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1 Name: Class: _ Date: _ ID: A mid term u-2 SAMPLE TEST QUESTIONS Multiple Choice CH.4 Identify the choice that best completes the statement or answers the question. 1. Which is an example of the law of demand at work? a. The price of pizza goes up when the price of cheese goes up. b. Demand for pizza goes down when tacos become more popular. c. The price of pizza falls when demand for pizza falls. d. Demand for pizza rises when the price of pizza falls.. 2. If prices rise but income stays the same, what is the effect on the quantity demanded? a. Quantity demanded increases. c. More goods are bought. b. Fewer goods are bought. d. Demand stays the same. 3. What can cause an entire demand curve to shift? a. a decrease in price c. uncertainty about the future price b. an increase in price d. a change in demographics 4. How can expectations about the future change what consumers buy now? a. Demand for a good will drop if the price is expected to stay the same. b. Demand for a good will rise if the good is expected to be plentiful. c. Demand for a good will go up if its price is expected to rise. d. Demand for a good is not related to future expectations. 5. John gets a raise and decides to start buying enriched pasta instead of cheaper instant noodles. For John, instant noodles are examples of a. inelasticity. c. market demand. b. complements. d. inferior goods. 6. When there is a decrease in the quantity demanded, and price is the only factor affecting demand, what type of movement will the demand curve show? a. a shift to the left c. along the curve to a higher quantity demanded b. along the curve to a higher price d. a shift to the right 7. The price of cranberry juice suddenly increases. As a result, Glenda begins drinking more grape juice, which is less expensive, but tastes just as good to her. In this case, Glenda s elastic demand is due to a. availability of substitutes. c. necessities versus luxuries. b. relative importance. d. change over time. 8. How does a person s perception of a good as a necessity or a luxury affect his or her purchase of it? a. If a good is perceived as a luxury, demand becomes elastic. b. People who have a lot of money will buy goods even if they think they are a luxury. c. A good that is perceived as expensive will no longer be considered a necessity. d. A good that is perceived as a necessity will be purchased even if the price rises. 9. Which of the following products has inelastic demand? a. a particular soft drink b. candy bars c. steak d. medicine 1

2 Name: ID: A 10. CH.5 Q S How is profit determined? a. total revenue plus total cost b. marginal revenue minus marginal cost c. total revenue minus total cost d. marginal revenue plus marginal cost 11. What effect do rising input costs have on the price of a good? a. The good becomes dependent on government regulation. b. The good becomes cheaper to produce. c. The good becomes more expensive to produce. d. It has no effect on the cost of the good. 12. When the price of a product goes down, what happens to producers? a. Existing producers expand. b. Some produce less, and others leave the market. c. Existing firms continue their usual output. d. New firms enter the market. 13. Ultimately, the main factor that drives decisions about production is the a. availability of natural resources. b. government regulations and rules. c. public need for better goods. d. desire to maximize profits. 14. Which of these events would indicate a movement along a supply curve for batteries? a. A new law requires battery manufacturers to spend more money on environmentally safe batteries. b. Workers at a major battery factory go on strike and stop production. c. Battery manufacturers raise the price of a package of AA batteries from $3.50 to $3.95. d. A new trade agreement enables stores to import foreign batteries. 15. A sudden increase in fuel costs sparks a rise in both prices and demand for fuel-efficient cars. Yet it takes months for car companies to manufacture more cars. In this case, the supply for cars is a. inelastic. b. elastic. c. static. d. inferior. 16. A sports equipment company increases its production of volleyballs. It costs the company $4.00 to make 10 volleyballs and $4.10 to make 11 volleyballs. This 10 cent difference is an example of a. fixed cost. b. variable cost. c. marginal cost. d. total cost. 2

3 Name: ID: A 17. You have been asked to write a newspaper story for the financial section about how the restaurants in your city are doing. Based on the graph, which of the following headlines will you use? a. Wholesale Prices Stay Steady b. Restaurants Hit by Rising Costs c. High-End Restaurants Suffer d. Government Lifts Meal Tax 18. You are writing a story about local restaurants. Suppose Graph A shows the market supply curve from one year ago, and Graph B shows the same information today. Based on the graphs, which headline makes the most sense? a. Wholesale Prices Stay Steady b. Restaurants Hit by Rising Costs c. High-End Restaurants Suffer d. Government Lifts Meal Tax 19. Which of the following factors is likely to have had the greatest impact on the change in supply shown in the graph? a. lifting of import bans b. new technology for freezing food c. government farm subsidies d. high global demand for fuel 20. Ruth runs a bakery whose supply is highly elastic. When the price of baked goods falls, Ruth will a. close the bakery and open a store that sells perfume. b. try to find a way to increase prices again. c. make up the lost revenue by cutting production costs. d. increase production to balance the loss of profit. 3

