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CHAPTER 2 - REVIEW

I. Choose ONE correct answer

1. Assume that As supply is constant, A and B are substitute goods. The

decrease in Bs price will lead to:

a. a rightward shift in As demand curve

b. a rightward shift in Bs demand curve

c. a leftward shift in Bs demand curve

d. None

2. The Engel curve describes the relationship between:

a. Price and quantity demanded

b. Income and quantity demanded

c. Price and quantity supplied

d. Taste and quantity demanded

4. The increase in As inputs cost will cause:

a. Supply curve shifts to the left

b. Supply curve shifts to the left

c. Both supply and demand curves shift to the right

d. None

5. Given a downward-sloping demand curve and an upward-sloping

supply curve for a product, an increase in incomes will:a. increase equilibrium price and quantity if the product is a

normal goods

b. decrease equilibrium price and quantity if the product is a

normal goods

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c. have no effects on equilibrium price and quantity

d. reduce quantity demanded, but not shift the demand curve

6. Supply function excludes which of the following determinants?

a. Inputs price

b.Technology

c. Price of related goods and services

d. Expectation

7. The law of demand shows the inverse relationship between:

a. Expectation and quantity demanded

b. Price and income

c. Income and quantity demanded

d. Price and quantity demanded

8. The government sets up floor price in order to:

a. Protect producer/supplier

b. Protect consumer/ buyer

c. promote free international trade

d. none

9. A is elastic demand good. As price increases by 10% will lead to:

a. a reduction in As quantity demanded by more than 10%

b. a reduction As quantity demanded by less than 10%

c. an increase in As quantity demanded by more than 10%

d. an increase in As quantity demanded by less than 10%

10. Cross elasticity of A and B is equal to 2. A and B are:

a. Substitute goods

b. Complement goods

c. Independent goods

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d. none

II. Answer true or false with short explanation and use

diagram if necessary

1. Inferior goods is the one with low quality

2. A and B are complement goods. The increase in As price causes the

decline in Bs price.

3. When both demand and supply curves shifts rightward, equilibrium

price will increase.

4. Taxation per unit imposed on less elastic demand goods makes the

producers bear the smaller part in total tax amount.

5. The increase in price of elastic demand goods will reduce total

revenue

III. Exercises1. Statistics about A in the market are as follows:

P ($/kg) 7 8 9 10 11 12

Q (kg) 11 13 15 17 19 21Q (kg) 20 19 18 17 16 15

a. State out demand and supply curveb. State out equilibrium price and quantity

c. State out the actual quantity in the market at the price of P1 = 8.5$ and

P2=11.5 $

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d. Assume that the government impose a tax of 1$/ unit on producer.

State out new equilibrium price and quantity

2. Bs demand and supply curves are as follows:

P = 3Q 12

P = 18 2Q

(P: $/kg, Q: kg)

a. State out equilibrium price and quantity

b. The government sets up the ceiling price at 4$/kg and supply the

shortage. State out the actual price and quantity in the market.

c. Suppose that the government wants the price and quantity to be equal

to the result in question (b) but by subsidy for producer rather than by

setting ceiling price. State out the subsidy level per kg. In this case,

who will get more benefit, supplier or consumer?