Economics 172 Name:

Spring 2005 Quiz 1

Directions: Circle the one correct answer.

1. An increase in the quantity supplied

A. shifts the supply curve to the right.

B. shifts the supply curve to the left.

C. indicates a movement up the supply curve.

D. makes the supply curve flatter.

The correct answer is C. If quantity supplied changes, that is a movement along the existing supply curve.

2. An elasticity of 0.2 indicates that a 1 percent increase in price leads to a

A. 2 percent decrease in quantity demanded.

B. 20 percent decrease in quantity demanded.

C. 0.2 percent decrease in quantity demanded.

D. 0.2 percent increase in quantity demanded.

Price elasticity is the percent change in Qd / pct change in Price. 0.2 = X%/1% . X = 0.2 so C (since price increased, quantity must decrease, so it’s not D).

3. A new discovery makes ink jet computer printers less expensive to produce. At the same time another type of computer printer, the laser printer, also becomes less expensive for consumers to buy. What would you expect to happen to the equilibrium price or quantity of ink jet printers?

A. Equilibrium price will definitely rise.

B. Equilibrium price will definitely fall.

C. Equilibrium quantity will definitely rise.

D. Equilibrium quantity will definitely fall.

E. The answer cannot be determined from the information given above.

If ink jet printers are cheaper to produce, the supply curve shifts to the right (an increase in supply). But laser printers and ink jet printers are substitutes, so when laser printers become cheaper, the demand for ink jet printers decreases (shifts to the left). Equilibrium price will definitely fall, but the quantity demanded (and supplied) can either increase or decrease, depending on the magnitude of the shifts of the two curves.

4. Inflation causes the absolute price of all goods to double. Therefore the relative price of apples, compared to shirts

A. will also double.

B. will fall by 50%.

C. will be unchanged.

D. may rise, fall, or be unchanged.

E. will increase by 1.8372654%.

If all goods increase by the same percent, relative prices have not changed, so C is the answer.

5. If a price ceiling is imposed and the quantity demanded exceeds the quantity supplied, which of the following is not likely to occur?

A. nonprice rationing

B. black markets

C. increased production

D. quality deterioration

A price ceiling is when the price is below equilibrium. If that happens, Qd > Qs, so there has to be some way other than price to allocate the goods. All of these will result except for C. Why would firms want to increase production if they can’t get a higher price?