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Questions for Chapter 3<br />

Fill-in-the-blanks:<br />

1. ______________________ is the willingness and ability of buyers to buy different quantities<br />

of a good at different prices.<br />

2. According to the law of demand, the price and the quantity demanded of a good are<br />

______________________ related.<br />

3. For ______________________ goods, income and demand are directly related.<br />

4. For ______________________ goods, income and demand are inversely related.<br />

5. ______________________ is the willingness and ability of sellers to sell different quantities<br />

of a good at different prices.<br />

6. According to the law of supply, the price and the quantity supplied of a good are<br />

______________________ related.<br />

7. The determinant of supply is the _____________________ of ______________________.<br />

8. An increase in the cost of production will cause a(n) ______________________ in supply.<br />

9. ______________________ advance is the ability to produce more output per resource.<br />

10. A ______________________ ______________________ is a market in which price is<br />

free to adjust up or down in response to demand and supply.<br />

11. ______________________ price is the price where quantity demanded equals quantity<br />

supplied.<br />

12. A ______________________ is when quantity supplied exceeds quantity demanded.<br />

13. A ______________________ is when quantity demanded exceeds quantity supplied.<br />

14. A price ______________________ is a maximum legal price.<br />

15. A price ______________________ is a minimum legal price.<br />

Multiple Choice:<br />

___ 1. Chris is given a dollar each day to buy his breakfast. He normally buys a donut (for 70¢)<br />

at the Quahog Bakery. Today, the bakery lowers its donut price to 45¢ and Chris is able to<br />

buy two donuts with his dollar. This is:<br />

a. the substitution effect<br />

b. the income effect<br />

c. Both of the above<br />

___ 2. An increase in the demand for donuts could be caused by:<br />

a. an increase in the number of buyers<br />

b. a decrease in the cost of producing donuts<br />

c. a decrease in the price of donuts<br />

d. All of the above<br />

FOR REVIEW ONLY - NOT FOR DISTRIBUTION<br />

3 - 13 Demand, Supply, and Equilibrium

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