Question 1

In the circular flow diagram, which of the following best describes the flow of goods and services?

Accepted Answer

Goods and services flow from firms to households through output markets.

Question 2

Which of the following would cause a movement along the demand curve for gasoline, rather than a shift of the curve?

Accepted Answer

A decrease in the price of gasoline.

Question 3

Suppose the demand for steak shifts to the right as shown in the graphs. Which of the following is the most likely cause?

Accepted Answer

An increase in consumer income, assuming steak is a normal good.

Question 4

If the supply curve for soybeans shifts to the right, which of the following could be a possible explanation?

Accepted Answer

A technological improvement in soybean farming.

Question 5

Given the demand equation $$Q_d = 14 - 2P$$ and the supply equation $$Q_s = 2 + 4P$$, what is the equilibrium price?

Accepted Answer

$$P = 2$$

Question 6

Which of the following best describes the law of supply?

Accepted Answer

As the price of a good increases, the quantity supplied increases, ceteris paribus.

Question 7

If the price of hamburger rises, what is the likely effect on the demand for chicken (a substitute) and ketchup (a complement)?

Accepted Answer

Demand for chicken increases; demand for ketchup decreases.

Question 8

Which of the following is an example of an inferior good?

Accepted Answer

Public transportation, for which demand falls as income rises.

Question 9

A market is in equilibrium when:

Accepted Answer

Quantity supplied equals quantity demanded.

Question 10

If a freeze destroys a large portion of the coffee crop, what will happen in the coffee market?

Accepted Answer

The supply curve shifts to the left, raising the equilibrium price.

Question 11

Which of the following would cause a shift of the supply curve for a product?

Accepted Answer

A change in the cost of production inputs.

Question 12

If the market price is above the equilibrium price, what will result?

Accepted Answer

Excess supply (surplus) and a tendency for price to fall.

Question 13

Which of the following best explains why demand curves typically slope downward?

Accepted Answer

As price rises, the opportunity cost of purchasing the good increases, leading to lower quantity demanded.

Question 14

Suppose the supply equation for a good is $$Q_s = 5 + 3P$$ and the demand equation is $$Q_d = 20 - 2P. $$What is the equilibrium quantity?

Accepted Answer

$$Q = 14$$

Question 15

Which of the following is NOT a determinant of household demand?

Accepted Answer

The cost of production.

Question 16

If the price of a complement to a good decreases, what happens to the demand for the original good?

Accepted Answer

Demand for the original good increases.

Question 17

Which of the following best describes market supply?

Accepted Answer

The sum of all quantities supplied by all firms at each price.

Question 18

A rightward shift in the demand curve for a normal good could be caused by:

Accepted Answer

An increase in consumer income.

Question 19

Which of the following is true about the relationship between firms and households in the circular flow model?

Accepted Answer

Households supply labor to firms in input markets.

Question 20

If a new technology reduces the cost of producing electric cars, what is the likely effect on the market for electric cars?

Accepted Answer

The supply curve shifts to the right, decreasing equilibrium price.

Demand, Supply, and Market Equilibrium: Microeconomics Study Guide

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