Question

1. If the demand curve suddenly shifted leftward, then the supply curve will also “automatically” shift to the left. This always happens.T/F

2. U.S. government often needs taxpayer money to pay for price floors. This money is used to pay off the producers of goods or services. Price floors usually create shortages. T/F

3. If a local politician emotionally believed in their heart and mind that a minimum wage of $35 per hour was a fair wage and that it could also eliminate poverty, then this would be a classic example of the “Fallacy of Composition” mentioned in Chapter 1 T/F

4. If a business created 24/7 customer service, offered a one-year money back guarantee, gave away free prizes to their customers, and charged prices that were less than the competition, then these actions should make the demand curve more inelastic T/F

5. If the pharmaceutical drug companies calculated that the Income Elasticity for a specific drug was + .50, then we say that the drug would be classified as “luxury good.” T/F

6. The law of demand says that says that all else being equal, as the price rises, the quantity demanded will also rise. Conversely, as the price falls, then the quantity demanded will also decline T/F

7. An inferior good is something that has more demand when personal income is lost due to being laid off from a job T/F

8. Deciding whether or not to spend the money for bullet proof vest jackets for U.S. soldiers is a good example of an opportunity cost decision. T/F

9. Substitute goods compete with each other. A good example would be Excedrin and Tylenol headache tablets. If there was a cut in the price of one headache medicine, then we should see a reduction in the quantity demanded of the other headache medicine T/F

10. If new technology is invented that makes production more efficient and less costly, then we should expect to see the supply curve shift to the left. T/F

Answer 1

1. False. Shift in demand curve may or may not cause a shift in supply curve.

2. False. Price floors above the equilibrium price is binding and will create surplus. Price floors below equilibrium price is not binding and has no effect.

3. True. The fallacy of composition is when an individual infers that something is true of the whole because it is true of part of the whole.

4. False. It would make the demand curve more elastic. When prices are reduced, revenue increases. This would mean the demand is elastic.