Multiple-Choice Questions
1. Changes in prices of a good causes
a. Movement along the demand curve.
b. Movement along the supply curve.
c. No effect to either curve.
d. Both a and b

2. If the market for a certain product experiences an increase in supply and a decrease in demand, which of the following results is expected to occur?
a. Both equilibrium price and the equilibrium quantity could rise or fall.
b. Equilibrium price would rise, and the equilibrium quantity could rise or fall.
c. Equilibrium price would fall, and the equilibrium quantity could rise or fall.
d. Equilibrium price would fall, and the equilibrium quantity would fall.

3. When demand for a product falls, which of the following events would you NOT necessarily expect to occur?
a. A decrease in the quantity of the product supplied
b. A decrease in its price
c. A decrease in the supply of the product
d. A leftward shift of the demand curve

4. Suppose recent and widely circulated medical article reports new benefits of cycling exercise. Simultaneously, the price of the parts needed to make bikes falls. If the change in supply is greater than the change in demand, the price will and the quantity will.
a. rise, rise
b. rise, fall
c. fall, rise
d. fall, fall

5. Suppose there are nine sellers and nine buyers, each willing to buy or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4, $3, $2}. Assuming no transactions costs and a competitive market, what is the equilibrium price in this market?
a. $5
b. $6
c. $7
d. $8

6. If the government imposes a price floor at $9 (i.e., price must be $9 or higher) in the above market, how many goods will be traded?
a. Five
b. Four
c. Three
d. Two

7. Suppose there is a single market maker in this market. What is the optimal bid-ask spread?
a. $2 bid; $10 ask
b. $4 bid; $8 ask
c. $5 bid; $7 ask
d. $6 bid; $6 ask

8. Now suppose that competition among several market makers forces the spread down to $2. How many goods are traded?
a. Five
b. Four
c. Three
d. Two

9. The price of peanuts increases. At the same time, we see the price for Jelly rise. How does this affect the market for peanut butter?
a. The demand curve will shift to the left; the supply curve will shift to the left.
b. The demand curve will shift to the left; the supply curve will shift to the right.
c. The demand curve will shift to the right; the supply curve will shift to the left.
d. The demand curve will shift to the right; the supply curve will shift to the right.

10. Holding other factors constant, a decrease in the tax for producing coffee causes
a. The supply curve to shift to the left, causing the prices of coffee to rise.
b. The supply curve to shift to the right, causing the prices of coffee to rise.
c. The supply curve to shift to the left, causing the prices of coffee to fall.
d. The supply curve to shift to the right, causing the prices of coffee to fall.