Name:_____________________________________ (edit)
1.
Of the list below which is a common mistake people make when determining the success of an
economic policy? (1 point)
a.
b.
c.
d.
e.
Judging the policy only on its initial outcomes and not future phases.
Making a judgment on a policy based only on its impacts for one isolated group of people.
Focusing on what is seen and forgetting what is unseen
Judging a policy on its intentions and not its outcomes
All of the above.
2.
Of the options below which best describes the Law of Demand? (1 point)
Price
Demand
Quantity
a.
b.
c.
d.
3.
The law of demand states that price and demand have an inverse relationship.
The law of demand states that price and demand have a direct relationship.
The law of demand states that there is not as relationship between price and demand, only supply and
demand.
The law of demand states that although there is a relationship between price and demand, the supply of a
product must be known to completely understand the relationship.
Of the options below which best describes the Law of Supply? (1 point)
Price
Supply
Quantity
a.
b.
c.
d.
The law of supply states that price and supply have an inverse relationship.
The law of supply states that price and supply have a direct relationship.
The law of supply states that there is not as relationship between price and supply, only supply and
demand.
The law of supply states that although there is a relationship between price and supply, the demand for a
product must be known to completely understand the relationship.
4.
The quantity where price has adjusted so that quantity demanded is equal to quantity supplied. The
amount that the buyers are willing and able to purchase matches the amount that producers are
willing and able to sell.
Supply
Price
Demand
Quantity
How would an economist describe the situation outlined above? (circle all of the correct answers)
(4 points)
a.
b.
c.
d.
Quantity demanded and quantity supplied have converged to a point of equilibrium.
The only possible way for the situation outlined above to occur is if the Government establishes price
controls.
Marginal Benefit is greater than Marginal Cost.
In the absence of change, prices should stabilize at the point.
Use the following headline to answer questions 4 through 7
“Prices predicted to rise 40% on peanuts,” Oct. 18th 2011.
5.
What will happen to the current demand for Peanut Butter? (1 point)
a. No change
b. An increase in demand
c. A decrease in demand
d. Cannot tell from the information provided
Explain (1 point):
Draw the Shift and explain what will happen to the price- label correctly (3 points)
S1
Price
P1
D1
Q1
Quantity
6.
If we consider Grape Jelly as a complementary product to Peanut Butter predict what will happen
to the demand for Jelly when the price of peanut butter increases? (1 point)
a.
b.
c.
d.
No change
An increase in demand
A decrease in demand
Cannot tell from the information provided
Explain (1 point):
Draw the Shift and explain what will happen to the price- label correctly (3 points)
Price
P1
D1
Q1
7.
Quantity
Why will the future price of peanut butter increase? (1 point)
a.
b.
c.
d.
Demand will increase
Supply will decrease
Both A and B
Cannot tell from information
Explain: (1 point)
Short Answer
8.
s
Government Price Control
Pe
d
Qe
a.
b.
c.
d.
What type of Price Control is diagramed above?_______________________ (1 point)
Based on history and this diagram what will be the outcome of this specific type of price
control?_____________________ (1 point)
Provide a real-life example of this type of price control._____________________ (1 point)
What is the relationship between supply and demand?_____________________(1 point)
9.
s
Pe
Government Price Control
d
Qe
a.
b.
c.
d.
10.
What type of Price Control is diagramed above?_______________________ (1 point)
Based on history and this diagram what will be the outcome of this specific type of price
control?_____________________ (1 point)
Provide on real-life example of this type of price control._____________________ (1 point)
What is the relationship between supply and demand?_______________________ (1 point
Answer the following questions regarding inelastic and elastic demand.
Product A
a.
b.
c.
d.
e.
Product B
Product C
Product D
Product B is more inelastic than Product A- draw product B’s demand slope. (1 point)
Product C is more elastic than Product A- draw the demand slope for Product C (1 point)
Product D is perfectly inelastic- draw its demand slope (1 point)
In terms of price what does it mean to say that a product’s demand is inelastic? (1 point)
Provide one example of an inelastic product and explain your answer.(1 point)
Government Impacts on Supply and Demand Shifters
For each piece of information determine how the government will shift either the supply or demand.
Determine what will happen to price
11. Impact on Demand Cigarettes?
Price
S1
P1
D1
Q1
Quantity
12. Maryland to reduce state issued firearms dealer licenses. Impact on supply for firearms?
Price
S1
P1
D1
Q1
Quantity
13. Whitehouse proposes tax breaks for Big Oil Companies.
What will be the impact on demand for Solar Panels?
Price
S1
P1
D1
Q1
Quantity
14. Over the Summer Joe went on a cruise. One night, the cruise served all-you-can eat lobster.
Lobster happens to be Joe’s favorite food and he was planning to eat as many plates as possible. An
economist on board decided to conduct an experiment and asked Joe and others to fill out the
following chart after he ate each lobster. Below is a copy of the results.
Lobster #
0
1
2
3
4
5
rate satisfaction (1 poor- 10 great)
NA
10
8
6
2
1
How much would you pay for that Lobster?
$0.00
$30.00
$24.00
$12.00
$4.00
$0.00
What economic law do the results prove?_________________ (1 point)
Obama Plans Won't Cut Oil Prices For Decades, If
Ever 3/22/12
By JOHN MERLINE, INVESTOR'S BUSINESS DAILY Posted 08:02 AM ET
Whenever the subject of drilling comes up, President Obama consistently discounts it as a way
to lower oil prices.
