Above: “I now belong to Ms. Cawthorn.”
Yesterday’s Juice contained Economics info on Supply and Demand as well as a quiz based on this information.
First, congratulations are in order. Kathleen Cawthorn submitted a perfect quiz at 9:14 AM on Monday, April 28th, 2014. Kathleen wins the fifty which I hope she spends wisely … on me. 🙂
Now let’s go over the answers to the quiz along with explanations as required.
1. The theory of conspicuous consumption dictates that consumers who want to be perceived as wealthy may desire more expensive items as a means of showing off. Which one of the following relationships among price, supply and demand, is contradicted by the behaviour of these so-called “conspicuous consumers”?
A) Price Up; Demand Down
B) Price Down; Demand Down
C) Demand Up; Price Down
D) Supply Down; Price Up
ANSWER: (A) is the correct answer and gives the usual relationship between Price and Demand. In the case of conspicuous consumption, however, consumers act according to the following relationship between Price and Demand: Price Up; Demand Up.
Conspicuous consumers are after the most expensive resto meals, the dearest cars, etc. in order to show off, to be seen to be rich.
2. There is a shortage of homes on the market. In this situation, [FILL IN THE BLANK], the price of homes will _RISE__________.
EXPLANATION: Supply Down, Price Up. A shortage means that there is not enough Supply.
3. Use your understanding of the eight economic laws of supply and demand to answer this question.
In which one of the following situations is the demand for sports cars likely to increase?
A) The government increases the excise tax on luxury items.
B) Producers are forced to reduce the supply of sports cars because of a steel shortage.
C) American manufacturers reduce the price of sports cars by 10% in order to compete more successfully with Japanese imports.
D) The unemployment rate has been increasing steadily for more than a year now, and increasing numbers of consumers have seen their incomes decline.
ANSWER: (C) — Price Down, Demand Up
(A) would serve to reduce to demand rather than increase it. (Price Up, Demand Down)
(B) is incorrect due to the validity of the following sequence: Supply Down, Price Up/Price Up, Demand Down.
(D) is incorrect due to the fact that decreased consumer incomes would serve to reduce demand.
4. In which one of the following situations will the supply of a good INCREASE over the long term?
A) The price of a good rises.
B) The price of a good falls.
C) Demand for a good decreases.
D) None of these is correct.
ANSWER: (A) — Price Up, Supply Up.
(C) is incorrect because of the validity of the following sequence: Demand Down, Price Down/Price Down, Supply Down.
5. Prior to the April 7th election which threw it out of power, the Parti-Québécois was threatening a referendum on sovereignty which caused a significant number of home-owners to contemplate putting their homes on the market. What effect would this action by home-owners have had on the price of homes if, in fact, home-owners ended up putting their homes up for sale?
Answer: Price of homes will [FILL IN THE BLANK] _____FALL____________ due to the following: Supply Up, Price Down
6. NOTE: In order to get credit for the following question (#6) both parts of it have to be answered correctly.
A) A clothing store in a mall declares bankruptcy and closes its doors thereby reducing the number of clothing stores in that mall from three to two. What effect will this action have on the price of clothes in that particular mall? Answer: Price of clothes will [FILL IN THE BLANK] ______RISE___________.
B) Please provide the law of supply, price and demand to explain your answer to question #6 (A) above. [FILL IN THE BLANK] The law is Supply Down, Price Up.
EXPLANATION A closed store will reduce the number of merchants selling clothes in that particular mall, thus cutting the supply of clothes as well.
7. The price of a good falls in the marketplace. In response to this price decrease, will the typical producer increase or decrease production? ANSWER: _____DECREASE________ due to the following relationship which exists between price and supply: Price Down, Supply Down.
8. The price of CD’s decreases by 15%. What effect will this price decrease have on the number of CD’s demanded by consumers? ANSWER: Demand will ____INCREASE___________ here due to the following relationship which exists between price and demand: Price Down, Demand Up.
9. NOTE: In order to get credit for the following question (#9) both parts of it have to be answered correctly.
(A) The Montreal Canadiens have been doing very well lately. What effect will this have on the price that scalpers can procure for Canadiens play-off tickets?
ANSWER: _____PRICE WILL INCREASE_____________.
(B) Which one of the eight laws of demand and supply explains your answer to (A) above?
Two possibilities here: Either Demand Up, Price Up OR Supply Down, Price Up.
END OF QUIZ ANSWERS