Question 1

Which of the following best describes the law of demand?

Accepted Answer

As the price of a product increases, the quantity demanded of the product decreases, ceteris paribus.

Question 2

Suppose the price of reusable water bottles falls. Which TWO effects explain why the quantity demanded increases? Select the best answer.

Accepted Answer

The income effect and the substitution effect.

Question 3

If the price of gym memberships (a complement to reusable water bottles) increases, what is the likely effect on the demand for reusable water bottles?

Accepted Answer

The demand for reusable water bottles will decrease.

Question 4

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

Accepted Answer

A decrease in the price of bottled water.

Question 5

Reusable water bottles are considered a normal good. If average household income increases, what happens to the demand curve for reusable water bottles?

Accepted Answer

It shifts to the right.

Question 6

Which of the following is most likely to shift the supply curve for reusable water bottles to the right?

Accepted Answer

A new, more efficient production technology for water bottles.

Question 7

Suppose the market for reusable water bottles is in equilibrium. If a new firm enters the market, what is the most likely immediate effect?

Accepted Answer

The equilibrium price will fall and the equilibrium quantity will rise.

Question 8

If a hurricane destroys several factories that produce reusable water bottles, what is the likely effect on the supply curve and equilibrium price?

Accepted Answer

The supply curve shifts left; equilibrium price rises.

Question 9

Which of the following equations represents the condition for market equilibrium?

Accepted Answer

$$Q_d = Q_s$$

Question 10

If the price of a product is set above the equilibrium price, what will result in the market?

Accepted Answer

A surplus, because quantity supplied exceeds quantity demanded.

Question 11

Suppose the price of bottled spring water (a substitute for reusable water bottles) increases. What is the likely effect on the demand for reusable water bottles?

Accepted Answer

The demand for reusable water bottles will increase.

Question 12

Which of the following is an example of a change in quantity supplied, rather than a change in supply?

Accepted Answer

A decrease in the price of reusable water bottles.

Question 13

If both the demand and supply curves for reusable water bottles shift to the right, what can we say for certain about the new equilibrium?

Accepted Answer

The equilibrium quantity will rise.

Question 14

Which of the following would NOT cause a shift in the demand curve for reusable water bottles?

Accepted Answer

A change in the price of reusable water bottles.

Question 15

A firm expects the price of its product to increase in the future. According to the supply model, what is the most likely effect on current supply?

Accepted Answer

The firm will decrease current supply to sell more later at higher prices.

Question 16

Which of the following best describes a perfectly competitive market?

Accepted Answer

A market with many buyers and sellers, identical products, and no barriers to entry.

Question 17

Suppose a new health trend increases the popularity of reusable water bottles. What is the likely effect on the equilibrium price and quantity in the market for reusable water bottles?

Accepted Answer

Equilibrium price increases and equilibrium quantity increases.

Question 18

If the price of an input used to make reusable water bottles decreases, what happens to the supply curve?

Accepted Answer

It shifts to the right.

Question 19

Which of the following is an example of substitutes in production?

Accepted Answer

A farmer can plant either corn or soybeans on the same land.

Question 20

Suppose a pandemic causes people to avoid public gatherings, reducing demand for restaurant meals but increasing demand for home office equipment. Which concept does this scenario best illustrate?

Accepted Answer

The effect of a pandemic on market demand for different goods.

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

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