Ec 205 Test 1

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  • 1/17 Questions

    An increase in demand will cause a shortage which will cause firms to put  ______________ on price

    • Increases
    • Decreases
    • Remains the same
    • Is indeterminate
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About This Quiz

EC 205 Test 1 evaluates understanding of market dynamics, focusing on how changes in supply and demand affect market equilibrium, prices, and total revenue. It assesses knowledge of price elasticity and the economic implications of supply and demand shifts.

Market Dynamics Quizzes & Trivia

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  • 2. 

    A decrease in supply of a good _________________ price and decreases quantity.

    • Increases

    • Decreases

    • Has no effect on

    • Has a indeterminate effect on

    Correct Answer
    A. Increases
    Explanation
    A decrease in supply of a good leads to an increase in price and a decrease in quantity. This is because when the supply of a good decreases, there is less of it available in the market, creating a scarcity. As a result, buyers are willing to pay a higher price to obtain the limited supply, leading to an increase in price. Additionally, with less supply available, the quantity demanded by buyers also decreases. Therefore, both price and quantity are affected by a decrease in supply.

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  • 3. 

    ____________ in supply of a good increases price and decreases quantity.

    • Increases

    • Decreases

    • No effect on

    • An indeterminate effect

    Correct Answer
    A. Decreases
    Explanation
    An increase in supply of a good leads to a decrease in price and a decrease in the quantity demanded. This is because when the supply of a good increases, there is a larger quantity available in the market, which creates more competition among sellers. As a result, sellers lower their prices in order to attract buyers and sell their goods. Additionally, with more supply available, buyers have more options to choose from, which puts downward pressure on the price. Consequently, the decrease in price and quantity is a direct result of the increase in supply.

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  • 4. 

    A decrease in supply of a good increases price and ________quantity.

    • Increases

    • Decreases

    • Has no effect on

    • Has a indeterminate effect on

    Correct Answer
    A. Decreases
    Explanation
    When the supply of a good decreases, there is less of the good available in the market. As a result, the demand for the good remains the same, but the supply is lower. This creates a shortage, and in order to obtain the good, buyers are willing to pay a higher price. Therefore, the price of the good increases. Additionally, since there is less supply available, the quantity of the good that is bought and sold also decreases.

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  • 5. 

    Decreased price causes inncreased revenue  

    • Elastic

    • Inelastic

    Correct Answer
    A. Elastic
    Explanation
    When the price of a product decreases, it leads to an increase in revenue because the demand for the product is elastic. This means that consumers are highly responsive to changes in price, and a decrease in price encourages them to buy more of the product. As a result, the increase in sales volume compensates for the lower price, resulting in higher total revenue.

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  • 6. 

    More supply and less demand _______ market equilibrium price

    • Increases

    • Decreases

    • Remains the same

    • Is indeterminate

    Correct Answer
    A. Decreases
    Explanation
    When there is more supply and less demand, it means that there are more products available in the market than there are buyers. This creates a surplus, causing sellers to lower their prices in order to attract more buyers. As a result, the market equilibrium price decreases.

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  • 7. 

    Price below the market equilibrium price results in 

    • Shortage

    • Surplus

    Correct Answer
    A. Shortage
    Explanation
    When the price of a good is set below the market equilibrium price, it creates a shortage. This means that the quantity demanded by consumers exceeds the quantity supplied by producers. As a result, there is not enough of the good available to meet the demand, leading to a shortage.

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  • 8. 

    If demand is inelastic, price increases ____________  total revenue.

    • Increases

    • Decreases

    • Remains the same

    • Is indeterminate

    Correct Answer
    A. Increases
    Explanation
    When demand is inelastic, it means that the quantity demanded is not very responsive to changes in price. In this case, if the price increases, the total revenue will also increase. This is because the increase in price outweighs the decrease in quantity demanded, resulting in a net increase in revenue.

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  • 9. 

    Which of the following is a type of output?

    • Labor

    • Capital

    • Natural resources

    • Entrepreneurship

    • Economic resources

    • Goods and services

    • Production

    Correct Answer
    A. Goods and services
    Explanation
    Goods and services are considered as types of output because they are the final products or results of the production process. Goods refer to tangible items that can be seen and touched, such as cars or clothes. Services, on the other hand, refer to intangible activities or tasks that are performed for others, such as haircuts or legal advice. Both goods and services are produced to satisfy the needs and wants of consumers and are exchanged in the market in return for money or other forms of payment.

