Economics Standard 4 Test Review 1. Describe how consumers and producers respond to changes in prices with reference to the laws of demand and supply. 2. What are the determinants of demand? 3. What are the determinants of supply? 4. What is the definition of elasticity of demand? 5. Please provide examples of both an elastic product and an inelastic product. 6. What is the difference between normal goods and inferior goods? Give examples. 7. What is the difference between a complementary and substitute good? Give examples. Peanut Butter CunsumptiOn in August Price Reasons for change in demand, answer questions 8-9 based on the graph. After each of the following events occurs decide whether demand would increase or decrease. Assume a starting point of C. Tell what line the demand curve moves to in the scenario. You can move left or right, but do not skip lines. In the first blank write whether demand increased or decreased and in the second write which curve it would move to. 8. Jelly prices drop. Demand Curve 9. The Surgeon General warns that peanut butter currently contains the E.coli virus. Demand Curve Demand Curve PRICE QUANTITY 10. In the graph, what might explain the movement of the demand curve from D3 to D1? a. a shortage of the product b. an increase in the general income of the region c. an increase in the price of a complementary product d. an increase in the price of a substitute product 11. Dax's annual income increases, so he buys more swiss cake rolls. These are considered a/an...? a. Inferior good b. Determinant of demand c. Normal good d. Determinant of supply 12. Income rises, and initially the demand for sweatshirts increases. As income continues to rise, however, the demand for sweatshirts decreases. This tells us that a sweatshirt is: a. a normal good at all income levels b. an inferior good at all income levels c. an inferior good at low income levels and a normal good at high income levels d. a normal good at low income levels and an inferior good at high income levels pf: I Quorut-t ,r pm Dr'rJQ 13. In the graph, what happened to the equilibrium price when the demand curve moved from Dl to D2? a. It did not change. b. The equilibrium price went up. c. The equilibrium price went down. d. It indicated a decrease in supply. 14. Consumers believe the market price of laptops will decrease in the coming months. Right now, this will: a. increase the supply of laptops b. decrease the supply of laptops c. increase the demand for laptops d. decrease the demand for laptops 15. If the government decided to put a safety regulation on the production of bobblehead Page 3 of 5 dolls the supply curve will shift to the left. the supply curve will shift to the right. the demand for bobble-heads will decrease. the demand for bobbleheads will equal the supply. 9.5-: U5 16. You are the sales managerfor a pizza company and have been informed that the price elasticity of demand for your most popular pizza is very elastic. To increase total revenues, you should (Please highlight the correct answer.) a. increase the price of the pizza. b. decrease the price of the pizza. c. hold pizza prices constant. d. decrease demand for your pizza. 17. The demand for Champion brand hoodies is more price-elastic than the demand for hoodies as a whole. This is best explained by the fact that (Please highlight the correct answer.) a. Champion hoodies are a luxury good, not a necessity. b. Champion hoodies are the best made and are widely advertised. c. There are more complements for Champion hoodies than for hoodies as a whole. d. There are more substitutes for Champion hoodies than for hoodies as a whole. 18. Wireless headphones need foam for the ear pads. The price of foam decreases, so what is the likely result? a. The supply of wireless headsets will increase b. The supply of wireless headsets will decrease c. The quantity demanded of wireless headsets will decrease d. Demand for earbuds will increase 19. How do prices act as signals to allocated goods, services, and productive resources in a market economy? a. Low prices act as an incentive to drive demand higher. b. High prices act as an incentive for producers to decrease inventories. c. Low prices act as an incentive to drive consumers to substitute goods and services. cl. Low prices act as an incentive to increase the supply of a good, service or productive resource. Dollar Price 35 30 25 20 15 10 D O 20 40 60 80 100 120 140 Quantity (Note: lines are red for visibility purposes only. No statement about supply or demand is implied or meant.) 20. The price floor is set at $_and the price ceiling is set at $ -: e. 10, 25 f. 80, 120 g. 25, 10 h. 60, 140 21. The quantity demanded when the government sets the price floor is: a. 60 b. 80 c. 120 d. 140 22. Explain the difference between a "supply curve shift" and "change in quantity supplied." 23. Create and label an Equilibrium Graph with Supply, Demand, and Equilibrium Point