Economics 11 Name:________________________
Spring 2005 Quiz 2
You are viewing: Which Of The Following Demonstrates The Law Of Demand
Circle the one correct answer.
1. For each good produced in a market economy, demand and supply determine
a. the price of the good, but not the quantity.
b. the quantity of the good, but not the price.
c. both price and quantity.
d. neither price nor quantity is determined by demand and supply, because prices are ultimately set by producers.
Demand and supply determine both the price and quantity, so c. Prices are not ultimately set by producers, but by the interactions fo producers and consumers. If they were set by producers, producers could charge what they want. They can’t.
2. Which of the following demonstrates the law of demand?
a. Dave buys more donuts at $0.25 each than at $0.50 each.
b. Jon buys more pretzels at $1.50 each since he got a $1 raise at work.
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c. Melissa buys fewer muffins at $0.75 each than at $1 each.
d. Kendra buys fewer Snickers at $0.60 each since the price of Milky Ways fell to $0.50 each.
a. is correct since the law of demand says that as prices fall, Dave will buy more donuts. That’s what he does.
b. says Jon bought more pretzels because his income went up. There’s no violation of the law of demand here, but this just says the demand curve shifts rightward when income rises.
c. is incorrect. As prices fall, Melissa bought fewer muffins. The law of demand is just the opposite.
d. When the price of Milky Ways falls, Kendra will buy more Milky Ways and fewer Snickers (a substitute). But this is not the law of demand. this relates to demand curve shifting as a result of a price change of a substitute.
Remember that the Law of Demand says that when the price of something goes up, holding all else constant, the quantity purchased will fall.
3. All else constant, an increase in the number of cattle delivered to an auction to be marketed would
a. represent an increase in the supply of cattle at the auction.
b. represent an increase in demand for cattle at the auction.
c. represent a decrease in the number of sellers at the auction.
d. have no effect on the demand or supply at the auction.
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If producers deliver more cattle to an auction, the supply curve has increased, which is (a). We know that this was not a movement up the supply curve because the statement says all else is constant.
4. If, at the current price, there is a shortage of a good,
a. sellers are producing more than buyers wish to buy.
b. the market must be in equilibrium.
c. the price is below the equilibrium price.
d. quantity demanded equals quantity supplied.
If there is a shortage, sellers are producing less than buyers wish to buy. The market cannot be in equilibrium if there is a shortage. When price is below equilibrium price, the quantity demanded is greater than quantity supplied, so c is correct.
5. One problem with social security is that
a. current social security taxes are not sufficient to pay all current retirees.
b. in several decades, social security taxes will not be sufficient to pay promised benefits to future retirees.
c. in several decades, there will be no money left to pay anything to retirees.
d. all the above are problems with social security.
As we discussed in class, a is incorrect. Indeed, currently SS takes in more tax revenues than it pays out in benefits. B is correct. C is incorrect because if nothing is done, future retirees (after 2042) will receive about 30% less in benefits than they have been promised, but they will still get 70%.
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