Question 1

According to the law of demand, what happens to the quantity demanded of a good when its price decreases, ceteris paribus?

Accepted Answer

The quantity demanded increases.

Question 2

Which of the following would cause a shift in the demand curve for bottled water to the right?

Accepted Answer

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

Question 3

If the price of a substitute good increases, what is the likely effect on the demand for the original good?

Accepted Answer

Demand for the original good increases.

Question 4

Which of the following best describes a movement along the supply curve?

Accepted Answer

A change in the price of the good itself.

Question 5

Suppose a new technology reduces the cost of producing electric cars. What is the likely effect on the market supply curve for electric cars?

Accepted Answer

The supply curve shifts to the right.

Question 6

If a natural disaster destroys a large portion of orange crops, what is the most likely immediate effect on the market for oranges?

Accepted Answer

The supply curve shifts to the left.

Question 7

Which of the following equations represents market equilibrium?

Accepted Answer

$$ Q_d = Q_s $$

Question 8

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

Accepted Answer

A surplus.

Question 9

A decrease in the price of a complement good will have what effect on the demand for the original good?

Accepted Answer

Increase demand for the original good.

Question 10

If both the demand and supply curves for a product shift to the right, what can we say about the equilibrium quantity?

Accepted Answer

It will definitely increase.

Question 11

Suppose the government announces a future tax on plastic bottles. What is the likely effect on the current supply of bottled water?

Accepted Answer

Current supply increases as firms try to sell more before the tax.

Question 12

Which of the following is NOT a function performed by market prices?

Accepted Answer

Guaranteeing equal income for all participants.

Question 13

If the population of a city increases rapidly, what is the likely effect on the market for apartments, assuming supply is fixed in the short run?

Accepted Answer

The demand curve shifts to the right, raising equilibrium price.

Question 14

Which of the following best describes Adam Smith's 'invisible hand' concept?

Accepted Answer

Individuals seeking their own gain unintentionally benefit society.

Question 15

A shift of the entire demand curve is caused by:

Accepted Answer

A change in consumer income.

Question 16

If the price of an input used in the production of bicycles increases, what is the likely effect on the supply of bicycles?

Accepted Answer

Supply decreases.

Question 17

Which of the following scenarios would result in a shortage in the market?

Accepted Answer

Market price is set below equilibrium price.

Question 18

If a new firm enters the market for water bottles, what is the likely effect on equilibrium price and quantity?

Accepted Answer

Equilibrium price decreases, equilibrium quantity increases.

Question 19

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

Accepted Answer

Instant noodles, demand for which falls as income increases.

Question 20

Suppose the demand for used cars increased dramatically between August 2020 and April 2022. What is the most likely effect on equilibrium price and quantity?

Accepted Answer

Equilibrium price increases, equilibrium quantity increases.

Supply and Demand: The Foundations of Market Prices

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