Matching: Match each item in Column A with the items in Column B. Write the correct letters in the blanks.

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1 4, A EMAN SCORE USING KEY TERMS Matching: Match each item in Column A with the items in Column B. Write the correct letters in the blanks. A B 1. demand 2. marginal utility 3. demand schedule 4. elasticity 5. substitutes 6. elastic 7. microeconomics 8. unit elastic 9. change in quantity demanded 10. substitution effect a. measure of responsiveness that shows how a dependent variable responds to a change in an independent variable b. field of economics that deals with behavior and decision making by small units c. describes change in demand when a change in price causes a relatively larger change in quantity demanded d. extra usefulness gained from using one more unit of a product e. movement along the demand curve f. desire, ability, and willingness to buy a product g. products used in place of other products h. change in quantity demanded due to a change in relative price i. listing that shows quantities demanded of a product at all prices j. given change in price that causes a proportional change in quantity demanded RECALLING FACTS AN IEAS Multiple Choice: In the blank at the left, write the letter of the choice that best completes the statement or answers the question. 11. For most products and services, increased price results in a. demand for fewer products. b. demand for more products. c. reduced demand for substitutes. d. increased demand for complements. 12. An increase in the price of milk causes a decrease in the demand for cereal. The two products are a. substitutes. b. complements. c. unrelated. d. demand elastic. 13. Advertising, fashion trends, and new product introductions serve to a. create consumer needs. b. increase income effectiveness. c. create consumer demand. d. minimize the income effect. 14. Because a modest price increase has little or no effect, the demand for the product is a. complementary. b. inelastic. c. elastic. d. unit elastic. Chapter and Unit Tests 29

2 4, A 15. A business doubled the price of a product in order to increase profits. Which of the following scenarios might have occurred? a. A sharp increase in revenues demonstrated the elasticity of the product. b. A small increase in revenues demonstrated the unit elasticity of the product. c. A dramatic decline in revenues demonstrated the elasticity of the product. d. A dramatic decline in revenues demonstrated the inelasticity of the product. CRITICAL THINKING QUESTIONS irections: Answer each of the following sets of questions on a separate sheet of paper. 16. Understanding Cause and Effect Explain how an understanding of elasticity can help business owners determine the most profitable prices to set for their products. 17. Synthesizing Information Explain the income effect and how it is related to the Law of emand. APPLYING SKILLS Using Graphs: Study the graph and answer the questions below. $5.00 emand Curve for Widgets $4.00 Price per Widget $3.00 $2.00 $ Widgets in Thousands 18. How many widgets were in demand when the price was $4.50? 19. If the demand for widgets at $4.50 was met, what would be the resulting total revenue? 20. oes this graph demonstrate the Law of emand? Explain. 30 Chapter and Unit Tests

3 4, A GRAPHICS AN OCUMENT-BASE QUESTIONS irections: In the blank to the left, write the letter of the choice that best completes the statement or answers the question. $ 20 emand Curve for Movie Videos $ 18 $ 16 Price $ 14 $ 12 $ Quantity emanded 21. According to this demand curve, how many movie videos will be demanded at a price of $10? a. 400 b. 600 c. 800 d Price per Unit of Product X $500 $400 $300 $200 $ ,000 2,000 3,000 4,000 5,000 Quantity of Product X emanded Chapter and Unit Tests 31

4 4, A 22. Which of the following events could cause the movement shown in the graph? a. a decrease in income b. an increase in population c. a decrease in the price of a substitute d. an increase in the price of a complement Myles Monaghan could almost be the next Alex Rodriguez. He s got a cannon for an arm. He almost never drops the ball....so how come he spent his last few springs playing lacrosse? BASEBALL IS BORING, says the 12-year-old Larchmont, N.Y., jock. Nationwide, the average number of children playing America s once-favorite pastime has tumbled nearly 20% according to the Sporting Goods Manufacturers Association. Sales of everything from balls to baseball cards are falling. Source: MSNBC News (online), June 15, Based on the passage and what you know about demand, why are sales of baseball cards dropping? a. Baseball cards are a substitute for the b. The price of baseball cards is rising. sport of baseball. c. Baseball cards are a complement of the d. The price of baseball cards is falling. sport of baseball. irections: Answer each of the following questions on a separate sheet of paper. America s biggest export is... its pop culture movies, TV programs, music, books and computer software...the Mconald s restaurants that are opening at a rate of six a day around the world, the baggy jeans and baseball caps that have become a global teenage uniform, the Barbie dolls and Hot Wheels increasingly demanded by children, are all seen as part of the same U.S. invasion. Source: The Washington Post, November 30, Think about the passage. When Barbie dolls first started to become wildly popular overseas, how did this new-found popularity likely affect the demand curve for Barbie dolls? Quantity emanded Old emand New emand Price Curve Curve $ $ $ $ $ $ In the table, does the movement in the demand curve from the old to the new represent a change in demand or a change in quantity demanded? Explain. 32 Chapter and Unit Tests

