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    Multiple-Choice Questions Multiple-Choice Questions Multiple-Choice Questions |Rated A+

    Chapter 1 Introduction
    Multiple-Choice Questions
    1) Which of the following is an example of how the question of what goods and services to produce? is answered by the command process?
    A) government subsidies for affordable housing
    B) laws regarding equal opportunity in employment
    C) government allowance for the deduction of interest payments on private mortgages
    D) government regulations concerning the dumping of industrial waste Answer:
    2) Opportunity cost is best defined as
    A) the amount given up when choosing one activity over all other alternatives.
    B) the amount given up when choosing one activity over the next best alternative.
    C) the opportunity to earn a profit that is greater than the one currently being made.
    D) the amount that is given up when choosing an activity that is not as good as the next best alternative.
    Answer:
    3) In a market economy which of the following is the most important factor affecting scarcity?
    A) the needs and wants of consumers
    B) the price of the product
    C) the degree to which the government is involved in the allocation of resources.
    D) All of the above are equally important.
    Answer:
    4) Which of the following is not considered by economists to be a basic resource or factor of production?
    A) money B) machinery and equipment
    C) technology D) unskilled labor
    Answer:
    5) Select the group that best represents the basic factors of production.
    A) land labor capital entrepreneurship B) land labor money management skills
    C) land natural resources labor capital D) land labor capital technology Answer:
    6) Which of the statements below best illustrates the use of the market process in determining the allocation of scarce resources?
    A) Let’s make this product because this is what we know how to do best.
    B) Although we’re currently making a profit on the products we make we should consider shifting to products where we can earn even more money.
    C) Everyone is opening video stores why don’t we?
    D) We can’t stop making this product. This product gave our company its start. Answer:
    7) Which of the following is the best example of what goods and services should be produced?
    A) the use of a capital intensive versus a labor intensive process of manufacturing textiles
    B) the production of army helicopters versus the production of new commercial jet aircraft
    C) the manufacturing of computer workstations in Hong Kong or in Germany
    D) the leasing versus the purchasing of new capital equipment Answer:
    8) Which of the following is the best example of how should goods and services be produced?
    A) adherence to technical specifications in the production of jet aircraft
    B) the production of jet aircraft for the air force or for a commercial airline
    C) the use of additional full-time workers versus the use of supplementary part-time workers
    D) the production of a new manufacturing facility Answer:
    9) Which of the following is the best example of opportunity cost?
    A) a company’s expenditures on a training program for its employees
    B) the rate of return on a company’s investment
    C) the amount of money that a company can earn by depositing excess funds in a money market fund
    D) the amount of profit that a company forgoes when it decides to drop a particular product line in favor of another one
    Answer:
    10) From the standpoint of a soft drink company the question of What goods and services should be produced? is best represented by which of the following decisions?
    A) whether or not to hire additional workers
    B) whether or not to increase its advertising
    C) whether or not to shut down selected manufacturing facilities
    D) All of the above are examples.
    E) None of the above are examples.
    Answer:
    11) Scarcity is a condition that exists when
    A) there is a fixed supply of resources.
    B) there is a large demand for a product.
    C) resources are not able to meet the entire demand for a product.
    D) All of the above.
    Answer:
    12) Managerial economics is best defined as
    A) the study of economics by managers.
    B) the study of the aggregate economic activity.
    C) the study of how managers make decisions about the use of scarce resources.
    D) All of the above are good definitions.
    Answer:
    13) In the text the authors refer to Stage II of the process of changing economics as
    A) demand management. B) cost management.
    C) diminishing returns. D) profit taking.
    Answer:
    14) Which of the following is the best example of the command process?
    A) MCI-Worldcom buys Sprint.
    B) Striking auto workers force General Motors to shut down its factories.
    C) Banks raise their fees on late payments by credit card holders.
    D) The FCC requires local telephone companies to provide access to their local networks before being able to offer long distance service.
    Answer:
    15) A critical element of entrepreneurship (as opposed to managerial skills) is
    A) leadership skills. B) risk taking.
