Question 1

Which of the following best describes the role of households in the circular flow model of the economy?

Accepted Answer

Households are the primary consumers of goods and services and supply inputs in factor markets.

Question 2

Suppose the price of a normal good increases. According to the law of demand, what is the expected effect on the quantity demanded, ceteris paribus?

Accepted Answer

Quantity demanded will decrease.

Question 3

Which of the following would cause a rightward shift in the demand curve for electric cars?

Accepted Answer

An increase in the price of gasoline, a substitute for electric cars.

Question 4

If the supply curve for a product shifts to the left, which of the following is a likely cause?

Accepted Answer

An increase in input prices.

Question 5

Given the following demand and supply equations: $$Q_d = 100 - 2P$$ and $$Q_s = 20 + 3P$$, what is the equilibrium price?

Accepted Answer

$$P = 16$$

Question 6

Which of the following best explains why the demand curve typically slopes downward?

Accepted Answer

Because as price increases, consumers substitute away from the good and marginal utility diminishes.

Question 7

A decrease in the price of coffee, a complement to sugar, is likely to have what effect on the demand for sugar?

Accepted Answer

Increase the demand for sugar.

Question 8

Which of the following is NOT a determinant of supply?

Accepted Answer

Tastes and preferences.

Question 9

If a market is experiencing excess demand (shortage), what will happen to the price and why?

Accepted Answer

Price will rise because buyers compete for the limited goods.

Question 10

Suppose the government imposes a tax on the production of a good. Which of the following is the most likely immediate effect on the supply curve?

Accepted Answer

The supply curve shifts to the left.

Question 11

Which of the following equations represents the inverse demand curve?

Accepted Answer

$$P = a - bQ_d$$

Question 12

If the price of an inferior good decreases, what is the expected effect on its quantity demanded, ceteris paribus?

Accepted Answer

Quantity demanded will increase.

Question 13

Which of the following scenarios would cause a movement along the demand curve for pizza rather than a shift of the curve?

Accepted Answer

A decrease in the price of pizza.

Question 14

A technological improvement in the production of smartphones is likely to have which effect on the market equilibrium, assuming demand remains constant?

Accepted Answer

Equilibrium price decreases, equilibrium quantity increases.

Question 15

If the market for bus rides (an inferior good) experiences an increase in consumer income, what is the likely effect on demand?

Accepted Answer

Demand for bus rides will decrease.

Question 16

Which of the following best describes market equilibrium?

Accepted Answer

It is the point where $$Q_d = Q_s$$ and there is no tendency for price to change.

Question 17

Suppose the demand for a product is given by $$Q_d = 50 - 2P$$ and the supply is $$Q_s = 10 + 3P. $$What is the equilibrium quantity?

Accepted Answer

$$Q = 40$$

Question 18

Which of the following is an example of a substitute good?

Accepted Answer

Tea and coffee.

Question 19

If the price of a good increases and as a result, the quantity supplied increases, this is an illustration of:

Accepted Answer

The law of supply.

Question 20

Which of the following would NOT cause a shift in the demand curve for laptops?

Accepted Answer

A decrease in the price of laptops.

Chapter 3: Demand, Supply, and Market Equilibrium – Microeconomics Study Notes

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