5 4, B EMAN SCORE USING KEY TERMS Matching: Match each item in Column A with the items in Column B. Write the correct letters in the blanks. A B 1. demand curve 2. change in demand 3. Law of emand 4. complements 5. market demand curve 6. demand elasticity 7. microeconomics 8. inelastic 9. diminishing marginal utility 10. income effect a. illustrates the demand of everyone interested in purchasing a product b. quantity demanded of a product varies inversely with its price c. study of the economic behavior of individuals and firms d. extent to which a change in price causes a change in demand e. decline in extra satisfaction from using additional quantities of a product f. change in quantity demanded because a price change altered consumers real income g. products where the use of one product increases the use of another h. willingness to buy more or less of a product at the same price i. graph showing the quantity demanded at every price j. describes a given change in price that causes a relatively smaller change in quantity demanded RECALLING FACTS AN IEAS Multiple Choice: In the blank at the left, write the letter of the choice that best completes the statement or answers the question. 11. A demand schedule shows a. an upward-sloping curve that illustrates the positive relationship between price and quantity demanded. b. a listing of the various quantities demanded of a particular product at all prices that might prevail in the market. c. the fluctuations in demand that occurred over a specified period of time. d. the fluctuations in demand scheduled to occur over the following year. 12. Consumers willingness to replace a costly item with a less costly item is an example of a. the substitution effect. b. the income effect. c. demand elasticity. d. complements. 13. An increase in the price of cameras results in a decrease in the demand for film. The two products are a. substitutes. b. demand elastic. c. unrelated. d. complements. 14. When a customer s need for a product is not urgent, demand tends to be a. inelastic. b. elastic. c. complementary. d. unit elastic. Chapter and Unit Tests 33

6 4, B 15. When a manufacturer of pain medication reduced the price of the medication by 30%, profits declined by almost exactly 30%. emand for the product is a. inelastic. b. elastic. c. unit elastic. d. complementary. CRITICAL THINKING QUESTIONS irections: Answer each of the following sets of questions on a separate sheet of paper. 16. Synthesizing Information Explain how changes in consumer tastes and consumer incomes affect demand. 17. Analyzing Information Choose a consumer item you use or with which you are familiar. List its complements and substitutes, providing an explanation for each item that you list. At current prices, what do you think the elasticity of demand is for the item? Explain your answer. APPLYING SKILLS Using Graphs: Study the graph and answer the questions below. $5.00 emand Curve for Widgets $4.00 Price per Widget $3.00 $2.00 $ Widgets in Thousands 18. How many widgets were in demand when the price was $1.50? 19. If the demand for widgets at $1.50 were met, what would be the resulting total revenue? 20. What would be the quantity demanded if the price were then lowered from $1.50 to $1? Is demand elastic, unit elastic, or inelastic between these two prices? Explain. 34 Chapter and Unit Tests

7 4, B GRAPHICS AN OCUMENT-BASE QUESTIONS irections: In the blank to the left, write the letter of the choice that best completes the statement or answers the question. $ 20 emand Curve for Movie Videos $ 18 $ 16 Price $ 14 $ 12 $ Quantity emanded 21. According to this demand curve, if the price of movie videos increases from $14 to $16, the quantity demanded will a. fall from 600 to 400. b. rise from 400 to 600. c. fall from 400 to 200. d. rise from 200 to 400. Price per Unit of Product X $500 $400 $300 $200 $ ,000 2,000 3,000 4,000 5,000 Quantity of Product X emanded Chapter and Unit Tests 35

8 4, B 22. The movement shown in this graph represents a change in what? a. quantity demanded b. marginal utility c. demand d. demand elasticity Rice is what you ll probably end up with these days if your local Mconald s is in Indonesia. With the collapse of the Indonesian currency, the rupiah, in 1998, potatoes... have quintupled in price. That means rice is turning up with increasing frequency as an alternative to the french fry...it s not hard to fathom why fries are an endangered menu item, says Jack Greenberg, CEO of Mconald s: No one can afford them. Source: Reprinted from ecember 14, 1998 issue of Business Week, by special permission, copyright 1998 by The McGraw-Hill Companies, Inc. 23. Based on this passage, Mconald s is serving rice in its Indonesian restaurants because of a. a decrease in the price of a complement. b. an increase in the price of a complement. c. a decrease in price of a substitute. d. an increase in the price of a substitute. irections: Answer each of the following questions on a separate sheet of paper. The number of housing starts shows the demand for new homes. Economists forecast housing starts by using the current month s permits as a predictor. Building permits tend to move in tandem with starts on a month-to-month basis. They are also considered to be a leading indicator of the economy in general. Increases in building permits and starts are common during periods following a drop in mortgage rates. Source: Standard & Poor s. 24. According to the passage, when economists want to examine the demand for new homes, what do they use as a predictor? $70 Market emand for Concert Tickets 60 Price Quantity (thousands) 25. Summarize what Point a on the graph represents. a b 36 Chapter and Unit Tests

Demand - the desire, ability, and willingness to buy a product.

Demand - the desire, ability, and willingness to buy a product. 1. You must have the desire for the product 2. You must be able to make a purchase 3. You must be willing to make a purchase 4. Purchases