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Question 1 of 10

1. Question

10 points

The law of demand states that when the price of a product increases, then quantity demanded (quantity purchased) decreases, and vice versa. Let’s suppose though that the price of a car increases, and we observe soon afterwards that MORE people buy cars. Is this a violation of the law of demand?

No, because the increase in car purchases probably happened because of a change in another determinant (for example, an increase in incomes). Keeping other determinants constant, the quantity of cars purchased would have decreased.
Yes, the law applies only to goods manufactured in limited quantities. Manufactured products are subject to the inverse law of demand principle.
No, because the law of demand states that when demand increases, then supply decreases shortly thereafter. The lower supply leads to higher car prices.
Yes, when car prices increase, and people buy more cars, we are experiencing a violation of the law. In some exceptional circumstances, this is the case.

Question 2 of 10

2. Question

10 points

When the demand curve has shifted to the right, we can say that _______________ has increased and the equilibrium price of the product has ______________.

demand; increased
quantity demanded; increased
demand; decreased
quantity demanded; decreased

Question 3 of 10

3. Question

10 points

When both supply and demand increase, then:

the equilibrium price is indeterminate and the equilibrium quantity increases.
the equilibrium price increases and the equilibrium quantity change is indeterminate.
the equilibrium price decreases and the equilibrium quantity change is indeterminate.
the equilibrium price is indeterminate and the equilibrium quantity decreases.

Question 4 of 10

4. Question

10 points

Let’s suppose that the equilibrium price of gasoline has increased recently. Which of the following combinations of changes in demand and supply best explains this price increase?

Demand has decreased slightly, and supply has decreased significantly
Demand has increased slightly, and supply has increased significantly.
Demand has decreased slightly, and supply has increased significantly.
Demand has decreased significantly, and supply has decreased slightly.

Question 5 of 10

5. Question

10 points

An inferior product is ________________, whereas a normal product is __________________.

a product whose demand increases when buyers' incomes decrease and vice versa; a product whose demand increases when buyers' incomes increase and vice versa.
a product whose market price is below the cost of production; A product whose market price is above the cost of production.
a product whose demand decreases when buyers' incomes decrease and vice versa; A product whose demand decreases when buyers' incomes increase and vice versa.
a product whose demand increases, when its substitute product's price increases; A product whose demand decreases, when its substitute product's price increases.

Question 6 of 10

6. Question

10 points

Let’s consider the market for hard copy textbooks, a normal good. The following two changes occur at the same time in this market:
I. Consumers incomes increase.
II. Paper becomes more expensive; this increases the cost of making hard copy text books.
Which of the following are expected to occur in the short run based on the above two changes (consider the combined effect of the two changes):

the market price increases and the equilibrium quantity change is indeterminate.
the market price increases and the equilibrium quantity decreases.
the market price decreases and the equilibrium quantity increases.
the change in the market price is indeterminate and the equilibrium quantity increases.

Question 7 of 10

7. Question

10 points

What will happen to the equilibrium (market) price and quantity of public transportation (an inferior good) if buyers’ incomes decrease significantly?

The market price increases and the quantity bought/sold increases
The market price increases and the quantity bought/sold decreases
The market price decreases and the quantity bought/sold decreases
The market price decreases and the quantity bought/sold increases

Question 8 of 10

8. Question

10 points

What happens to the equilibrium price and quantity of hybrid cars (these run partly on electricity and are very fuel efficient), when the following changes happen simultaneously:
a. gasoline prices rise considerably
b. the technology to make hybrid cars advances considerably, making it cheaper to produce these cars.

The change in the equilibrium price is indeterminate, and the equilibrium quantity increases.
The equilibrium price increases, and the change in the equilibrium quantity is indeterminate.
The equilibrium price decreases, and the change in the equilibrium quantity is indeterminate.
The equilibrium price increases, and the equilibrium quantity decreases.

Question 9 of 10

9. Question

10 points

Consumer surplus is __________________; if both demand and supply increase (the curves shift to the right), then consumer surplus _______________.

what consumers are willing to pay for the product minus what they are actually paying at the market price; increases.
what consumers are willing to pay for the product minus what they are actually paying at the market price; decreases.
the additional money consumers have left over from their incomes after they spend their money on their daily expenses; increases.
the additional money consumers have left over from their incomes after they spend their money on their daily expenses; decreases.

Question 10 of 10

10. Question

10 points

Prices of ____________ products or services are not likely to be much above the __________ in the long run. The reason for this is that if prices of these products in the short run are well above the _________, then profits for these manufacturers are high. High profits then attract competitors into this market and this would lead to an increase in supply and lower prices in the long run.

manufactured; cost of production; cost of production
scarce; equilibrium; equilibrium
factors of production; free market price; free market price
inferior; minimum wage level; minimum wage level

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Unit 2