    C) technology. D) political skills.
    Answer:
    16) In the text a key factor in the changing economics of a business is
    A) the need to grow revenues. B) increasing competition.
    C) rising labor costs. D) the need to expand market share.
    Answer:
    17) In the four-stage model of change Stage III is represented by
    A) deciding how much to markup costs to set a profitable product price.
    B) cost-cutting and restructuring to maintain and improve production.
    C) narrowing product lines to those offering the greatest revenue potential.
    D) focusing on markets with the greatest growth potential.
    Answer:
    18) The economic concept of opportunity cost is most closely associated with which of the following management considerations?
    A) market structure B) resource scarcity
    C) product demand D) technology Answer:
    19) Which of the following is the best example of the traditional process?
    A) commercial bank mergers
    B) minimum age limits for the purchase of alcoholic beverages
    C) auctioning US Treasury bills
    D) colleges and universities give admissions preferences to children of alumni Answer:
    20) The best definition of economics is
    A) how choices are made under conditions of scarcity.
    B) how money is used.
    C) how goods and services are produced.
    D) how businesses maximize profits.
    Answer:
    21) Managerial economics is best defined as the economic study of
    A) how businesses can make the most profits.
    B) how businesses can decide on the best use of scarce resources.
    C) how businesses can operate at the lowest costs.
    D) how businesses can sell the most products.
    Answer:
    Analytical Questions
    1) What economic conditions are relevant in managerial decision-making?
    Answer: Such factors as market structure supply and demand conditions technology government regulations international factors expectations about the future and the macroeconomy are economic factors that play a role in managerial decision-making.
    2) What factors lead to competitive advantage for a firm?
    Answer: ost leadership (lower costs than competing firms) product differentiation selection and focus on a market niche outsourcing and merger strategies and international focus or expansion are factors in the competitive advantage of the firm.
    3) What are the typical types of risk faced by a firm?
    Answer: anges in supply and demand conditions changes in technology increased competition changes in interest rates and inflation rates exchange rate changes and political risk are typical types of risk faced by firms.
    4) What are the four stages of change faced by firms?
    Answer: Stage I: Market dominance in which the only strategy required to earn a profit is
    sufficient markup over cost. (Cost-plus)
    Stage II: Technology and competition place pressures on the firm often resulting in cost-cutting downsizing restructuring and reengineering. (Cost management)
    Stage III: Focus on growth of top lines of business. (Revenue management) Stage IV: Striving for continued profitable growth. (Revenue plus)
    5) How do the three basic economic questions relate to the firm?
    Answer: rms must choose WHAT goods and services to produce HOW to produce them (through appropriate choice of resources and technology) and FOR WHOM they will be provided (what segment of the market on which to focus).
    6) What other business disciplines are related to Managerial Economics?
    Answer: counting Finance Management Science (Quantitative Methods) Management Strategies Marketing
    Chapter 2 The Firm and Its Goals
    Multiple-Choice Questions
    1) Transaction costs include
    A) costs of negotiating contracts with other firms.
    B) cost of enforcing contracts.
    C) the existence of asset-specificity.
    D) All of the above.
    Answer:
    2) A company will strive to minimize
    A) transaction costs.
    B) costs of internal operations.
    C) total costs of transactions and internal operations combined.
    D) variable costs.
    Answer:
    3) Company goals that are concerned with creating employee and customer satisfaction and maintaining a high degree of social responsibility are calledobjectives.
    A) social B) noneconomic C) welfare D) public relations Answer:
    4) risk involves variation in returns due to the ups and downs of the economy the industry and the firm.
    A) Structural B) Fluctuational C) Business D) Financial Answer:
    5) risk concerns the variation in returns that is induced by leverage.
    A) Business B) Premium C) Business D) Financial Answer:
    6) Unlike an accountant an economist measures costs on a(n)basis.
    A) implicit B) replacement C) historical D) conservative Answer:
    7) When a company manages its business in such a way that its cash flows over time discounted at the appropriate discount rate will cause the value of the company’s common stock to be at a maximum it is calledmaximization.
