Question 1

In the circular-flow diagram, which of the following best describes the flow of money from households to firms?

Accepted Answer

Households pay money to firms for goods and services.

Question 2

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Barriers to entry for new firms

Question 3

Suppose the demand for apartments in Baltimore is given by $$Q_D(P) = 4400 - 2P$$ and the supply is $$Q_S(P) = -400 + P$$ for $$P \u003e 400. $$What is the equilibrium price?

Accepted Answer

$$P = 1600$$

Question 4

If the price of a normal good decreases, which effect will most likely cause an increase in quantity demanded?

Accepted Answer

Both income and substitution effects

Question 5

A decrease in the price of bagels (a substitute for salmon) will most likely cause which of the following?

Accepted Answer

A shift to the left of the demand curve for salmon

Question 6

Which of the following would cause a movement along the supply curve for salmon?

Accepted Answer

A change in the price of salmon

Question 7

If the government imposes a rent ceiling of $$P_C = 1300$$ per month in the Baltimore apartment market, what will happen?

Accepted Answer

There will be a shortage of apartments

Question 8

Which of the following best describes the law of demand?

Accepted Answer

As price increases, quantity demanded decreases

Question 9

If the supply curve for salmon shifts to the left, what happens to equilibrium price and quantity?

Accepted Answer

Price increases, quantity decreases

Question 10

Which of the following is a factor that would shift the demand curve for a good?

Accepted Answer

A change in consumer income

Question 11

Suppose the market for milk is perfectly competitive. If a new technology reduces the cost of production, what is the likely effect?

Accepted Answer

Supply curve shifts to the right

Question 12

If the price of a complement increases, what happens to the demand for the original good?

Accepted Answer

Demand decreases

Question 13

Which equation represents market equilibrium in terms of quantity demanded and supplied?

Accepted Answer

$$Q_D(P) = Q_S(P)$$

Question 14

A decrease in the number of firms in a market will most likely cause:

Accepted Answer

A leftward shift of the supply curve

Question 15

If both the demand and supply curves shift to the right, what is the effect on equilibrium quantity?

Accepted Answer

Equilibrium quantity increases

Question 16

Which of the following best explains the slope of the demand curve?

Accepted Answer

The income and substitution effects

Question 17

If the price of a normal good increases, what happens to the quantity demanded?

Accepted Answer

It decreases

Question 18

Which of the following is NOT a factor that shifts the supply curve?

Accepted Answer

Price of the good itself

Question 19

Suppose the demand for a good is $$Q_D(P) = 100 - 2P$$ and the supply is $$Q_S(P) = 20 + 3P. $$What is the equilibrium price?

Accepted Answer

$$P = 16$$

Question 20

If the government introduces a subsidy for producers, what is the likely effect on the supply curve?

Accepted Answer

Supply curve shifts to the right

The Market System: Foundations of Macroeconomics

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