FBF1384 INTRODUCTORY ECONOMICS
TUTORIAL 3
Section A – True or False
Q1 If the price of pizza falls, the quantity demanded for pizza will rise, ceteris paribus.
Q2 If hot dogs are inferior goods, the demand for hot dogs will rise as consumer income
falls.
Q3 A technological advance that reduces the cost of producing computers will shift the
supply curve of computers to the right.
Q4 Ceteris paribus, if doctors were to discover that eating spinach reduces a person’s
cholesterol (a major cause of heart disease), the demand curve for spinach will shift to the
right.
Q5 An increase in the price of ice cream would cause a decrease in the quantity demanded
for ice cream and an increase in the demand for frozen yogurt, a substitute.
Q6 When a demand curve shifts, both the equilibrium price and quantity traded will change
in the same direction as a result.
Q7 If both buyers and sellers of a good expect its price to fall in the near future, we would
expect that to cause the current price and the quantity traded to increase as a result.
Section B – Multiple Choice
Q1 When economists use the term "ceteris paribus," they mean that:
a) the causal relationship between two economic variables cannot be determined.
b) the analysis is true for the individual but not for the economy as a whole.
c) all other variables except the ones specified are assumed to be constant.
d) their conclusions are based on normative rather than positive economic analysis.
Q2 Other things being equal, the law of demand implies that as:
a) The demand for CDs increases, the price will decrease
b) Income increases, the quantity of CDs demanded will increase
c) The price of CDs increases, the quantity of CDs demanded will decrease
d) The price of CDs increases, the quantity of CDs demanded will increase
Q3 When a demand schedule is drawn in a graph:
a) price is measured on the vertical axis.
b) quantity is measured on the horizontal axis.
c) the resulting curve has a negative slope.
d) other variables are held constant.
e) all of the above are correct.
The following table applies to question 4.
Price per lb.
of ice cream Steven Larry Rest of Market Market
RM8 5 0 7
RM6 8 5 9
RM5 11 9 11
RM4 14 11 14
RM3 17 14 20
Q4 At RM4 the quantity demanded in the market would be:
a) 12.
b) 22.
c) 31.
d) 39.
e) 51.
Q5 Which of the following would not cause a change in the demand for cheese?
a) an increase in the price of crackers, which are consumed with cheese
b) an increase in the income of cheese consumers
c) an increase in the population of cheese lovers
d) an increase in the price of cheese
e) a decrease in the price of crackers, which are consumed with cheese
Q6 After widespread press reports about the dangers of contracting "mad cow disease" by
consuming beef from Europe, the likely economic effect on the demand curve for beef
from Europe is:
a) a shift of the demand curve for beef to the right.
b) a movement down along the demand curve for beef to the right.
c) a shift of the demand curve for beef to the left.
d) no change; only the supply curve for beef is likely to be affected.
Q7 If an increase in the price of Product X causes an increase in the demand for Product Y,
we can conclude that:
a) Products X and Y are complements.
b) Products X and Y are substitutes.
c) Products X and Y are normal goods.
d) the price of Product Y will decrease.
e) Products X and Y are inferior goods.
Use the following diagram to answer the next two questions (8-9).
Q8 Two donut chains in your town are battling for customers. The manager of the Yum Yum
Donut Shop, facing demand curve D1, has changed donut prices from P0 to P1. As a result,
customers:
a) increase purchases at Yum Yum to Q1.
b) decrease purchases at Yum Yum to Q0.
c) buy the same quantity of Yum Yum donuts as before the price change.
d) decrease demand to D0.
Q9 As a result of the decrease in donut prices at Yum Yum Donuts, Krispy Kreme managers
discover that the demand for their donuts has:
a) increased from D0 to D1.
b) increased from D1 to D0.
c) decreased from D1 to D0.
d) not changed.
Q10 The difference between a change in quantity supplied and a change in supply is that a
change in:
a) quantity supplied is caused by a change in a good’s own price, while a change in
supply is caused by a change in some other variable, such as input prices, prices of
related goods, expectations, or taxes.
b) supply is caused by a change in a good’s own price, while a change in the quantity
supplied is caused by a change in some other variable, such as input prices, prices of
related goods, expectations, or taxes.
c) quantity supplied is a change in the amount people want to sell, while a change in
supply is a change in the amount they actually sell.
d) supply and a change in the quantity supplied are the same thing.
Q11 Antonio’s makes the greatest pizza and delivers it hot to all the dorms around campus.
Last week Antonio's supplier of pepperoni informed him of a 25% increase in price.
Which variable determining the position of the supply curve has changed and what effect
does it have on supply?
a) future expectations; supply decreases
b) future expectations; supply increases
c) input prices; supply decreases
d) input prices; supply increases
e) technology; supply increases
Q12 "The price of gasoline fell from RM1.85 per liter to RM1.50 per liter and the supply of
gasoline decreased as a result." This statement:
a) would be correct if "demand" were substituted for the word "supply."
b) would be correct if "quantity supplied" were substituted for the word "supply."
c) would be correct if it read that supply "increased" rather than "decreased."
d) would be correct if it read that "quantity supplied of gasoline increased" as a result of
the decrease in the price of gasoline.
e) is correct as written.
Q13 At the equilibrium price for gasoline:
a) everyone with the desire and the income to buy gasoline at that price can do so.
b) surpluses are inevitable. (surplus cannot be avoided)
c) quantity demanded exceeds the quantity supplied.
d) all sellers willing and able to sell gasoline at that price can do so.
e) both a) and d) are correct.
Q14 Cotton can be used to manufacture clothing in the garment industry. Suppose that bad
weather destroys cotton crops. The impact on the market for cotton is likely to be a(n):
a) increase in the equilibrium price and a decrease in the quantity sold.
b) increase in both the equilibrium price and the quantity sold.
c) decrease in both the equilibrium price and the quantity sold.
d) decrease in the equilibrium price and an increase in the quantity sold.
e) uncertain effect on the equilibrium quantity but an increase in the equilibrium price.
Q15 If average income increases, ceteris paribus, then there will be:
a) A shift of the demand curve.
b) A movement along the demand curve
c) A movement along and a shift in the demand curve
d) No effect on the demand curve, because income is not a ceteris paribus condition
Section C - Short Answer Questions
Q1 You’re given the following individual demand tables for comic books.
Price (RM) John Liz Alex
2 40 36 28
4 35 32 24
6 30 28 20
8 25 24 16
10 20 20 12
12 15 16 8
14 10 12 4
16 5 8 0
a) Determine the market demand table.
Price (RM) Market Demand
b) Graph the individual and market demand curves.
c) If the current market price is RM4, what is total market demand? What happens to total
market demand if the price rises to RM8?
d) Say that an advertising campaign increases demand by 50 percent. Illustrate graphically
what will happen to the individual and market demand curves.