    A) profit B) stockholder wealth
    C) asset D) None of the above.
    Answer:
    8) When a firm earns a normal profit its revenue is just enough to cover both itscost and itscost.
    A) accounting; opportunity B) accounting; replacement
    C) historical; replacement D) explicit; accounting Answer:
    9) A large corporation’s profit objective may not be profit or wealth maximization because
    A) stockholders have little power in corporate decision-making.
    B) management is more interested in maximizing its own income.
    C) managers are overly concerned with their own survival and may not take all prudent risks.
    D) All of the above.
    Answer:
    10) Accounting costs
    A) are historical costs. B) are replacements costs.
    C) usually include implicit costs. D) usually include normal profits.
    Answer:
    11) The calculation of stockholder wealth involves
    A) the time-value of money concept. B) the cash flow stream.
    C) business and financial risk. D) All of the above.
    Answer:
    12) As an objective the maximization of profits ignores
    A) the timing of cash flows B) the time-value of money concept.
    C) the riskiness of cash flows. D) All of the above.
    Answer:
    13) Another name for stockholder wealth maximization is
    A) profit maximization.
    B) maximization of earnings per share.
    C) maximization of the value of the common stock.
    D) maximization of cash flows.
    Answer:
    14) MVA (Market Value Added)
    A) will always be a positive number. B) may be a negative number.
    C) measures the market value of the firm. D) None of the above.
    Answer:
    15) Opportunistic behavior is best described as a firm
    A) gathering as much information as possible before dealing with another entity.
    B) attempting to make a profit from its dealings with another entity.
    C) firm trying to take advantage of another entity in its dealings with it.
    D) selecting another entity to deal with.
    Answer:
    16) Firms are organized to keep their costs as low as possible by
    A) comparing external transactions costs with internal operating cost.
    B) analyzing supply and demand conditions.
    C) minimizing their use of borrowed funds.
    D) utilizing the latest technology.
    Answer:
    17) The best example of an economic goal of a firm is
    A) providing good products/services to its customers.
    B) improving its public image.
    C) increasing employee morale.
    D) increasing shareholder wealth.
    Answer:
    18) Financial risk is associated with changes in
    A) the demand for a firm’s products.
    B) a firm’s debt.
    C) a firm’s labor costs.
    D) government regulations of a firm’s activities.
    Answer:
    19) A firm’s normal profit is best characterized by the
    A) average of a firm’s profits over the past five years.
    B) amount of profit necessary to keep the price of a firm’s stock from changing.
    C) amount of profit a firm could earn in its next best alternative activity.
    D) the average amount of profit earned in the firm’s industry.
    Answer:
    Analytical Questions
    1) a. If a stock is expected to pay an annual dividend of $20 forever what is the approximate present value of the stock given that the discount rate is 5%?
    b. If a stock is expected to pay an annual dividend of $20 forever what is the approximate present value of the stock given that the discount rate is 8%?
    c. If a stock is expected to pay an annual dividend of $20 this year what is the approximate present value of the stock given that the discount rate is 8% and dividends are expected to grow at a rate of 2% per year?
    Answer:
    a. P = D/k = 20/.05 = $400 b. P = 20/.08 = $250
    c. P = D1/(k – g) = 20/(.08 – .02) = $333.33
    2) If a stock is expected to pay a dividend of $40 for the current year what is the approximate present value of this stock given at discount rate of 5% and a dividend growth rate of 3%?
    Answer: P = $40/(0.05 – 0.03) = $40/0.02 = $2000
    3) Describe the difference between the Economic Value Added (EVA) and the Market Value Added (MVA) approach to determining stockholder wealth.
    Answer: VA is the difference between a firm’s return on total capital and its cost of capital while MVA is the difference between the market value (equity plus debt) of a firm and
    the amount of capital investors have paid into the company.
    Chapter 3 Supply and Demand (Appendix 3A)
    Multiple-Choice Questions
    1) How long is the short-run time period in the economic analysis of the market?