During his 2008 presidential run, for example, Obama blasted his Republican opponent for
proposing to lift the nearly 30-year congressional ban on offshore drilling.
"Offshore drilling would not lower gas prices today, it would not lower prices tomorrow," he said,
"it would not lower gas prices five years from now."
Using what you know about supply and demand shifters, determine if President Obama
is correct in his prediction about the impact of offshore drilling and the price of oil.
Price
S1
P1
D1
Q1
Quantity
Explain:
View Enlarged Image
Instead, Obama has been touting an "all of the above" policy, which focuses less on what he
calls the "fuel of the past" and more on things like alternative energy and improved efficiency.
He will tout this approach again on Thursday at stops in Oklahoma and Ohio.
Using what you know about supply and demand shifters, determine if the President’s “all
of the above policy” works what will happen to the price of oil?
Price
S1
Explain:
P1
D1
Q1
Quantity
But will those other efforts work any better than would aggressively pursuing more oil
production?
An IBD review of the president's energy proposals finds that, if they have any effect on oil
consumption and prices at all, it won't be for decades. Among the main ideas in his energy plan:
Wind, solar, etc.: Obama argues for expanding the use of renewable fuels, such as wind, solar
and biofuels. "It's time," he says, "to double down on clean energy industries that have never
been more promising." But the federal Energy Information Administration says these will
account for just 13% of the nation's energy production as far out as 2035, up from 7% today. In
contrast, traditional fuels — such oil, coal and natural gas — will still make up 73%. A separate
report from the EIA shows that these energy sources are still a long way from being
economically viable without heavy government subsidies. And the Obama administration has
directed billions of dollars in grants and loans to this industry, only to see some companies —
like Solyndra — spectacularly fail.
Algae: In his February energy speech, Obama talked up algae as an alternative fuel source.
"Believe it or not, we could replace up to 17% of the oil we import for transportation with this fuel
that we can grow right here in the United States," he said.
But the study backing up that statistic simply assumes that "numerous technical challenges to
achieving commercial-scale (algae fuel) production can be met." Right now, nobody knows if or
when that will happen. Plus, producing that much algae fuel would require large amounts of land
and water, the study notes.
Efficiency: In his "Blueprint for a Secure Energy Future," Obama talks about "the enormous
benefits that come with greater energy efficiency." The only problem is that the country has
already made huge strides in improving efficiency, but that hasn't prevented sky-high energy
prices.
In fact, from 1990 to 2007, the amount of energy used per dollar of gross domestic product fell
27%. But overall consumption climbed 20% as the economy grew, and today's inflation-adjusted
gasoline price is 130% higher today than in 1990. Some economists point out that greater
efficiency actually encourages more economic growth, with the result that the trend on actual
energy use doesn't change that much.
Fuel economy: Obama has pushed through a significant increase in the "corporate average fuel
economy" standard automakers must meet for new car sales, hiking it to 54.5 mpg by 2025. "It
means that this country will reduce our oil consumption by more than 2 million barrels a day," he
said.
Using what you know about supply and demand shifters, predict what will happen to the
price of cars if automakers fail to meet the standards and cannot place their cars on the
market.
Price
S1
Explain:
P1
D1
Q1
Quantity
Even assuming car companies can meet that standard — right now only the low-selling Nissan
(NSANY) Leaf and Chevy (GM) Volt do — these savings won't appear for decades, since it
takes at least 10 years for the fleet of cars to turn over.
Even then, they will be less than Obama advertises. The fuel economy mandate had been 27.5
mpg for more than two decades, but average mileage for cars on the road in 2009 was still just
22.5 mpg, according to the latest Oak Ridge National Laboratory report.
Plus, consumers could easily cancel out some of the gains by changing behavior. "Fuel
economy standards make it cheaper for people to go a mile, so some will use those savings to
travel more, or get two cars," said American Enterprise Institute energy expert Ken Green.
Assuming the author is correct about people traveling more or buying two cars and
using what you know about supply and demand shifters, determine what will happen to
the future price of oil.
Price
S1
Explain:
P1
D1
Q1
Quantity
Task force: Obama said he was "reconstituting" a task force to investigate oil price gouging. But
numerous investigations into the oil industry, all sparked by previous price spikes, consistently
found that supply and demand set the price of oil. Obama himself admits that "the biggest
reason prices will probably keep going up is growing demand in countries like China, India and
Brazil."
Using what you know about supply and demand shifters determine how the increase of
demand from China, India, and Brazil have impacted to the price of oil.
Price
S1
Explain:
P1
D1
Q1
Quantity
Oil industry taxes: Obama wants to repeal various oil industry tax breaks — calling them
subsidies — that add up to $4 billion a year. But even the White House admits that getting rid of
them won't reduce oil prices or boost production. "From our perspective, it's a fairness issue,"
said White House energy advisor Heather Zichal.
In the end, reducing dependence on foreign oil and lowering prices in the near term will likely
still require a significant increase in domestic production.
The administration argues that it's already boosting oil production, but that this hasn't had any
effect on prices. However, the oil production increase has been modest — just 14% over the
past three years off of historically low levels. Plus, even with these gains, oil production in 2011
was below the level set way back in 1948. And it's 41% below the country's peak oil production
in 1970, according to the EIA.
Obama's own Jobs Council, meanwhile, has urged a more aggressive effort to go after the
country's abundant oil supplies — in addition to pursuing other forms of energy.
"Further expanding and expediting the domestic production of fossil fuels both offshore and
onshore," the report said, "will reduce America's reliance on foreign oil and the huge outflow of
U.S. dollars."