4 Name: ID: A 21. CH.6 Q S Which of the following are ways the government controls markets? a. price ceilings and price floors c. shortages and surpluses b. equilibrium price and equilibrium point d. subsidies and disequilibrium 22. When is a market at equilibrium? a. when quantity demanded equals quantity supplied c. when prices equal the cost of production b. when unsold goods begin to pile up d. when suppliers begin to reduce prices 23. What happens to the equilibrium price when supply goes down? a. The price goes up. c. The price stays the same. b. The price goes down. d. The price goes up, and then goes down. 24. Which of the following events could cause a good s supply curve to shift to the right? a. new technology to produce the good c. higher taxes on the good b. raw materials shortage d. a minimum wage increase 25. In general, what happens to the price of a good or service when a shortage of that good or service occurs? a. It remains unchanged while quantity demanded drops. b. It increases until quantity demanded equals quantity supplied. c. A price ceiling is imposed, lowering the price to meet the demaind. d. It decreases until quantity demanded equals quantity supplied. 26. Why does a government place price ceilings, such as rent control, on some essential goods? a. to prevent inflation during boom times b. to keep business people from making large profits c. to keep the goods from becoming too expensive d. to reduce demand for these goods 27. What does a company generally do when demand for its goods goes up? a. It rations goods. c. It cuts prices. b. It raises prices. d. There is no set response. 28. How do price changes drive markets toward equilibrium? a. They set new price floors and ceilings. b. They increase or decrease supply or demand. c. They ensurethat prices are fair. d. They prevent inflation or deflation. 29. Which of the following is the best illustration of equilibrium? a. All the stores in a city that stock a certain model of plasma screen television are selling it for the same price of $899. b. The number of plasma screen televisions a store has for sale at $899 is the same as the number of its customers willing to buy one at that price. c. Some customers believe that $899 is too much to pay for a plasma screen television and decide to buy a lower-cost television instead. d. One store that sells plasma screen televisions for $999 lowers its price to $899 to match the price that other stores are charging. 4

5 mid term u-2 Answer Section SAMPLE TEST QUESTIONS MULTIPLE CHOICE 1. ANS: D The law of demand deals strictly with the effect of price on demand, and indicates that demand will rise as prices fall. PTS: 3 DIF: L3 REF: A.85 OBJ: Explain the law of demand. KEY: Demand Law of Demand 2. ANS: B If prices rise and income stays the same, people have less money for the same goods, and so they must buy fewer goods. PTS: 3 DIF: L2 REF: B.80 OBJ: Describe how the substitution effect and the income effect influence decisions. TOP: Demand Income Effect 3. ANS: D The effects of changes in price are built into demand curves, so only changes in areas other than price cause a change or shift in the curve itself. PTS: 3 DIF: L3 REF: A.94 A.95 OBJ: Identify the factors that create changes in demand and that can cause a shift in the demand curve. TOP: Demand Shifts in Demand Curve 4. ANS: C If a good s price is expected to go up, people will buy more of it now before the price increases. PTS: 3 DIF: L2 REF: B.84 OBJ: Identify the factors that create changes in demand and that can cause a shift in the demand curve. TOP: Demand Consumer Expectations 5. ANS: D Inferior goods are goods that you would buy in smaller quantities, or not at all, if your income were to rise and you could afford something better. PTS: 3 DIF: L3 REF: A.94 OBJ: Identify the factors that create changes in demand and that can cause a shift in the demand curve. TOP: Demand Inferior Goods 6. ANS: B When price is the only factor, movement will be along the demand curve. In this case, the movement would be to the upper left, to a higher price and a lower quantity demanded. PTS: 3 DIF: L3 REF: A.91 A.92 OBJ: Explain how to calculate elasticity of demand. TOP: Demand Change in Demand 1

6 7. ANS: A The availability of substitutes can make demand for a product elastic. PTS: 3 DIF: L3 REF: A.99 OBJ: Identify factors that affect elasticity. TOP: Demand Elasticity of Demand 8. ANS: D People buy the same amount of necessities even when prices rise, but they buy fewer luxuries. PTS: 3 DIF: L3 REF: A.101 OBJ: Identify factors that affect elasticity. TOP: Demand Necessity vs. Luxury and Elasticity 9. ANS: D People buy the same amount of necessities such as medicine even when prices rise, but they buy fewer luxuries. PTS: 3 DIF: L2 REF: B.88 OBJ: Identify factors that affect elasticity. TOP: Demand Inelastic Demand 10. ANS: C Profit is the money left over after all the costs of production have been paid, so it is total revenue minus total cost. PTS: 3 DIF: L2 REF: B.110 OBJ: Explain how a firm chooses to set output. TOP: Supply Profit 11. ANS: C An increase in input costs makes producing a good more expensive. Both machinery and raw materials are inputs. PTS: 3 DIF: L3 REF: A.123 OBJ: Explain how factors such as input costs create changes in supply. STA: 2.C TOP: Supply Input Costs 12. ANS: B Suppliers adjust to falling prices by producing less or dropping out of the market. PTS: 3 DIF: L2 REF: B.99 OBJ: Explain the law of supply. NAT: STA: 2.C TOP: Supply Law of Supply 13. ANS: D The search for profits drives a supplier s decisions about production. PTS: 3 DIF: L3 REF: A.111 OBJ: Explain the law of supply. NAT: STA: 2.C TOP: Supply Profits 14. ANS: C A supply curve shows changes in the quantity supplied at various prices. PTS: 3 DIF: L3 REF: A.113 OBJ: Interpret a supply schedule and a supply graph. NAT: STA: 2.C TOP: Supply Supply Curve 2