    A) three months or one business quarter
    B) total time in which sellers already in the market respond to changes in demand and equilibrium price
    C) total amount of time it takes new sellers to enter the market
    D) total amount of time it takes original sellers to leave the market Answer:
    2) A new taco-making machine that is similar in size and cost to hot dog carts has encouraged more street vendors to begin selling tacos. What short-run impact do you think this might have on the market for hot dogs?
    A) decrease in the demand for hot dogs B) increase in the demand for hot dogs
    C) decrease in the supply of hot dogs D) increase in the supply of hot dogs Answer:
    3) Which of the following is not a nonprice determinant of demand?
    A) tastes and preferences B) income
    C) technology D) future expectations Answer:
    4) Which of the following is not a nonprice determinant of supply?
    A) costs B) technology
    C) income D) future expectations Answer:
    5) Which of the following statements is not true?
    A) An increase in demand causes equilibrium price and quantity to rise.
    B) A decrease in demand causes equilibrium price and quantity to fall.
    C) An increase in supply causes equilibrium price to fall and quantity to rise.
    D) A decrease in supply causes equilibrium price to rise and quantity to rise.
    Answer:
    6) A short-run time period is
    A) the period of time in which sellers already in the market respond to a change in equilibrium price by adjusting the amount of their fixed inputs.
    B) the amount of time it takes for the market price to reach a new equilibrium as a result of some initial change in supply or demand.
    C) the amount of time it takes for sellers and buyers to decide on whether to enter a new market.
    D) the amount of time it takes for buyers to change their purchasing habits as a result of a change in market price.
    Answer:
    7) Which of the following would cause a decrease in the demand for fish?
    A) The price of red meat increases. B) The price of fish increases.
    C) The price of chicken decreases. D) The number of fishing boats decreases.
    Answer:
    8) Which of the following would cause a shortrun decrease in the quantity supplied of personal computers?
    A) The price of workstations decreases.
    B) The price of PC software decreases.
    C) The number of PC manufacturers decreases.
    D) The cost of manufacturing PCs decreases.
    Answer:
    9) Which of the following will not cause a short-run shift in the supply curve?
    A) a change in the number of sellers B) a change in the cost of resources
    C) a change in the price of the product D) a change in future expectations Answer:
    10) In the short run a change in the equilibrium price will
    A) always lead to inflation.
    B) cause a shift in the demand curve.
    C) cause a shift in the supply curve.
    D) cause a change in the quantity demanded or supplied.
    Answer:
    11) Which of the following applies most generally to supply in the long run?
    A) Average cost must decline.
    B) Sellers are able to make adjustments in all of their factors of production.
    C) Sellers are only able to make adjustments in their variable factors of production.
    D) All original sellers will leave the market.
    Answer:
    12) A movement along the demand curve may be caused by
    A) a change in nonprice determinants of demand.
    B) a change in consumer expectations.
    C) a change in demand.
    D) a change in supply.
    Answer:
    13) The rationing function of price
    A) occurs when there is a movement of resources into or out of markets as a result of changes in the equilibrium market price.
    B) is also known as the guiding function of price.
    C) occurs when consumers change their tastes and preferences.
    D) occurs only when the market experiences severe shortages.
    Answer:
    14) The switch to the use of HFCS from sugar in soft drinks was prompted in large part by its relatively lower price. Assuming a competitive market what effect would this change have on the equilibrium price and output for soft drinks?
    A) Price rises output falls. B) Price falls output rises.
    C) Price rises output rises. D) Price falls output falls.
    Answer:
    15) Which of the following best describes the guiding function of price?
    A) In response to the surplus or shortage in two markets price serves as a guiding function by decreasing in one market and increasing in the other market in the short run.
    B) The guiding function of price is the movement of resources into or out of markets in response to a change in the equilibrium price of a good or service.
    C) The guiding function of price occurs when the market price changes to eliminate the imbalance between supply and demand caused by a shortage or surplus at the original price.
    D) The guiding function usually occurs in the short run while the rationing function usually occurs in the long run.
    Answer:
    16) Which of the following best applies to the distinction between the long run and the short run?
