Question 1

Suppose the price of coffee increases while the price of tea increases even more rapidly. According to the concept of relative price, what happens to the relative price of tea compared to coffee?

Accepted Answer

The relative price of tea increases compared to coffee.

Question 2

Which of the following scenarios best illustrates a movement along the demand curve rather than a shift of the demand curve?

Accepted Answer

A decrease in the price of a good leads to an increase in the quantity demanded.

Question 3

If the government sets a price ceiling below the equilibrium price for gasoline, what is the most likely immediate market outcome?

Accepted Answer

A shortage of gasoline will occur.

Question 4

Which of the following would cause a rightward shift in the supply curve for camera apps?

Accepted Answer

A new programming method reduces development costs for camera apps.

Question 5

If the demand for instant noodles decreases as consumer incomes rise, instant noodles are considered:

Accepted Answer

An inferior good

Question 6

Suppose a major oil spill permanently destroys oil reserves. What happens to the short-run and long-run aggregate supply curves?

Accepted Answer

Both SRAS and LRAS shift left.

Question 7

Which of the following best describes the law of supply?

Accepted Answer

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

Question 8

A new health study reveals that sugary drinks are harmful, leading to a decrease in their popularity. What is the likely effect on the demand curve for sugary drinks?

Accepted Answer

The demand curve shifts left.

Question 9

If the price of peanut butter increases, what is the likely effect on the demand for jelly, assuming they are complements?

Accepted Answer

The demand for jelly decreases.

Question 10

Which of the following equations correctly represents the calculation of relative price?

Accepted Answer

$$Relative\ Price = \frac{Money\ Price\ of\ Good\ A}{Money\ Price\ of\ Good\ B}$$

Question 11

If both the demand and supply curves for a product shift to the right, what can be said about the new equilibrium price and quantity?

Accepted Answer

Equilibrium quantity will increase, but the effect on equilibrium price is indeterminate without more information.

Question 12

A country can produce either 10 units of tablets or 20 units of apps with its resources. What is the opportunity cost of producing 1 tablet in terms of apps?

Accepted Answer

$$Opportunity\ Cost = \frac{20\ apps}{10\ tablets} = 2\ apps\ per\ tablet$$

Question 13

If a firm’s price falls below its average total cost (ATC) but remains above its average variable cost (AVC), what should the firm do in the short run?

Accepted Answer

Continue producing to minimize losses.

Question 14

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

Accepted Answer

A change in the price of the good itself.

Question 15

If the government sets a price floor above the equilibrium price for cranberries, what is the likely result?

Accepted Answer

A surplus of cranberries will occur.

Question 16

Which of the following best describes the rationing function of prices in a market economy?

Accepted Answer

Prices allocate goods to those willing and able to pay the most.

Question 17

If the price of skilled labor rises, what is the likely effect on the supply curve for camera apps?

Accepted Answer

The supply curve shifts left.

Question 18

Which of the following best explains why the demand curve for most goods slopes downward?

Accepted Answer

As price increases, the quantity demanded decreases due to the law of demand.

Question 19

Suppose the price of coffee rises, and as a result, the demand for tea increases. What is the relationship between coffee and tea?

Accepted Answer

They are substitute goods.

Question 20

If the number of buyers in a market increases, what is the likely effect on the demand curve?

Accepted Answer

The demand curve shifts right.

Demand and Supply: Foundations and Extensions in Macroeconomics

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