McBride ECON Formative Quiz 4.1 and 4.2

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1 Name: Class: _ Date: _ ID: A McBride ECON Formative Quiz 4.1 and 4.2 Multiple Choice 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. Why does an economist create a market demand schedule? a. to learn what demands the market will make under unusual conditions b. to have an idea of how a market would change if conditions in an area changed c. to predict how all people will change their buying habits when prices change d. to show how various conditions can change an individual s demand for a good 3. What does it mean when you have demand for a good or service? a. You can afford the good but may be unwilling to buy it. b. You want the good but may not have the money for it. c. You are able to buy the good but not at the given price. d. You are willing and able to buy the good at the given price. 4. 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. 5. What happens when the price of Item A increases? a. Item A becomes more popular. b. The substitutes for Item A also increase in price. c. Consumers buy the cheaper Item B as a substitute for Item A. d. Consumers buy Item A even if they do not particularly want it. 6. How can the demand for one good be affected by increased demand for another one? a. When goods are bought together, increased demand for one will increase demand for the other. b. If goods are used together, increased demand for one will increase demand for the other. c. If goods are substitutes, increased demand for one will increase demand for the other. d. A drop in the price for a good will increase demand for it and its substitute. 7. 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. 8. How does an increase in population affect the demand curve? a. A point on the curve moves down. c. The entire curve shifts to the left. b. A point on the curve moves up. d. The entire curve shifts to the right. 1

2 Name: ID: A 9. Economists say that a demand curve is accurate only as long as the ceteris paribus assumption is true. This means that a. goods are used in place of one another. b. all things other than price hold constant. c. consumer desire for goods remains elastic. d. anticipated supply can keep up with prices. 10. How many fewer shirts are sold at the new demand level for any given price? a. 200 c. 400 b. 300 d The substitution effect and the income effect describe a. how income changes when buyers change jobs. b. choices that producers make to improve goods. c. factors that influence consumer buying choices. d. market changes that affect production of goods. 2

3 Name: ID: A 12. Which series of numbers should be entered into the second column of the demand schedule, from top to bottom? a. $1.50 to $.25 c. 50 to 0 b. 0 to 50 d. $.75 to $ Which series of numbers from the demand curve above should be entered into the second column of the demand schedule above, from top to bottom? a. $1.50 to $.25 c. 50 to 0 b. 0 to 50 d. $.75 to $ What does the demand curve tell you about how consumer behavior changes if Beth s Bagels raises the price from $.25 to $1.50? a. Demand shifts to the right. c. Quantity demanded increases. b. Demand shifts to the left. d. Quantity demanded decreases. 15. What stays the same when you change an individual demand schedule into a market demand schedule for the same product? a. price of the product c. number of consumers b. demand curve d. quantity demanded 16. Because her rent went up, Isa must spend less on other items. Which of the following types of goods will Isa consume less of? a. substitutes c. inferior goods b. normal goods d. complements 3

4 Name: ID: A Matching A. Key Terms and Concepts Directions: Match each term with the correct phrase below. a. demand h. ceteris paribus b. law of demand i. normal good c. substitution effect j. inferior good d. income effect k. demographics e. demand schedule l. complements f. market demand schedule m. substitutes g. demand curve 1. table that lists the quantity of a good all consumers will buy at various prices in a market 2. consuming less of a good and more of another as a reaction to a price increase 3. concept that consumers will buy more of a good when its price is lower and less when its price is higher 4. change in consumption that results when a price increase causes real income to decline 5. good that consumers demand less of when their incomes increase 6. good that consumers demand more of when their incomes increase 7. desire to own something and the ability to pay for it 8. two goods that are bought and used together 9. graphic representation of a demand schedule 10. table that lists the quantity of a good a person will buy at various prices in a market 4

5 ID: A McBride ECON Formative Quiz 4.1 and 4.2 Answer Section 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: C A market demand schedule shows the quantity demanded by all consumers in the market at different prices. PTS: 3 DIF: L2 REF: B.80 OBJ: Create a demand schedule for an individual and a market. TOP: Demand Market Demand Schedule 3. ANS: D When a consumer has demand for a good or service, he or she wants to buy the good or service and is able to pay for it. PTS: 3 DIF: L2 REF: B.78 OBJ: Explain the law of demand. KEY: Demand Demand 4. 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 5. ANS: C The substitution effect describes how consumers respond to price changes by substituting less expensive items for more expensive items. PTS: 3 DIF: L2 REF: B.79 OBJ: Describe how the substitution effect and the income effect influence decisions. TOP: Demand Substitution Effect 6. ANS: B Goods used together are bought together, so demand for one increases demand for the other. PTS: 3 DIF: L3 REF: A.96 OBJ: Give an example of how a change in demand for one good can affect demand for a related good. TOP: Demand Price of Related Goods 1

