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 entry.

Question 2

Suppose the price of reusable water bottles falls from $$30 to 25. $$According to the law of demand, what will happen to the quantity demanded?

Accepted Answer

The quantity demanded will increase.

Question 3

Which effect explains why consumers buy more of a good when its price falls, holding all else constant?

Accepted Answer

The income effect and the substitution effect.

Question 4

If the price of gym memberships increases, what is likely to happen to the demand for reusable water bottles, assuming they are complements?

Accepted Answer

Demand for reusable water bottles will decrease.

Question 5

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

Accepted Answer

Second-hand clothes.

Question 6

A shift to the right in the demand curve for reusable water bottles could be caused by:

Accepted Answer

An increase in the price of bottled spring water, a substitute.

Question 7

Which variable does NOT shift the demand curve for a product?

Accepted Answer

The price of the product itself.

Question 8

If a hurricane damages manufacturing plants, what is the likely effect on the supply curve for water bottles?

Accepted Answer

The supply curve shifts to the left.

Question 9

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

Accepted Answer

Equilibrium price falls and equilibrium quantity rises.

Question 10

If both demand and supply increase in the market for reusable water bottles, what can we say about the equilibrium quantity and price?

Accepted Answer

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

Question 11

Which equation represents the market equilibrium condition?

Accepted Answer

$$ Q_d = Q_s $$

Question 12

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

Accepted Answer

A surplus will occur.

Question 13

Which of the following would cause a movement along the supply curve, rather than a shift of the supply curve?

Accepted Answer

A change in the price of the product.

Question 14

If the price of soybeans rises, what is likely to happen to the supply of corn, assuming a farmer can plant either crop?

Accepted Answer

The supply of corn will decrease.

Question 15

Which of the following is true about the effect of a decrease in the price of a good on the demand curve?

Accepted Answer

It causes a movement along the demand curve.

Question 16

Suppose a pandemic causes people to work from home and avoid restaurants. What is the likely effect on the demand for computing equipment and restaurant meals?

Accepted Answer

Demand for computing equipment increases; demand for restaurant meals decreases.

Question 17

If consumers expect the price of gasoline to rise tomorrow, what will happen to today's demand for gasoline?

Accepted Answer

Today's demand for gasoline will increase.

Question 18

Which formula best represents the law of supply?

Accepted Answer

$$ 	ext{As } P \uparrow, Q_s \uparrow $$

Question 19

A technological improvement in the production of water bottles will likely:

Accepted Answer

Shift the supply curve to the right.

Question 20

If the price of a product is below equilibrium, what will happen?

Accepted Answer

A shortage will occur.

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

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