Quiz 2 Version B - Supply and Demand | ECON 002, Quizzes of Microeconomics

Download Quiz 2 Version B - Supply and Demand | ECON 002 and more Quizzes Microeconomics in PDF only on Docsity! Principles of Microeconomics (Econ 2) Signature: Drake University, Summer 2008 William M. Boal Printed name: QUIZ #2 VERSION B “Supply and Demand” July 22, 2008 INSTRUCTIONS: This quiz is closed-book, closed-notes. Simple calculators are permitted, but graphing calculators or calculators with alphabetical keyboards are NOT permitted. Numerical answers, if rounded, must be correct to at least 3 significant digits. Point values for each question are noted in brackets. Maximum total points are 100. I. Multiple choice: Circle the one best answer to each question. [2 pts each: 34 pts total] (1) Money, as defined in economics, must be a. accepted by everyone as payment. b. "legal tender" for paying taxes. c. issued by the government. d. All of the above. (2) Barter is an unpopular method of trading because it a. is often illegal. b. causes both parties to lose. c. is subject to higher taxes. d. requires that each party be able to offer a good that the other wants. (3) Price dispersion occurs in markets where a. communication between buyers and sellers is difficult. b. there is little information about what prices are being charged. c. certain buyers are not allowed to trade with certain sellers. d. All of the above. (4) The “income effect” causes consumers to buy more when the price of a good falls because consumers a. can afford to buy more of everything due to the drop in price of this good. b. want to substitute goods for money. c. want to reward sellers for lowering the price by increasing sellers' incomes. d. shift their purchases from alternative goods that have not fallen in price. (5) The “substitution effect” causes consumers to buy more when the price of a good falls because consumers a. can afford to buy more of everything due to the drop in price of this good. b. want to substitute goods for money. c. want to reward sellers for lowering the price by increasing sellers' incomes. d. shift their purchases from alternative goods that have not fallen in price. (6) A shift in the demand curve for wide-screen televisions caused by a rise in consumers’ incomes is called a a. change in the quantity demanded of milk. b. change in market efficiency. c. change in preferences. d. change in demand for milk. (7) A movement along the demand curve for milk caused by a change in the price of milk is called a a. change in quantity demanded of milk. b. change in market efficiency. c. change in preferences. d. change in demand for milk. (8) A rise in people's incomes encourages them to buy wine if wine is a. a substitute good. b. a normal good. c. an inferior good. d. a complementary good. (9) A fall in people's incomes is likely to increase purchases of second-hand clothing if second-hand clothing is a. a substitute good. b. a normal good. c. an inferior good. d. a complementary good. (10) A fall in the price of computers is likely to increase purchases of printers, because computers and printers are a. substitute goods. b. normal goods. c. inferior goods. d. complementary goods. Principles of Microeconomics (Econ 2) Drake University, Summer 2008 Quiz 2 Version B Page 2 of 6 (11) If the government were to discover that spinach caused cancer, then the a. demand for spinach would shift left. b. demand for spinach would shift right. c. supply of spinach would shift left. d. supply of spinach would shift right. (12) Catfish raised for market sale are fed corn. The recent rise in the price of corn has shifted the a. demand for catfish to the left. b. demand for catfish to the right. c. supply of catfish to the left. d. supply of catfish to the right. (13) Markets tend to eliminate excess demand automatically through a a. rise in price. b. fall in price. c. fall in the quantity actually sold. d. rightward shift in the supply curve. (14) Consider the supply-and-demand diagram below. If for some reason the price were above $10, then a. the price would tend to fall. b. the price would tend to rise. c. the demand curve would tend to shift right. d. the supply curve would tend to shift left. (15) In autumn, the price of peaches rises and the quantity sold decreases. This could be caused by a a. leftward shift in the demand. b. leftward shift in the supply. c. rightward shift in the demand. d. rightward shift in the supply. (16) Also in autumn, the price of sweaters increases and the quantity sold also increases. This could be caused by a a. leftward shift in the demand. b. leftward shift in the supply. c. rightward shift in the demand. d. rightward shift in the supply. II. Problems: Insert your answer to each question below in the box provided. Feel free to use the margins for scratch workonly the answers in the boxes will be graded. Work carefullypartial credit is not normally given for questions in this section. $10 Price Quantity Supply Demand Principles of Microeconomics (Econ 2) Drake University, Summer 2008 Quiz 2 Version B Page 5 of 6 (4) [Market equilibrium: 10 pts] Suppose the demand curve for ice cream is given by P = 15 – (Q/2) , and the supply curve is given by P = 3 + (Q/2) , where P denotes the price of ice cream per gallon and Q denotes the quantity (in millions of gallons). a. Plot the demand curve on the graph below. Label it “D.” b. Plot the supply curve on the graph below. Label it “S.” c. Find the equilibrium quantity in this market. million d. Find the equilibrium price in this market. $ e. Compute the total revenue received by suppliers (which equals the total amount spent by demanders) for ice cream. $ million $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $11 $12 $13 $14 $15 $16 $17 $18 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Quantity (millions) P ri c e Principles of Microeconomics (Econ 2) Drake University, Summer 2008 Quiz 2 Version B Page 6 of 6 III. Critical thinking: Write a one-paragraph essay answering one question below (your choice). [4 pts] (1) The worldwide demand curve for food is shifting right as peoples' incomes grow. At the same time, the worldwide supply curve is also shifting right as farms become more productive. If demand for food shifts right faster than supply shifts right, will there be a shortage of food? Why or why not? Support your answer with a supply-and-demand diagram. (2) Why is sweet corn in Iowa expensive in winter and cheap in summer? Support your answer with a supply-and-demand diagram. Which question are you answering, (1) or (2)? _________ . Please write your answer below. Full credit requires correct economic reasoning, legible writing, good grammar including complete sentences, and accurate spelling. [end of quiz]