    A) The short run is a period of approximately 1-6 months while the long run is any time frame longer.
    B) In the short run only new firms may enter while in the longrun firms may either enter or exit the market.
    C) The rationing function of price is a shortrun phenomenon whereas the guiding function is a long-run phenomenon.
    D) All of the above statements are correct.
    Answer:
    17) Which of the following would indicate that price is temporarily below its market equilibrium?
    A) There are a number of producers who are left with unwanted inventories.
    B) There are a number of customers who must be placed on waiting lists for the product.
    C) Firms decide to leave the market.
    D) The government must step in and subsidize the product.
    Answer:
    18) Comparative statics analysis in economics is best illustrated as
    A) the comparison of equilibrium points before and after changes in the market have occurred.
    B) a comparison of two types of markets.
    C) the comparison of the percentage of change in the one variable divided by the percentage change in the other variable.
    D) an analytical technique used to show best case scenarios of demand and supply curves.
    Answer:
    19) The guiding function of price is
    A) the movement of price to clear the market of any shortages or surpluses.
    B) the use of price as a signal to guide government on the use of market subsidies.
    C) a long-run function resulting in the movement of resources into or out of markets.
    D) the movement of price as a result of changes in the demand for a product.
    Answer:
    20) If the price of a substitute product increases which of the following is most likely to happen in the market for the product under consideration in the short run?
    A) Supply will increase.
    B) Firms will leave the market.
    C) Firms in the market will devote more of their variable inputs to the making of this product.
    D) Firms in the market will devote less of their variable inputs to the making of this product.
    Answer:
    21) Which of the following would lead to a short-run market surplus for fish?
    A) The price of fish increases.
    B) A new government study shows that fish have a greater risk of contamination from pollution.
    C) An increase in the price of chicken.
    D) A decrease in the number of fishing companies.
    Answer:
    22) Which of the following refers to a shift in the demand curve?
    A) This new advertising campaign should really increase our demand.
    B) Let’s drop our price to increase our demand.
    C) We dare not raise our price because our demand will drop.
    D) If new sellers enter the market the demand for the product is bound to increase. Answer:
    23) In a perfectly competitive market if the cost of production falls we can expect
    A) sellers to earn more profit.
    B) sellers to earn less because price will fall.
    C) consumers to buy more.
    D) consumers to buy less.
    Answer:
    24) In 1998 the following event(s) caused a significant decline in the price of sugar:
    A) favorable weather in important sugar growing countries.
    B) economic conditions in Asia reduced sugar demand.
    C) lowered demand for other products made of sugar.
    D) All of the above.
    Answer:
    25) Which of the following will result in an increase in demand for residential housing in the short run?
    A) a decrease in the price of lumber
    B) an increase in the wages of carpenters
    C) an increase in real household incomes
    D) a decrease in the prices of residential housing Answer:
    26) Which of the following can result in an increase in the supply of residential housing in the short run?
    A) a decrease in the price of lumber B) a decrease in real household incomes
    C) an increase in the wages of electricians D) None of the above.
    Answer:
    27) Which of the following is a key determinant of both supply and demand?
    A) income B) future expectations
    C) tastes and preferences D) sales tax Answer:
    28) Which of the following could cause a long-run shift in demand as part of the guiding function of price?
    A) a change in tastes and preferences
    B) an increase in price caused by a shift in supply
    C) income shift caused by an economic recession
    D) an increase in number of buyers Answer:
    29) A market is in equilibrium when
    A) supply is equal to demand.
    B) the price is adjusting upward.
    C) the quantity supplied is equal to the quantity demanded.
    D) tastes and preference remain constant.
    Answer:
    30) Which of the following indicates that there is a shortage in the market?
    A) Demand is rising. B) Demand is falling.
    C) Price is rising. D) Price is falling.
    Answer:
    31) Which of the following would cause a decreasing shift in the demand curve for a product?
    A) an increase in income
    B) an increase in the price of a complementary product
    C) an increase in the price of a substitute product
    D) the expectation that there will be a shortage in the availability of the product Answer:
    32) Which of the following would cause a decrease in the price of a product?
