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Economics: Demand & Supply, Market, and Equilibrium

Multiple Choice:

P(1)

1. Which of the following will cause a movement along the demand curve for good A?
a. a change in the price for a close substitute
b. a change in the price of good A
c. a change in consumer tastes for good A
d. a change in consumer income.

2. On a Cartesian graph of a product market, equilibrium at point labeled E1 is defined as occurring
when:
a. government has balanced out the forces of demand and supply
b. price is such that the quantity demanded exactly equals the quantity supplied
c. price maximizes the difference between demand and supply
d. prices are rising.

3. Assuming a market originally in equilibrium, an increase in demand would lead to:
a. equilibrium price increase, equilibrium quantity increase
b. equilibrium price increase, equilibrium quantity decrease
c. equilibrium price decrease, equilibrium quantity decrease
d. equilibrium price decrease, equilibrium quantity increase.

4. If an increase in the price of paper increases the cost of producing economics textbooks, what will
happen in the market for economics textbooks?
a. equilibrium price increase, equilibrium quantity increase
b. equilibrium price increase, equilibrium quantity decrease
c. equilibrium price decrease, equilibrium quantity decrease
d. equilibrium price decrease, equilibrium quantity increase.

5. If demand increases and supply increases, what will happen to equilibrium price?
a. increases
b. decreases
c. stays the same
d. all of the above are possible.

6. A single production isoquant for a multiple input firm
a. relates output to the amount of labor used keeping all other inputs constant.
b. relates total output to all inputs used.
c. represents the costs of the input factors.
d. illustrates all the combinations of capital and labor that will produce a constant level
of output.

7. If the marginal product of labor is 15 and marginal product of capital is 45, wages are $5
and cost of capital is $15, cost minimization requires:
a. more labor relative to capital.
b. more capital relative to labor.
c. that the firm shut down.
d. input usage is about right.

P (2). A consultant for X Corp. provided the firm's marketing manager with this estimate of the
demand function for the firm's product:

Qd = 12,000 - 3(Px) + 4 (Py) - 1(M) + 2(A).

Where Px is the price of good x, Py is the price of good Y, M is income, and Ax represents the amount of advertising spent on good x. Suppose good x sells for $200 per unit, good Y sells for $15 per unit, the company uses 2,000 units of ads, and consumer income is $10,000.
a. Are goods X and Y substitutes or complements?
b. Is good X a normal or an inferior good?
c. How much of good X do consumers purchase?
d. Simplify the equation to two variables Qd and Px, so the Demand curve can be
shown on a graph.

P3 - SEE ATTACHED

P (4). Draw a Marshallian short run production function of the form Q = f (Labor)
with capital fixed. (5 points)

a. Beneath the Total Product Curve, draw the Average Product Curve indicating its
maximum point.
b. Draw the Marginal Product curve indicating its maximum point and where MP = 0.

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Multiple Choice:

P(1)

1. Which of the following will cause a movement along the demand curve for good A?
a. a change in the price for a close substitute
b. a change in the price of good A
c. a change in consumer tastes for good A
d. a change in consumer income.
Answer: b. a change in the price of good A

2. On a Cartesian graph of a product market, equilibrium at point labeled E1 is defined as occurring
when:
a. government has balanced out the forces of demand and supply
b. price is such that the quantity demanded exactly equals the quantity supplied
c. price maximizes the difference between demand and supply
d. prices are rising.
Answer: b. price is such that the quantity demanded exactly equals the quantity supplied

3. Assuming a market originally in equilibrium, an increase in demand would lead to:
a. equilibrium price increase, equilibrium quantity increase
b. equilibrium price increase, equilibrium quantity decrease
c. equilibrium price decrease, equilibrium quantity decrease
d. equilibrium price decrease, equilibrium quantity increase.
Answer: a. equilibrium price increase, equilibrium quantity increase

4. If an increase in the price of paper increases the cost of producing economics textbooks, what will
happen in the market for economics textbooks?
a. equilibrium price increase, equilibrium quantity increase
b. equilibrium price ...

Solution Summary

The expert examines the demand and supply, market and equilibriums in economics.

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