Unit 4 (Microeconomics) Review

Complements are products that can

• be substituted for each other

• maintain on high demand

• maintain a high price

• be used in combination with each other

Answer explanation

Complements are products that enhance each other's use, meaning they are used in combination with each other. This distinguishes them from substitutes, which can replace one another.

A leftward shift of a product supply curve might be caused by

• An improvement in the relevant technique of production

• A decline in the prices of needed production materials

• An increase in consumer incomes

• Some firms leaving an industry

Answer explanation

A leftward shift in the supply curve indicates a decrease in supply. This can occur when some firms leave an industry, reducing overall production capacity. The other options would typically increase supply.

Government regulations, such as a tax for excessive pollution will result in

• a rightward shift in supply

• no change in supply

• a leftward shift in supply

• price equilibrium

Answer explanation

Government regulations like a tax on excessive pollution increase production costs for firms. This leads to a decrease in supply, causing a leftward shift in the supply curve.

At a given price, if quantity demanded is greater than quantity supplied, the price is below the

• equilibrium price

• demand price

• point of elasticity

• supply price

Answer explanation

When quantity demanded exceeds quantity supplied, it indicates a shortage, meaning the price is below the equilibrium price where supply equals demand. Thus, the correct answer is equilibrium price.

What effect would an increase in the price of a good have on a substitute good?

• Demand for the substitute good would increase.

• Demand for the substitute good would decrease.

• There would be no change in demand.

• Consumers would by a complementary good instead.

Answer explanation

When the price of a good increases, consumers tend to look for alternatives. Therefore, the demand for the substitute good would increase as people switch to it to avoid the higher price of the original good.

The equilibrium price is the price at which

• quantity supplied equals quantity demanded

• suppliers make a profit

• suppliers lose money

• demand causes price to rise

Answer explanation

The equilibrium price is defined as the point where quantity supplied equals quantity demanded, ensuring a balance in the market. This is the correct choice, as it reflects the fundamental concept of market equilibrium.

An effective minimum wage must be placed _ equilibrium and will cause _ to be greater than _.

• above, Qd, Qs

• above, Qs, Qd

• below, Qs, Qd

• below, Qd, Qs

Answer explanation

An effective minimum wage must be placed above equilibrium, leading to quantity supplied (Qs) being greater than quantity demanded (Qd). This creates a surplus in the labor market.

Which of the following might shift the demand curve for gasoline to the left?

• The discovery of vast new oil reserves in Montana.

• A large decline in the price of automobiles.

• An increase in the price of train and air transportation.

• The development of a low-cost electric automobile.

Answer explanation

The development of a low-cost electric automobile would provide consumers with an alternative to gasoline, reducing its demand and shifting the demand curve for gasoline to the left.

As the price of an item increases, the quantity demanded

• increases

• decreases

• stays the same

• can't be determined

Answer explanation

As the price of an item increases, consumers typically buy less of it due to the law of demand. Therefore, the quantity demanded decreases.

Which statement describes the law of demand?

• as price rises, quantity demanded decreases

• as price rises, demand decreases

• as price falls, quantity demanded decreases

• as price falls, demand decreases

Answer explanation

The law of demand states that as price rises, quantity demanded decreases. This means consumers buy less of a good when its price increases, making the first choice the correct statement.