In March 2012, the state of California started requiring that all packaging for food and drink with the additive 4-methylimidazole (4-MI) be clearly labeled with a cancer warning. Because of this, both Pepsi and Coke changed their formula to eliminate 4-MI as an ingredient. If Pepsi and Coke did NOT change their formula, holding all else constant, what do you think would have happened to the demand for these goods, assuming Pepsi and Coke were in a competitive market?

21.    In March 2012, the state of California started requiring that all packaging for food and drink with the additive 4-methylimidazole (4-MI) be clearly labeled with a cancer warning. Because of this, both Pepsi and Coke changed their formula to eliminate 4-MI as an ingredient. If Pepsi and Coke did NOT change their formula, holding all else constant, what do you think would have happened to the demand for these goods, assuming Pepsi and Coke were in a competitive market?
a.    The demand curve for both Pepsi and Coke would have shifted to the right, causing the price of both products to decrease and the profits for the companies to fall.
b.    The demand curve for Pepsi and Coke would have remained unchanged, but the price of both products would have decreased and the profits for the companies would have fallen.
c.    The demand curve for Pepsi and Coke would have decreased, but the prices and profits would not have changed.
d.    The demand curve for only one of them would change because Pepsi and Coke are substitutes.
e.    The demand curve for Pepsi and Coke would have shifted to the left, causing the price of both products to decrease and the profits for both companies to fall.


ANS:    E    DIF:    Difficult    REF:    Shifts in the Demand Curve
TOP:    II.B.3.    MSC:    Applying

    22.    An expectation of a lower price in the future will:
a.    increase current demand.
b.    decrease current demand.
c.    not change demand.
d.    cause demand to stay the same but increase the quantity demanded.
e.    cause demand to stay the same but decrease the quantity demanded.


ANS:    B    DIF:    Medium    REF:    Shifts in the Demand Curve
TOP:    II.B.4.    MSC:    Understanding       

    23.    The demand curve for a good will shift to the right if, holding all else constant,
a.    consumers expect future prices to decrease.
b.    an input cost of the item goes up.
c.    consumers expect future prices to increase.
d.    the price of the good goes down.
e.    the price of a substitute good goes down.


ANS:    C    DIF:    Medium    REF:    Shifts in the Demand Curve
TOP:    II.B.4.    MSC:    Understanding       

    24.    Chuck drives past the same gas station every day. He realizes that the gas station always changes its prices on Tuesdays but keeps the price steady the rest of the week. On Saturday, Chuck turns on the news and hears a report projecting that the price of gasoline is going to increase. Holding all else constant, what do you think would happen to Chuck’s demand for gasoline on Monday?
a.    His demand would shift to the right.
b.    His demand would shift to the left.
c.    You would see a movement down on his demand curve but no shift.
d.    You would see a movement up on his demand curve but no shift.
e.    You would see nothing happen to his demand curve until the price changed on Tuesday.


ANS:    A    DIF:    Medium    REF:    Shifts in the Demand Curve
TOP:    II.B.4.    MSC:    Applying

    25.    Changes in population can:
a.    alter the supply of a good or service in an area.
b.    shift the supply curve of a good or service in an area.
c.    cause the price of a good or service to increase in an area but cannot cause the price to decrease.
d.    cause the price of a good or service to decrease in an area but cannot cause the price increase.
e.    shift the demand curve of a good or service in an area.


ANS:    E    DIF:    Medium    REF:    Shifts in the Demand Curve
TOP:    II.B.5.    MSC:    Remembering       

    26.    

The demand curve shift shown in the figure was caused by a(n):
a.    increase in the input cost of the good.
b.    increase in the price of a substitute of the good.
c.    decrease in the number of firms selling the good.
d.    decrease in the number of buyers in the market for the good.
e.    expectation that the future price of this good will be higher than it is currently.


ANS:    D    DIF:    Medium    REF:    Shifts in the Demand Curve
TOP:    II.B.5.    MSC:    Understanding       

    27.    As more people migrated West during the gold rush, what do you think happened to the demand curve in most Western markets, holding all else constant?
a.    The demand curve shifted to the right.
b.    The demand curve shifted to the left.
c.    There was no shift, but there was an increase in quantity demanded.
d.    There was no shift, but there was a decrease in quantity demanded.
e.    There was no shift, nor any increase or decrease in quantity demanded.


ANS:    A    DIF:    Easy    REF:    Shifts in the Demand Curve
TOP:    II.B.5.    MSC:    Applying

    28.    As the life expectancy in the United States increases, which of the following could likely happen to the demand curve for items such as health care, cancer treatments, and nursing facilities, holding all else constant, and why?
a.    There would be a decrease because individuals are healthier.
b.    There would be an increase because the cost of these items is falling.
c.    There would be an increase because there will be more buyers in these markets.
d.    There would be a decrease because Social Security benefits are running out.
e.    They will stay the same because these changes would affect the supply curve and not the demand curve.


ANS:    C    DIF:    Medium    REF:    Shifts in the Demand Curve
TOP:    II.B.5.    MSC:    Applying

    29.    Refer to the accompanying diagram. An increase in the number of buyers would cause the demand curve to:

 

a.    shift from D1 to D3.
b.    remain at D1.
c.    shift from D1 to D2.
d.    shift from D2 to D1.
e.    shift from D2 to D3.


ANS:    C    DIF:    Medium    REF:    Shifts in the Demand Curve
TOP:    IV.D.1.    MSC:    Analyzing

    30.    Refer to the accompanying graph. If consumers expect the price of a good to decrease in the future and all else is held constant, we would assume that the demand curve would:


a.    shift from D1 to D3.
b.    remain at D1.
c.    shift from D1 to D2.
d.    shift from D2 to D1.
e.    shift from D2 to D3.


ANS:    A    DIF:    Difficult    REF:    Shifts in the Demand Curve
TOP:    IV.D.2.    MSC:    Analyzing