VI. Choose the correct answer

1. Supply tells:

a) how much is produced.

b) how much is purchased.

c) how much it costs.

d) how much is produced at each price.

2. The quantity supplied is directly related to price because:

a) the total cost of production rises as more is produced.

b) more output requires more input which becomes less and less productive.

Thus the extra cost per unit rises and increases the price.

c) the cost of labor goes up as more labor is demanded.

d. It is not. Everyone knows that as you produce more, you give quantity discounts so price and quantity supplied are inversely related.

3. The law of supply says:

a) as price goes up, the quantity supplied goes up.

b) as price goes down, the quantity supplied goes down.

c) as price goes up, the quantity supplied goes down.

d) both a and b.

4. The substitution effect:

a) means that the quantity demanded increases as the price falls because the lower price makes the good a more attractive substitute.

b) shows how the demand curve changes when a substitute is introduced.

c) tells why a substitute is always worse than the real thing.

d) is unrelated to demand.

5. When your school increases tuition, the demand for education at its rival:

a) rises.

b) falls.

c) does not change.

d) shifts to the left.

6. Which does not cause a change in demand?

a) A change in the price of the good.

b) A change in the price of a related good.

c) A change in income.

d) Expectations of a change in price.

7. Two goods are substitutes if:

a) an increase in the price of one causes the demand for the other to rise.

b) an increase in the price of one causes the demand for the other to fall.

c) they are not complements.

d) when the price of one good rises, the price of the other good falls.

8. If the demand for good A goes up as the price of good B falls, you can conclude that goods A and B are:

a) substitutes.

b) normal goods.

c) useful goods.

d) complements.