Question 1

In the circular-flow diagram, which of the following best describes the flow of money and goods between households and firms?

Accepted Answer

Households provide factors of production to firms and receive payments; firms provide goods and services to households and receive payments.

Question 2

Which of the following is NOT an assumption of a perfectly competitive market?

Accepted Answer

There are significant barriers to entry for new firms.

Question 3

Suppose the demand for a product is given by $$Q_D(P) = 4,400 - 2P$$ and the supply is $$Q_S(P) = -400 + P ($$for $$P \u003e 400). $$What is the equilibrium price?

Accepted Answer

$$P = 1,600$$

Question 4

If the price of a substitute good increases, what is the likely effect on the demand for the original good?

Accepted Answer

The demand for the original good will increase.

Question 5

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

Accepted Answer

The law of diminishing marginal utility and the income and substitution effects.

Question 6

A decrease in the price of a good causes which of the following?

Accepted Answer

A movement along the demand curve, increasing quantity demanded.

Question 7

If the cost of inputs used to produce a good increases, what happens to the supply curve for that good?

Accepted Answer

It shifts to the left.

Question 8

Suppose the market for apartments in a city is described by $$Q_D(P) = 4,400 - 2P$$ and $$Q_S(P) = -400 + P. If a $$rent ceiling is imposed at $$P_C = 1,300$$, how many apartments will be rented?

Accepted Answer

1,700

Question 9

Which of the following would cause a shift in the entire demand curve for a product?

Accepted Answer

A change in consumer income.

Question 10

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

Accepted Answer

Equilibrium quantity will increase.

Question 11

Which of the following is an example of a movement along the supply curve?

Accepted Answer

A decrease in the price of the good itself.

Question 12

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

Accepted Answer

The demand for the original good decreases.

Question 13

Which of the following best describes market equilibrium?

Accepted Answer

The quantity demanded equals the quantity supplied at a certain price.

Question 14

Suppose the supply curve for a good shifts to the left while the demand curve remains unchanged. What happens to the equilibrium price and quantity?

Accepted Answer

Equilibrium price increases and equilibrium quantity decreases.

Question 15

Which of the following is a factor that would shift the supply curve for a product?

Accepted Answer

A change in the price of a substitute in production.

Question 16

If a normal good experiences an increase in consumer income, what happens to its demand curve?

Accepted Answer

It shifts to the right.

Question 17

A surplus in a market occurs when:

Accepted Answer

Quantity supplied exceeds quantity demanded at the current price.

Question 18

Which of the following equations represents a market supply curve?

Accepted Answer

$$Q_S(P) = -400 + P$$

Question 19

If the government imposes a price ceiling below the equilibrium price, what is the likely result?

Accepted Answer

A shortage will occur.

Question 20

Which of the following best describes the effect of an increase in the number of firms in a market?

Accepted Answer

The supply curve shifts to the right.

The Market System: Foundations of Supply and Demand in Macroeconomics

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