True/False

Indicate whether the sentence or statement is true or false.

A perfectly competitive market consists of products that are all slightly different
1. from one another.
Name:

In a perfectly competitive market, each seller has a negligible impact on the

2. market price.

The law of demand states that an increase in the price of a good decreases the
chapter 4 3. demand for that good.
Microeconomics ECN 2103
If apples and oranges are substitutes, an increase in the price of apples will
4. decrease the demand for oranges.
If golf clubs and golf balls are complements, an increase in the price of golf clubs
5. will decrease the demand for golf balls.
If consumers expect the price of shoes to rise, there will be an increase in the
6. demand for shoes today.
The law of supply states that an increase in the price of a good increases the
7. quantity supplied of that good along its supply curve.
An increase in the price of steel will shift the supply of cars to the right.
8.
When the price of a good is below the equilibrium price, it causes a surplus (i.e.
9. an excess supply) of this good.
The market supply curve is the horizontal summation of the individual supply
10. curves.
If there is a shortage (i.e. an excess demand) of a good, then the price of that good
11. tends to fall.
If pencils and paper are complements, an increase in the price of pencils causes
12. the demand for paper to decrease or shift to the left.
If Coke and Pepsi are substitutes, an increase in the price of Coke will cause an
13. increase in the equilibrium price and quantity in the market for Pepsi.
An advance in the technology employed to manufacture roller blades will result
14. in a decrease in the equilibrium price and an increase in the equilibrium quantity
in the market for roller blades.
If there is an increase in supply accompanied by a decrease in demand for coffee,
15. then there will be a decrease in both the equilibrium price and quantity in the
market for coffee.
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
A perfectly competitive market has
16. a. firms that set their own prices.

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Market
A group of buyers and sellers of a particular good or service
Competitive Market
A market in which there are many buyers and sellers so that each has a negligible impact on the
market price
Monopoly
Market with only one seller
Quantity Demanded
The amount of a good that buyers are willing and able to buy
Law of Demand
The claim that, other things equal, the quantity demanded of a good falls when the price of a
good rises
Demand Schedule
A table that shows the relationship between the price of a good and the quantity demanded
Demand Curve
A graph of the relationship between the price of a good and the quantity demanded
Normal Good
A good for which, other things being equal, an increase in income leads to an increase in demand
Inferior Good
Increase in income leads to a decrease in demand
Substitutes
Two goods for which an increase in the price of one leads to an increase in the demand for the
other
Compliments
Increase in the price for one leads to a decrease in the demand for the othe
Quantity Supplied
The amount of a good that sellers are willing and able to sell
Law of Supply
The quantity supplied of a good rises when the price of a good rises
Supply Schedule

A table that shows the relationship between the price of a good and the quantity supplied
Supply Curve
A graph of the relationship between the price of a good and the quantity supplied
Equilibrium
Situation in which the price has reached the level where quantity supplied equals quantity
demanded
Equilibrium Price
The price that balances the quantities supplied and demanded
Equilibrium Quantity
The quantities supplied and demanded at equilibrium
Surplus
When quantity supplied is greater than quantity demanded
Shortage
When quantity demanded is greater than quantity supplied
Law of Supply and Demand
The claim that the price of any good adjusts to bring the quantities supplied and demanded for
that good into balance

choice
A Perfectly Competitive market consists of products that are all slightly different from
one another.
False
A monopolistic market has only one seller
True
The law of demand states that an increase in the price of a good decreases the demand for that
good
False

If apples and oranges are substitutes, an increase in the price of a good decreases the demand for
that good
False

If golf clubs and golf balls are compliments, an increase in the price of golf clubs will decrease
the demand for golf balls
True

If consumers expect the price of shoes to rise, there will be an increase in the demand for shoes
today
True

The law of supply states that an increase in the price of a good increases the quantity supplied of
that good

True

An increase in the price of steel will shift the supply of automobiles to the right
False

When the price of a good is below the equilibrium price, it causes a surplus. The market supply
curve is the horizontal summation of the individual supply curves
False

If there is a shortage of a good, then the price of that good tends to fall
True

If pencils and paper are complements, an increase in the price of pencils causes the demand for
paper to decrease and shift to the left
False

If Coca-Cola and Pepsi are substitutes, an increase in the price of Coca-Cola will cause an
increase in the equilibrium price and quantity in the market for Pepsi
True

An advance in the technology employed to manufacture rollerblades will result in a decrease in

the equilibrium price and an increase in the equilibrium quantity in the market for rollerblades
True

If there is an increase in supply accompanied by a decrease in demand for coffee, then there will
be a decrease in both the equilibrium price and quantity in the market for coffee
False

A perfectly competitive market has...

C) Many buyers and sellers

If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then
blue jeans and tennis shoes are...
A) Substitutes

The law of demand states that an increase in the price of a good...

B) Decreases the quantity demanded for that good

The law of supply states that an increase in the price of a good...

D) Increases the quantity supplied of that good

If an increase in consumer income leads to a decrease in the demand for camping equipment,
then camping equipment is...
D) An inferior good

A monopolistic market has...

A) only one seller

Which of the following shifts the demand for watches to the right..?
C) A decrease in the price of watch batteries if watch batteries and watches are complements

All of the following shift the supply of watches to the right except...
A) An increase in the price of watches

If the price of a good is above the equilibrium price...

B) There is a surplus and the price will fall

If the price of a good is below the equilibrium price

C) There is a shortage and the price will rise

If the price of a good is equal to the equilibrium price

E) The quantity demanded is equal to the quantity supplied and the price remains unchanged

An increase (rightward shift) in the demand for a good will tend to cause
A) An increase in the equilibrium price and quantity

A decrease (leftward shift) in the supply for a good will tend to cause
C) An increase in the equilibrium price and a decrease in the equilibrium quantity

Suppose there is an increase in both the supply and demand for personal computers. In the
market for personal computers, we would expect the
D) equilibrium quantity to rise and the change in the equilibrium price to be ambiguous

Suppose there is an increase in both the supply and demand for personal computers.
Furthermore, suppose the supply of personal computers increases more than demand. In the
market for personal computers, we would expect the
B) Equilibrium quantity to rise and the equilibrium price to fall

Which of the following statements is true about the impact of an increase in the price of lettuce?
D) The equilibrium price and quantity of salad dressing will fall

Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer
tastes shift toward orange juice. What would we expect to happen to the equilibrium price and
quantity in the market for orange juice?
A) Price will increase, quantity is ambiguous

Suppose consumer tastes shift toward the consumption of apples. Which of the following
statements is an accurate description of the impact of this event on the market for apples?
A) There is an increase in the demand for apples and the quantity supplied of apples

Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future.
What would we expect to happen to the equilibrium price and quantity in the market for wheat
today?
B) Price will increase, Quantity is ambiguous

An inferior good is one for which an increase in income causes a

decrease in demand