Question 1

Which of the following best describes a perfectly competitive market?

Accepted Answer

A market with many buyers and sellers, all firms selling identical products, and no barriers to new firms entering the market.

Question 2

According to the law of demand, what happens when the price of a product falls, ceteris paribus?

Accepted Answer

The quantity demanded of the product increases.

Question 3

Suppose the price of reusable water bottles increases. What is the likely effect on the demand for bottled spring water, assuming they are substitutes?

Accepted Answer

The demand for bottled spring water will increase.

Question 4

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

Accepted Answer

Second-hand clothes

Question 5

If the price of gym memberships falls, what is the likely effect on the demand for reusable water bottles, assuming they are complements?

Accepted Answer

The demand for reusable water bottles will increase.

Question 6

A movement along the demand curve is caused by:

Accepted Answer

A change in the price of the product itself.

Question 7

Which of the following would cause a shift to the right in the supply curve for reusable water bottles?

Accepted Answer

A technological improvement in bottle manufacturing.

Question 8

Suppose a hurricane destroys several factories that produce reusable water bottles. What is the likely effect on the supply curve?

Accepted Answer

The supply curve shifts to the left.

Question 9

At the equilibrium price in a competitive market:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 10

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

Accepted Answer

A surplus will develop, causing the price to fall.

Question 11

Suppose both demand and supply for reusable water bottles increase. What can we say about the new equilibrium?

Accepted Answer

Equilibrium quantity will definitely rise, but the effect on price is ambiguous.

Question 12

If the price of a substitute in production (such as soybeans for a corn farmer) rises, what is the likely effect on the supply of corn?

Accepted Answer

The supply of corn will decrease.

Question 13

Which of the following equations represents the law of demand?

Accepted Answer

$$ Q_d = f(P) $$ where $$ Q_d $$ decreases as $$ P $$ increases

Question 14

A decrease in the price of an input used to produce reusable water bottles will:

Accepted Answer

Increase the supply of reusable water bottles.

Question 15

If consumers expect the price of gasoline to rise tomorrow, what is the likely effect on today's demand for gasoline?

Accepted Answer

Today's demand for gasoline will increase.

Question 16

Which of the following best explains the difference between a change in demand and a change in quantity demanded?

Accepted Answer

A change in quantity demanded is caused by a change in the price of the product, while a change in demand is caused by other factors such as income or tastes.

Question 17

Suppose a new firm enters the market for reusable water bottles. What is the likely effect on equilibrium price and quantity?

Accepted Answer

Equilibrium price falls and equilibrium quantity rises.

Question 18

If a pandemic causes people to avoid restaurants and instead buy more home cooking equipment, what is the likely effect on the demand for restaurant meals and home cooking equipment?

Accepted Answer

Demand for restaurant meals decreases; demand for home cooking equipment increases.

Question 19

Which of the following would NOT shift the supply curve for reusable water bottles?

Accepted Answer

A change in the price of reusable water bottles.

Question 20

Suppose the demand for a product increases while the supply remains unchanged. What will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price will increase and equilibrium quantity will increase.

Chapter 3: Where Prices Come From – The Interaction of Demand and Supply

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