior good is one for which

If an increase in the incomes of people who live in the Los Angeles area leads to an increase in the demand for season tickets for games played by the Los Angeles Lakers professional basketball team, then these season tickets are

Which of the following will cause a rightward shift of the demand curve?

If the demand of a good is inversely related to income, it must be

If goods X and Y are substitute goods, then an increase in the price of Y, other things being equal,

A demand curve for a normal good

If bagels and croissants are substitute goods, which of the following is likely to occur if the price of bagels has decreased?

In economic terminology, a normal good is a good

Sarah gets a salary increase of 20 percent. Before her raise, she purchased 5 pounds of hamburger and 1 pound of beef stew a month. After her raise, she consumes 2 pounds of hamburger and 3 pounds of beef stew a month. If everything else is held constant, we know that