Question 1

Which of the following best describes a perfectly competitive market?

Accepted Answer

A market with many buyers and sellers, all goods are identical, and no individual can affect the market price.

Question 2

According to the law of demand, what happens to the quantity demanded of a good when its price increases, holding all else constant?

Accepted Answer

Quantity demanded decreases.

Question 3

Suppose the price of oil per barrel drops from $$55 to 5. $$According to the demand curve, what is the expected change in quantity demanded?

Accepted Answer

Quantity demanded will increase.

Question 4

Why do demand curves slope downward?

Accepted Answer

Because as price falls, the good is purchased for lower-value uses as well as higher-value uses.

Question 5

Which of the following is NOT a non-price determinant of demand?

Accepted Answer

Price of the good itself

Question 6

If the number of buyers in a market increases, what happens to the demand curve?

Accepted Answer

It shifts to the right.

Question 7

Which statement is true regarding normal and inferior goods?

Accepted Answer

Demand for a normal good rises when income rises.

Question 8

If the price of AirPods falls, what is the likely effect on the demand for music downloads, assuming they are complements?

Accepted Answer

The demand curve for music downloads shifts to the right.

Question 9

According to the law of supply, what happens to the quantity supplied of a good when its price increases, holding all else constant?

Accepted Answer

Quantity supplied increases.

Question 10

Why do supply curves slope upward?

Accepted Answer

Because as price rises, more suppliers (including high-cost ones) are willing to sell.

Question 11

Which of the following is a supply curve shifter?

Accepted Answer

Input prices

Question 12

Suppose the wages of oil rig workers fall. What happens to the supply curve for oil?

Accepted Answer

It shifts to the right.

Question 13

A technological advance allows tax return software to be produced at lower cost. What is the effect on the supply curve?

Accepted Answer

The supply curve shifts to the right.

Question 14

What is the equilibrium price?

Accepted Answer

The price at which quantity supplied equals quantity demanded.

Question 15

Given the following table, at what price is the market in equilibrium?

$$\begin{array}{ccc}
P & Q^d & Q^s \
0 & 24 & 0 \
1 & 21 & 5 \
2 & 18 & 10 \
3 & 15 & 15 \
4 & 12 & 20 \
5 & 9 & 25 \
6 & 6 & 30 \
\end{array}$$

Accepted Answer

$$P = 3$$

Question 16

If $$P = 5$$, $$Q^d = 9$$, and $$Q^s = 25$$, what is the market condition?

Accepted Answer

Surplus of 16 units

Question 17

What happens in a market when there is a surplus?

Accepted Answer

Sellers cut prices, causing quantity demanded to rise and quantity supplied to fall.

Question 18

If $$P = 1$$, $$Q^d = 21$$, and $$Q^s = 5$$, what is the market condition?

Accepted Answer

Shortage of 16 units

Question 19

What happens in a market when there is a shortage?

Accepted Answer

Sellers raise prices, causing quantity demanded to fall and quantity supplied to rise.

Question 20

Suppose the price of gas rises and new technology reduces the cost of producing electric cars. What is the effect on equilibrium quantity and price in the market for electric cars?

Accepted Answer

Equilibrium quantity rises, but the effect on price is ambiguous.

Supply and Demand: Foundations of Market Economics

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