    A) an increasing shift in the supply of a product and no shift in demand
    B) a decreasing shift in the supply of a product and no shift in demand
    C) an increasing shift in the demand for product and no shift in supply
    D) an increasing shift in the demand for product and a decreasing shift in supply Answer:
    33) In the short-run if there is a surplus in the market for a product the rationing function of price can be expected to cause
    A) an increasing shift in the demand for the product.
    B) a decreasing shift in the supply of the product.
    C) an increase in the market price of the product.
    D) a decrease in the market price of the product.
    Answer:
    34) In the long-run if there is a shortage in the market for a product the guiding (allocation) function of price can be expected to cause
    A) an increasing shift in the demand for the product.
    B) a decreasing shift in the demand for the product.
    C) an increasing shift in the supply of the product.
    D) a decreasing shift in the supply of the product.
    Answer:
    35) The law of demand can be best described by
    A) people will buy things that they enjoy.
    B) if incomes rise people will buy more.
    C) a rise in price will cause shortages.
    D) a fall in price will increase quantity demanded.
    Answer:
    Analytical Questions
    1) For each of the following changes show the effect on the demand curve and state what will happen to market equilibrium price and quantity in the short run.
    a. Consumers expect that the price of the good will be higher in the future.
    b. The price of a substitute good rises.
    c. Consumer incomes fall and the good is normal.
    d. Consumer incomes fall and the good is inferior.
    e. A medical report is published showing that this product is hazardous to your health.
    f. The price of the product rises.
    Answer:
    a. Demand increases (now); equilibrium price and quantity increase.
    b. Demand increases; equilibrium price and quantity increase.
    c. Demand decreases; equilibrium price and quantity fall.
    d. Demand increases; equilibrium price and quantity increase.
    e. Demand decreases; equilibrium price and quantity fall.
    f. This is a movement along the demand curve and the quantity demanded will decrease.
    2) For each of the following changes show the effect on the supply curve and state what will happen to market equilibrium price and quantity in the short run.
    a. The government requires pollution control filters that raise production costs.
    b. Wages of workers in this industry fall.
    c. There is an improvement in technology.
    d. The price of the product falls.
    e. Producers expect that the price of the product will fall in the future.
    Answer:
    a. Supply decreases; equilibrium price rises and quantity falls.
    b. Supply increases; equilibrium price falls and quantity rises.
    c. Supply increases; equilibrium price falls and quantity rises.
    d. This is a movement along the supply curve and the quantity supplied will decrease.
    e. Supply increases (now); equilibrium price falls and quantity rises.
    3) Suppose that the demand for oranges increases. Carefully explain how the rationing function of price will restore market equilibrium.
    Answer: The increase in demand causes a shortage at the original equilibrium price; the quantity supplied is less than the new quantity demanded at that price. The existence of the shortage will cause the price to rise. As price rises the quantity supplied will increase and the quantity demanded will decrease (along the new demand curve) until equilibrium is reached at a higher price (and quantity).
    4) Suppose that the demand for oranges increase. Explain the long -run effects of the guiding function of price in this scenario.
    Answer: n the long run the higher price of oranges will signal more firms to enter the orange market as it will seem more profitable than some other markets. As firms enter supply increases causing the price to fall relative to the short-run price and quantity to increase further. The higher short-run price has guided more resources into the market.
    5) Suppose that macroeconomic forecasters predict that the economy will be expanding in the near future. How might managers use this information?
    Answer: conomic expansion increases consumer incomes which will increase the demand for normal goods and decrease the demand for inferior goods. Thus a producer of normal goods might be anticipating a future increase in demand and thus considering expansion while a producer of inferior goods might be preparing for a decrease in demand and considering contraction or a movement into a different product line.
