Theory of Demand & Supply in Macroeconomics Flashcards

1. The demand for a product is the amount that a. buyers purchase in the market b. buyers are willing to purchase at a given price c. sellers are willing to sell at a particular price d. buyers are willing and able to purchase at alternative prices e. buyers are able to purchase at a specific price

2. The law of demand says that the lower the price of a good, other things constant, a. the smaller the demand for that good b. the larger the demand for that good c. the smaller the quantity demanded of that good d. the larger the quantity demanded of that good e. the smaller the real income of consumers and the lower the quantity demanded of that good

3. The law of demand assumes that as the price of a good increases, a. people recognize that its price may be even higher in the future, so they buy now rather than later b. consumers tend to shift their purchases to relatively cheaper substitutes c. people will buy less of it in the hope that the good will be cheaper in the future d. the consumer’s money income increases, and he or she is less able to buy all goods, including the good whose price has increased e. the consumer’s money income decreases, and if the product is a normal good, more will be purchased

. In what way is consumer demand different from consumer wants? a. Demand is only for necessities. b. Demand is only for luxuries. c. Demand takes into account the ability to pay. d. Consumer wants are only for luxuries. e. Consumer wants are only for necessities.

5. Movements along a demand curve are called changes in a. demand b. opportunity costs c. quantity demanded d. the substitution effect e. preferences

6. Suppose you drink more tea because the price of coffee has increased. Which of the following best explains your action? a. the law of supply b. tea and coffee are complements c. the substitution effect d. the income effect e. your nominal income has increased

7. The law of demand is illustrated by a demand curve that is a. Horizontal b. Vertical c. upward sloping d. Constant e. downward sloping

8. For which of the following would the income effect of a price change be greatest? a. ballpoint pens b. air travel to Australia c. chewing gum d. Haircuts e. college textbooks

9. The income effect of a decrease in the price of legal services (a normal good) is a(n) a. decrease in the demand for legal services b. decrease in the quantity demanded of legal services c. increase in the demand for legal services d. increase in the quantity demanded of legal services e. new demand curve because everything else is no longer constant

10. Which of the following statements about demand is true? a. Since most college students want a Mercedes sports coupe, their demand for it is high. b. If price increases, the demand curve shifts to the right. c. The demand curve for bacon will not shift when the price of bacon changes. d. If a supply curve shifts, thereby changing the price, the demand curve will shift as well. e. If a demand curve shifts, the supply curve will shift as well, whether or not the price changes.

11 If we say that demand has increased, we mean that there has been a. a leftward movement along the demand curve b. a rightward movement along the demand curve c. a leftward shift of the demand curve d. a rightward shift of the demand curve e. an increase in the slope of the demand curve

12 A change in income will a. affect the demand for candy through the income effect of a price change b. affect the quantity demanded of candy through the income effect of a price change c. shift the demand curve for candy d. have no effect on the demand for candy, because income is assumed constant along a demand curve e. affect quantity demanded only if candy is a normal good

13. Which of the following is most likely to be an inferior good? a. airline travel b. restaurant meals c. a subscription to the Wall Street Journal d. soft drinks e. used clothing

14. If demand for personal computers increases as a result of an increase in income, a. personal computers must be a normal good b. personal computers must be an inferior good c. personal computers must be a complement d. the substitutes for personal computers must be inferior goods e. the substitution effect is larger than the income effect

15. The difference between normal and inferior goods is that a. normal goods are of better quality than inferior goods b. an increase in price will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward c. if the price of a normal good increases, individuals who buy it are poorer; for inferior goods, the opposite is true d. an inferior good is something that will not be demanded until quantities of the normal good have been exhausted e. an increase in income will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward