Question 1

Which of the following best describes a competitive market?

Accepted Answer

A market with many buyers and sellers, so no single buyer or seller can influence the price.

Question 2

If the money price of a good is $$10 and the money price of the next best alternative is 5$$, what is the relative price of the good?

Accepted Answer

$$ \frac{10}{5} = 2 $$

Question 3

According to the law of demand, what happens to the quantity demanded when the price of a good increases, all else equal?

Accepted Answer

The quantity demanded decreases.

Question 4

Which effect explains why people buy less of a good when its price rises relative to income?

Accepted Answer

Income effect

Question 5

If the price of a substitute for energy bars rises, what happens to the demand for energy bars?

Accepted Answer

The demand for energy bars increases.

Question 6

Which of the following would cause a rightward shift in the demand curve for pizza?

Accepted Answer

A rise in the price of spaghetti, a substitute for pizza.

Question 7

If income increases and energy bars are a normal good, what happens to the demand for energy bars?

Accepted Answer

Demand increases and the demand curve shifts rightward.

Question 8

Which of the following is NOT a factor that shifts the demand curve?

Accepted Answer

The price of the good itself.

Question 9

If the price of a factor of production used to produce energy bars rises, what happens to the supply of energy bars?

Accepted Answer

Supply decreases and the supply curve shifts leftward.

Question 10

Which of the following events will shift the supply curve of good X leftward?

Accepted Answer

An increase in the cost of machinery used to produce X.

Question 11

What is the equilibrium price in a market where the quantity demanded equals the quantity supplied at $1.50 per bar?

Accepted Answer

$$ 1.50 $$

Question 12

At a price above the equilibrium price, what is the market situation?

Accepted Answer

There is a surplus and the price will fall.

Question 13

If both demand and supply increase, what happens to the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity increases; equilibrium price is uncertain.

Question 14

Suppose a natural disaster reduces the supply of wheat. What happens in the wheat market?

Accepted Answer

The supply curve shifts leftward, price rises, and quantity decreases.

Question 15

If the price of a good is expected to rise in the future, what happens to current supply?

Accepted Answer

Current supply decreases and the supply curve shifts leftward.

Question 16

Which of the following best describes the law of supply?

Accepted Answer

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

Question 17

A decrease in both demand and supply will have what effect on equilibrium quantity and price?

Accepted Answer

Equilibrium quantity decreases; equilibrium price is uncertain.

Question 18

If the price of good X falls and the demand for good Y decreases, what can you infer about the relationship between X and Y?

Accepted Answer

Goods X and Y are complements.

Question 19

If the price of a substitute in production for energy bars falls, what happens to the supply of energy bars?

Accepted Answer

The supply of energy bars increases.

Question 20

A technological advance lowers the cost of producing energy bars. What happens in the market?

Accepted Answer

The supply curve shifts rightward, price falls, and quantity increases.

Demand, Supply, and Market Equilibrium: Microeconomics Study Notes

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