    6) For each of the following sets of supply and demand curves calculate equilibrium price and quantity.
    a. QD = 2000 – 2P; QS = 2P b. QD = 500 – P; QS = 50 + P
    c. QD = 5000 – 10P; QS = -1000 + 5P
    Answer:
    a. Q = 1000 P = 500 b. Q = 275 P = 225 c. Q = 1000 P= 400
    7) Annual demand and supply for the Entronics company is given by:
    QD = 5000 + 0.5 I + 0.2 A – 100P and QS = -5000 + 100P
    where Q is the quantity per year P is price I is income per household and A is advertising expenditure.
    a. If A = $10000 and I = $25000 what is the demand curve?
    b. Given the demand curve in part a. what is equilibrium price and quantity?
    c. If consumer incomes increase to $30000 what will be the impact on equilibrium price and quantity?
    Answer:
    a. QD = 19500 – 100P
    b. P = $122.50 Q =7250
    c. The new demand curve is: QD = 22000 – 100P
    Thus the new equilibrium price is $135 and the new quantity is 8500.
    8) The market for milk is in equilibrium. Recent health reports indicate that calcium is absorbed better in natural forms such as milk and at the same time the cost of milking equipment rises. Carefully analyze the probable effects on the market.
    Answer: The heath reports are likely to cause an increase in the demand for milk. Alone this would increase both the equilibrium price and quantity of milk. The increase in equipment costs will cause a decrease in the supply of milk and this alone would cause an increase in equilibrium price and a decrease in equilibrium quantity. Taken together both effects will lead to an increase in price and thus we can be certain that the equilibrium price will rise. The effect on quantity is unclear as the supply and demand shifts move quantity in different directions.
    9) Industry supply and demand are given by: QD = 1000 – 2P and QS = 3P
    a. What is the equilibrium price and quantity?
    b. At a price of $100 will there be a shortage or a surplus and how large will it be?
    c. At a price of $300 will there be a shortage or a surplus and how large will it be?
    Answer:
    a. P = $200 Q = 600.
    b. At a price of $100 there will be a shortage. The quantity demanded will be 800 and the quantity supplied will be 300 and thus there will be a shortage of 500 units.
    c. At a price of $300 there will be a surplus. The quantity demanded will be 400 and the quantity supplied will be 900 and thus there will be a surplus of 600 units.
    10) A product’s Demand Curve is: Qd = 50 – 2P and its Supply Curve is: Qs = 40 + P.
    a. When P = $10 what is the difference if any between Qd and Qs?
    b. When P = $2 what is the difference if any between Qd and Qs?
    c. What are the equilibrium values of P and Q?
    Answer:
    a. Qd = 30 and Qs = 50
    b. Qd = 46 and Qs = 42
    c. Q = 43.33 and P = $3.33
    11) A product’s Demand Curve is: Qd = 25 – P and its Supply Curve is: Qs = 10 + 2P.
    a. When P = $20 what is the difference if any between Qd and Qs?
    b. When P = $3 what is the difference if any between Qd and Qs?
    c. What are the equilibrium values of P and Q?
    Answer:
    a. Qd = 5 and Qs = 50
    b. Qd = 22 and Qs = 16
    c. Q = 20 and P = $5
    12) List the major nonprice determinants of demand.
    Answer: onsumer preferences (tastes) income prices of related products (complements and substitutes) future expectations and number of buyers.
    13) List the major nonprice determinants of supply.
    Answer: nput costs technology prices of other products that can be sold by the firm (complements and substitutes) future expectations weather conditions and number of sellers.
    Chapter 4 Demand Elasticity (Appendix 4A)
    Multiple-Choice Questions
    1) The sensitivity of the change in quantity demanded to a change in price is called
    A) income elasticity. B) cross-elasticity.
    C) price elasticity of demand. D) coefficient of elasticity.
    Answer:
    2) The sensitivity of the change in quantity consumed of one product to a change in the price of a related product is called
    A) cross-elasticity. B) substitute elasticity.
    C) complementary elasticity. D) price elasticity of demand.
    Answer:
    3) The minimum wage is an example of a government imposed
    A) price control.
    B) price ceiling.
    C) price floor.
    D) Both A and B.
    E) Both A and C. Answer:
    4) A product that is similar to another and can be consumed in place of it is called
    A) a

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