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  • 10. 

    Decreased price causes decreased revenue  

    • Elastic

    • Inelastic

    Correct Answer
    A. Inelastic
    Explanation
    When the price of a product decreases, the demand for it may not increase proportionally. In an inelastic market, the demand for the product is relatively insensitive to changes in price. Therefore, even if the price decreases, the decrease in revenue will not be significant because the demand remains relatively constant. This suggests that the product has a loyal customer base or is a necessity, and consumers are not highly responsive to price changes.

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  • 11. 

    An increase in the availability of substitutes __________ the price elasticity of demand.

    • Increases

    • Decreases

    • Has no effect on

    • Has a indeterminate effect on

    Correct Answer
    A. Increases
    Explanation
    An increase in the availability of substitutes increases the price elasticity of demand. This means that when there are more substitutes available for a particular product, consumers have more options to choose from. As a result, they become more sensitive to changes in price and are more likely to switch to a substitute if the price of the original product increases. This increased sensitivity to price changes leads to a higher price elasticity of demand.

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  • 12. 

    If demand is elastic, price increases  _________ total revenue. 

    • Increases

    • Decreases

    • Remains the same

    • Is indeterminate

    Correct Answer
    A. Decreases
    Explanation
    When demand is elastic, it means that a small change in price will result in a proportionally larger change in quantity demanded. In this case, if the price increases, the quantity demanded will decrease by a greater proportion, leading to a decrease in total revenue. Therefore, the correct answer is "decreases".

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  • 13. 

    An increase in both supply and demand has an indeterminate effect on price and _______ quality

    • Increases

    • Decreases

    • Remains the same

    • Is indeterminate

    Correct Answer
    A. Increases
    Explanation
    When both supply and demand increase, it is difficult to determine the effect on price and quality. An increase in supply typically leads to a decrease in price, while an increase in demand leads to an increase in price. However, the effect on quality is uncertain as it can vary depending on various factors such as production capabilities, market competition, and consumer preferences. Therefore, it is indeterminate whether an increase in both supply and demand will have a positive or negative impact on quality.

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  • 14. 

    Which of the following is not a type of input?

    • Labor

    • Capital

    • Natural resources

    • Entrepreneurship

    • Economic resources

    • Goods and services

    • Production

    Correct Answer
    A. Goods and services
    Explanation
    The given options consist of various types of inputs that are commonly used in the production process. Labor, capital, natural resources, and entrepreneurship are all considered types of inputs as they contribute to the production of goods and services. However, goods and services are not inputs but rather the output of the production process. Therefore, goods and services are not a type of input.

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  • 15. 

    Price ceilings cause 

    • Shortage

    • Surplus

    Correct Answer
    A. Surplus
    Explanation
    Price ceilings set a maximum limit on the price that can be charged for a particular good or service. When the ceiling is set below the equilibrium price, it creates a surplus. This is because the quantity supplied exceeds the quantity demanded at the artificially low price. Suppliers are not willing to supply as much at the lower price, while consumers are willing to buy more at the lower price. As a result, there is an excess supply, leading to a surplus in the market.

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  • 16. 

    An increase in both supply and demand ___________ price and increases quality

    • Increases

    • Decreases

    • Remains the same

    • Is indeterminate on

    Correct Answer
    A. Is indeterminate on
    Explanation
    The statement suggests that an increase in both supply and demand has an indeterminate effect on price and increases quality. This means that it is unclear how the increase in supply and demand will specifically impact price, as it could vary depending on other factors. However, it is stated that the increase in both supply and demand will definitely lead to an increase in quality.

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  • 17. 

    Two goods that are complements in consumption have a __________cross-elasticity of demand.

    • Negative

    • Positive

    Correct Answer
    A. Negative
    Explanation
    Complementary goods are those that are typically consumed together, such as peanut butter and jelly or coffee and cream. When the price of one complementary good increases, the demand for the other complementary good decreases. This is because consumers are less likely to purchase one without the other. Therefore, the cross-elasticity of demand between complementary goods is negative, indicating an inverse relationship between the two goods.

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  • Current Version
  • Mar 20, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Sep 22, 2011
    Quiz Created by
    Ammassoglia
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