7 15. ANS: A When a firm cannot easily change its output level, supply is inelastic regardless of price. PTS: 3 DIF: L3 REF: A.114 OBJ: Examine the relationship between elasticity of supply and time. STA: 2.C TOP: Supply Elasticity of Supply 16. ANS: C Marginal cost is the additional cost of producing one more unit. PTS: 3 DIF: L3 REF: A.119 OBJ: Explain how a firm chooses to set output. TOP: Supply Marginal Cost 17. ANS: B Between 2007 and 2008, supply has decreased at all price levels, so it is likely that input costs for all types of restaurants have increased. PTS: 5 DIF: L4 REF: A.125 OBJ: Explain how factors such as input costs create changes in supply. STA: 2.C TOP: Supply Change in Supply 18. ANS: B Between last year and this year, supply has decreased at all price levels, so it is likely that input costs that affect all types of restaurants have increased. PTS: 3 DIF: L2 REF: B.112 OBJ: Explain how factors such as input costs create changes in supply. STA: 2.C TOP: Supply Change in Supply 19. ANS: D High demand for fuel would drive prices up, and restaurants would have to pay more to have ingredients shipped to them. PTS: 3 DIF: L3 REF: A.125 OBJ: Explain how factors such as input costs create changes in supply. STA: 2.C KEY: Supply Change in Supply 20. ANS: C Businesses that are highly elastic can make up for lower prices by cutting other costs, such as decreasing production or laying off workers. PTS: 3 DIF: L3 REF: A.115 OBJ: Examine the relationship between elasticity of supply and time. STA: 2.C TOP: Supply Elasticity of Supply 21. ANS: A The government sets price ceilings such as rent control and price floors such as minimum wage. PTS: 3 DIF: L2 REF: B.126 OBJ: Identify two ways that the government intervenes in markets to control prices. TOP: Prices Price Ceilings and Floors 3

8 22. ANS: A The equilibrium point occurs at the intersection of the supply and demand curves. PTS: 3 DIF: L3 REF: A.141 OBJ: Explain why a free market naturally tends to move toward equilibrium. TOP: Prices Equilibrium 23. ANS: A When supply decreases, the equilibrium price goes up. PTS: 3 DIF: L2 REF: B.131 OBJ: Explain why a free market naturally tends to move toward equilibrium. TOP: Prices Equilibrium 24. ANS: A Only an event that would lower the price of the good would cause the supply curve to shift to the right. PTS: 3 DIF: L2 REF: B.131 OBJ: Analyze how a market reacts to an increase or decrease in supply. TOP: Prices Changes in Supply 25. ANS: B In general, the price will increase to the equilibrium point. PTS: 3 DIF: L3 REF: A.134 OBJ: Describe what happens to prices when equilibrium is disturbed. TOP: Prices Shortage 26. ANS: C Price ceilings are an attempt by the government to make essential goods affordable for all consumers. PTS: 3 DIF: L3 REF: A.137 OBJ: Analyze the impact of price ceilings and price floors on a free market. TOP: Prices Price Ceiling 27. ANS: B If demand is higher, a company will generally raise prices to increase profits. PTS: 3 DIF: L2 REF: B.134 OBJ: Analyze how a market reacts to an increase or decrease in demand. TOP: Prices Increased Demand 28. ANS: B Price changes can move markets from disequilibrium toward equilibrium: they are easily increased to solve a problem of shortage, or decreased to solve a problem of surplus. PTS: 3 DIF: L3 REF: A.148 OBJ: Explain how a price-based system leads to a wider choice of goods and more efficient allocation of resources. TOP: Prices Equilibrium 4

9 29. ANS: B The number of plasma screen televisions the store has to sell equals the number of plasma screen televisions their customers want to purchase. PTS: 5 DIF: L4 REF: A.134 OBJ: Explain how supply and demand create equilibrium in the marketplace. TOP: Prices Equilibrium 5

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