Directions:Each of the questions or incomplete statements below is followed by five suggested answers or completions. Select the one that is best in each case and write the correct letter of your anwer in the space provided for.

___1) During a recession, economies experience increased unemployment and a reduced level of activity. How would a recession be likely to affect the market demand for new cars?

A) Demand will shift to the right.

B) Demand will shift to the left.

C) Demand will not shift, but the quantity of cars sold per month will decrease.

D) Demand will not shift, but the quantity of cars sold per month will increase.

E) All of the above

___2. Unionized workers may be able to negotiate with management for higher wages during periods of economic prosperity. Suppose that workers at automobile assembly plants successfully negotiate a significant increase in their wage package. How would the new wage contract be likely to affect the market supply of new cars?

A) Supply will shift to the right.

B) Supply will shift to the left.

C) Supply will not shift, but the quantity of cars produced per month will decrease.

D) Supply will not shift, but the quantity of cars produced per month will increase.

E) All of the above

___3. An increase in the demand for a good will cause

A) an increase in equilibrium price and quantity.

B) a decrease in equilibrium price and quantity.

C) an increase in equilibrium price and a decrease in equilibrium quantity.

D) a decrease in equilibrium price and an increase in equilibrium quantity.

E) None of the above

___4. An increase in the supply of a good will cause

A) an increase in equilibrium price and quantity.

B) a decrease in equilibrium price and quantity.

C) an increase in equilibrium price and a decrease in equilibrium quantity.

D) a decrease in equilibrium price and an increase in equilibrium quantity.

E) None of the above

___5. The law of demand states that the quantity of a good demanded varies

A) inversely with its price. B) directly with population.C) directly with income.

D) inversely with the price of substitute goods E) None of the above

___6. Which of the following is consistent with the law of demand?

A) A decrease in the price of a gallon of milk causes a decrease in the quantity of milk demanded.

B) An increase in the price of a soda causes a decrease in the quantity of soda demanded.

C) An increase in the price of a tape causes an increase in the quantity of tapes demanded.

D) A decrease in the price of juice causes no change in the quantity of juice demanded.

E) None of the above

___7. A drop in the price of a compact disc shifts the demand curve for prerecorded tapes leftward. Fromthat you know compact discs and prerecorded tapes are

A) normal goods. B) substitutes.C) inferior goods.D) complements. E) luxury

___8. A substitute is a good

A) of higher quality than another good. B) that is not used in place of another good.

B) that can be used in place of another good. D) of lower quality than another good.E) None of the above

___9. People buy more of good 1 when the price of good 2 rises. These goods are

A) normal goods.B) complements.C) substitutes.D) inferior goods. E) luxury

___10. Which of the following pairs of goods are most likely substitutes?

A) compact discs and compact disc players B) lettuce and salad dressing

B) cola and lemon lime soda D) peanut butter and gasoline E) None of tha above

___11. A complement is a good

A) used in conjunction with another good.

B) used instead of another good.

C) of lower quality than another good.

D) of higher quality than another good.

E) None of the above

___12. Suppose people buy more of good 1 when the price of good 2 falls. These goods are A) substitutes.B) inferior.C) normal.D) complements. E. luxury

___13. A change in which of the following alters buying plans for cars but does NOT shift the demandcurve for cars?

A) a 10 percent decrease in the price of car insurance

B) a 20 percent increase in the price of a car

C) a 5 percent increase in people's income

D) an increased preference for walking rather than driving

E) All of the above

___14. Which of the following would NOT shift the demand curve for turkey?

A) a change in tastes for turkey

B) B) a decrease in the price of ham

C) an increase in income

D) a change in the price of a turkey

E) All of the above

___15. Which of the following does NOT shift the supply curve?

A) an increase in the price of the good

B) a fall in the price of a substitute in production

C) a decrease in the wages of labor used in production of the good

D) a technological advance

E) All of the above