6 ID: A 7. 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 curve. TOP: Demand Consumer Expectations 8. ANS: D An increase in the population means that more goods and services are being bought at every price, so the entire curve shifts to the right. PTS: 3 DIF: L2 REF: B.84 curve. TOP: Demand Population Increase 9. ANS: B A demand curve is accurate only as long as there are no changes other than the price that could affect consumer s decisions. Ceteris paribus means all other things held constant. PTS: 3 DIF: L3 REF: A.91 OBJ: Explain the difference between a change in quantity demanded and a shift in the demand curve. TOP: Demand Ceteris Paribus 10. ANS: A The quantity drops by two hundred at each price level. PTS: 3 DIF: L3 REF: A.92 OBJ: Identify factors that affect elasticity. TOP: Demand Demand Curve Shift 11. ANS: C The substitution effect and income effect describe factors that influence consumer s decisions about what goods to buy. PTS: 3 DIF: L3 REF: A.87 curve. TOP: Demand Substitution Effect 12. ANS: C The prices are listed from lowest to highest in the demand schedule. Because demand is highest at the lowest price, 50 bagels would be at the top of the list and 0 at the bottom. PTS: 3 DIF: L3 REF: A.89 OBJ: Interpret a demand graph using demand schedules. TOP: Demand Demand Schedule 13. ANS: C The prices are listed from lowest to highest in the demand schedule. Because demand is highest at the lowest price, 50 bagels would be at the top of the list and 0 at the bottom. PTS: 3 DIF: L2 REF: B.80 B.81 OBJ: Interpret a demand graph using demand schedules. TOP: Demand Demand Schedule 2

7 ID: A 14. ANS: D The demand curve shows changes in the quantity demanded, with price as the only factor. Higher prices decrease demand. PTS: 3 DIF: L3 REF: A.89 OBJ: Explain the difference between a change in quantity demanded and a shift in the demand curve. TOP: Demand Change in Demand 15. ANS: A The two schedules will use the same set of prices, but the quantity demanded and the number of consumers will be larger for the market demand schedule. PTS: 3 DIF: L2 REF: B.80 curve. TOP: Demand Market Demand Schedule 16. ANS: B Demand for normal goods goes down when income decreases. PTS: 3 DIF: L2 REF: B.83 curve. TOP: Demand Normal Goods MATCHING 1. ANS: F PTS: 2 DIF: L3 REF: A.103 OBJ: Explain how firms use elasticity and revenue to make decisions. TOP: Demand Revenue 2. ANS: C PTS: 2 DIF: L3 REF: A.87 OBJ: Describe how the substitution effect and the income effect influence decisions. TOP: Demand Substitution Effect 3. ANS: B PTS: 2 DIF: L3 REF: A.85 OBJ: Explain the law of demand. TOP: Demand Law of Demand 4. ANS: D PTS: 2 DIF: L3 REF: A.87 OBJ: Describe how the substitution effect and the income effect influence decisions. TOP: Demand Income Effect 5. ANS: J PTS: 2 DIF: L3 REF: A.94 curve. TOP: Demand Inferior Good 6. ANS: I PTS: 2 DIF: L3 REF: A.92 curve. TOP: Demand Normal Good 7. ANS: A PTS: 2 DIF: L3 REF: A.85 OBJ: Explain the law of demand. TOP: Demand Concept of Demand 8. ANS: L PTS: 2 DIF: L3 REF: A.96 OBJ: Give an example of how a change in demand for one good can affect demand for a related good. TOP: Demand Complements 9. ANS: G PTS: 2 DIF: L3 REF: A.97 OBJ: Explain how to calculate elasticity of demand. TOP: Demand Elasticity 3

8 ID: A 10. ANS: E PTS: 2 DIF: L3 REF: A.97 OBJ: Explain how to calculate elasticity of demand. TOP: Demand Elasticity of Demand 4