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Economics Ch 7

True/False
Indicate whether the sentence or statement is true or false.
 

1. 

Price and quantity supplied move in the same direction.
 

2. 

Lower prices attract more producers.
 

3. 

As more firms enter an industry, the quantity of products supplied increases.
 

4. 

An increase in taxes would shift the supply curve to the left.
 

5. 

Each additional worker hired increases total output at the same rate.
 

6. 

As the price of a good goes up, the quantity demanded falls and the quantity supplied rises.
 

7. 

Falling prices signal consumers to buy less.
 

8. 

A change in the equilibrium price results from a shift in the supply or demand curves.
 

9. 

A price ceiling prevents prices from falling too low.
 

10. 

A black market deals in goods that are in short supply.
 

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

11. 

In economic terms, the marketplace
a.
exists only at the local level throughout.
b.
is a place where people buy food.
c.
exists only at the national level.
d.
operates through voluntary exchange.
 

12. 

Which statement reflects the inverse relationship between quantity demanded and price?
a.
As the price goes up, quantity demanded goes up.
b.
As the price goes down, quantity demanded goes up.
c.
As the supply goes up, the price goes up.
d.
As the supply goes up, the demand goes up.
 

13. 

Which economic rule states that the additional satisfaction people get from consuming one more unit of a product will lessen with each additional unit they consume?
a.
real income effect
c.
law of demand
b.
law of diminishing marginal utility
d.
substitution effect
 

14. 

According to the substitution effect, if two items satisfy the same need and the price of one rises,
a.
people will buy the higher priced item.
b.
people will buy the lower priced item.
c.
the demand will go up.
d.
people will buy something else.
 

15. 

The amount of goods and services people can actually buy with their money is their
a.
voluntary exchange.
c.
utility.
b.
purchasing power.
d.
substitution effect.
 

16. 

How does an increase in consumer population affect the demand for most products?
a.
demand decreases
c.
demand increases
b.
prices go down
d.
prices go up
 

17. 

A shift to the left in the demand curve indicates
a.
decrease in price.
c.
increase in population.
b.
decrease in demand.
d.
increase in demand.
 

18. 

When a product becomes a fad, the demand curve for that product
a.
slopes upward.
c.
shifts to the right.
b.
becomes a straight line.
d.
shifts to the left.
 

19. 

Which of the following goods has inelastic demand?
a.
sugar
c.
Diet Coke
b.
a particular brand of coffee
d.
T-bone steak
 

20. 

If two products are complementary goods, how will a decrease in the price of one affect the other?
a.
Demand will increase.
c.
Demand will decrease.
b.
Price will increase.
d.
Price will decrease.
 

21. 

According to the law of supply, as the price rises for a good,
a.
quantity supplied decreases.
c.
quantity supplied increases.
b.
consumers stop buying it.
d.
manufacturers stop producing it.
 

22. 

Prices on goods and services are determined
a.
only by demand.
c.
both by demand and supply.
b.
only by supply.
d.
neither by demand nor supply.
 

23. 

The relationship between price and quantity supplied is
a.
a direct one.
c.
an inverse one.
b.
an indirect one.
d.
nonexistent.
 

24. 

The law of diminishing returns results in
a.
lower costs for expanding production.
b.
additional workers increasing the total output of goods.
c.
higher costs for decreasing production.
d.
higher costs for increasing production.
 

25. 

The use of technology to produce and distribute goods will
a.
not affect supply.
c.
decrease supply.
b.
increase supply.
d.
move the supply curve to the left.
 

26. 

When quantity supplied and quantity demanded increase due to improved technology,
a.
manufacturers will stop making the product.
b.
prices will increase.
c.
consumers will stop buying the product.
d.
prices will decrease.
 

27. 

A decrease in the demand for a good together with an increase in supply would cause
a.
shortage of the good.
c.
increase in production.
b.
surplus of the good.
d.
equilibrium price.
 

28. 

When a market economy operates without restriction, it
a.
creates shortages.
c.
raises prices.
b.
creates surpluses.
d.
eliminates shortages and surpluses.
 

29. 

A government-set maximum price that can be charged for goods and services is
a.
a price ceiling.
c.
an equilibrium price.
b.
a price floor.
d.
rationing.
 

30. 

In a black market, goods are traded
a.
at the equilibrium price.
c.
at very low prices.
b.
at illegally high prices.
d.
for ration coupons.
 

Completion
Complete each sentence or statement.
 

31. 

In a market economy, buyers and sellers exercise their economic freedom through ____________________.
 

 

32. 

The ____________________ states that the quantity demanded and the price move in opposite directions.
 

 

33. 

According to the _________________________, people will buy an item to the point at which the satisfaction from the last unit bought is equal to the price.
 

 

34. 

If the price of an item rises and your income does not, the ____________________ will force you to make a trade-off.
 

 

35. 

The ____________________ explains how price affects the demand for two items that satisfy the same need.
 

 

36. 

A ____________________ would show that as the price goes up, the quantity demanded goes down.
 

 

37. 

Demand is determined by population, income, and _________________________.
 

 

38. 

One factor that determines the elasticity of demand is the existence and similarity of ____________________.
 

 

39. 

If two products are ____________________, a decrease in the price of one will result in an increase in demand for the other.
 

 

40. 

The measure of the _________________________ is how much consumers respond to a given change in price.
 

 

Matching
 
 
Match each item with the correct statement below.
a.
demand
b.
supply
c.
market
d.
utility
e.
real income effect
 

41. 

ability of any good or service to satisfy consumer wants
 

42. 

process of freely exchanging goods and services between buyers and sellers
 

43. 

amount of a good or service that consumers are able and willing to buy
 

44. 

amount of a good or service that producers are able and willing to sell
 

45. 

inability to buy the same quantity of a good if prices rise while income does not
 
 
Match each item with the correct statement below.
a.
demand schedule
b.
demand curve
c.
elasticity
d.
elastic demand
e.
inelastic demand
 

46. 

situation in which the rise or fall of a product's price greatly affects the amount people will pay
 

47. 

line that graphically shows the quantities demanded at each possible price
 

48. 

economic concept dealing with consumers' responsiveness to an increase or decrease in price
 

49. 

situation in which a product's price change has little impact on the quantity demanded by consumers
 

50. 

table showing quantities demanded at different prices
 
 
Match each item with the correct statement below.
a.
law of supply
b.
quantity supplied
c.
supply schedule
d.
supply curve
e.
technology
 

51. 

line that graphically shows the quantities supplied at each possible price
 

52. 

any use of land, labor, and capital that produces goods and services more efficiently
 

53. 

economic rule stating that price and quantity supplied move in the same direction
 

54. 

amount of a good or service that a producer is willing and able to supply at a specified price
 

55. 

table showing quantities supplied at different prices
 
 
Match each item with the correct statement below.
a.
equilibrium price
b.
shortage
c.
surplus
d.
rationing
e.
black market
 

56. 

situation in which the quantity supplied is greater than the quantity demanded
 

57. 

distribution of goods and services based on something other than price
 

58. 

price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy
 

59. 

illegal market in which goods are traded at prices above their legal maximum prices
 

60. 

situation in which the quantity demanded is greater than the quantity supplied
 



 
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