Mini Test Review 2 (lessons 3 and 4)

Supply and Demand Basics

100

What happens to quantity demanded when price increases, holding all else constant?

Quantity demanded decreases

200

Is this a movement along the curve or a shift?
“Price of the good increases, quantity demanded falls.”

Movement along the demand curve

300

If demand increases and supply stays the same, what happens to equilibrium price and quantity?

Price increases, quantity increases

400

What market condition describes a situation where quantity supplied exceeds quantity demanded?

Surplus

500

Name two factors that can cause a shift in the supply curve.

Input prices, technology, number of firms, expected future prices

Shifts and Equilibrium

100

If the price of a substitute increases, what happens to demand for the good?

Demand increases

200

A drought increases the cost of wheat production. Which curve shifts and in what direction?

Supply shifts left

300

Demand increases and supply decreases. What can we say for sure about equilibrium?

Price increases, quantity is ambiguous

400

A binding price ceiling causes:

A shortage

500

True or False: A price floor set below equilibrium will affect the market outcome.

False

Elasticity Math

100

If price increases by 10% and quantity demanded falls by 5%, demand is:

Inelastic

200

Calculate elasticity:
Price ↑ 20%, Quantity ↓ 40%

Elasticity = 2 (elastic)

300

If price elasticity of demand is –0.5, consumers are:

Not very responsive to price changes

400

Price elasticity of demand is –2.
If price rises by 5%, quantity demanded will:

Decrease by 10%

500

At what point on a linear demand curve is total revenue maximized?

Where demand is unit elastic

Cross-Price and Income Elasticity

100

If cross-price elasticity is positive, the goods are:

Substitutes

200

If income elasticity is negative, the good is:

Inferior

300

The price of coffee rises and demand for tea increases. Coffee and tea are:

Substitutes

400

Income increases by 10%. Quantity demanded increases by 20%.
What is income elasticity?

2 (luxury good)

500

Cross-price elasticity between two goods is –1.5.
What does this imply about the relationship between the goods?

They are strong complements

Equilibrium Math

100

Demand: Q_D = 50 - P
Supply: Q_s = 10 + P
What is the equilibrium price?

P = 20

200

Demand: Q_D = 50 - P
Supply: Q_s = 10 + P
What is the equilibrium quantity?

Q = 30

300

Demand: Q_D = 120 - 2P
Supply: Q_S = 20 + 4P
Find the equilibrium price.

P = 10

400

Demand: Q_D = 120 - 2P
Supply: Q_S = 20 + 4P
Find the equilibrium quantity.

Q = 100

500

Demand: Q_D = 90 - 3P
Supply: Q_S = 15 + P
A price ceiling of $10 is imposed.
Is there a surplus or shortage, and by how many units?

Shortage of 20 units