Economics 172                                                 Name:

Spring 2006                             Quiz 1 Solutions

1.   An increase in the quantity supplied

a.         shifts the supply curve to the right.  No, don’t confuse a shift vs a change in the quantity supplied.

b.         shifts the supply curve to the left.

c.         indicates a movement up the supply curve. YES

d.         makes the supply curve flatter. No, there is no impact on the slope of the curve.

2.  A drought in the Midwest will raise the price of wheat because of a

a.         leftward shift in the supply curve.  A drought reduces the amount that producers are willing and able to supply at any price.

b.         rightward shift in the supply curve.  …therefore a drought will not increase supply.

c.         leftward shift in the demand curve. Consumers don’t care about a drought.  It does not affect their demand .  It does affect quantity demanded because the price rises.

d.         rightward shift in the demand curve

3.  The figure  shows a graph of the market for pizzas in a large town. At a price of $14, there will be

a.            no pizzas supplied.   Suppliers will supply lots of pizzas for $14.

b.            equilibrium.  No, quantity supplied and quantity demanded are very different.

c.            excess supply.   The amount supplied will be greater than the amount demanded.

d.            excess demand.  No, there will not be more demanded than supplied.

4.  If the price of automobiles were to decrease substantially, the demand curve for automobiles would most likely

a.         shift rightward.   Price does not cause a demand shift either right or left.

b.         shift leftward.

c.         remain unchanged.   A price increase will not change demand.

d.         become steeper.  No, there is no impact on slope.

5.  Over the past 25 years, the relative price of a college education has increased greatly. During the same time period, college enrollment has also increased. The best explanation for this is that during this time period

a.         the demand curve for a college education has shifted leftward.

b.         the demand curve for a college education has shifted rightward.  Clearly this is the best explanation.  Demand has risen due to an increased payoff of a college education.  See this article, for example:  http://minneapolisfed.org/pubs/region/05-12/education.cfm

c.         the supply curve for a college education has shifted leftward.

d.         the supply curve for a college education has shifted rightward.