Question 1

Which of the following best describes a perfectly competitive market?

Accepted Answer

A market with many buyers and sellers, selling identical products, and no barriers to new firms entering the market.

Question 2

Suppose the price of a substitute good increases. What is the likely effect on the demand curve for the original good?

Accepted Answer

The demand curve will shift to the right.

Question 3

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

Accepted Answer

The quantity demanded decreases.

Question 4

Which of the following would cause a shift in the supply curve for reusable water bottles to the right?

Accepted Answer

A technological improvement in bottle manufacturing.

Question 5

A decrease in the price of smartphone chargers (a complement to smartphones) will likely have what effect on the demand for smartphones?

Accepted Answer

The demand for smartphones will increase.

Question 6

Which of the following equations represents the market equilibrium condition?

Accepted Answer

$$Q_d = Q_s$$

Question 7

If a natural disaster destroys several factories producing a good, what is the most likely immediate effect on the market for that good?

Accepted Answer

The supply curve shifts to the left, increasing equilibrium price.

Question 8

Which of the following is an example of an inferior good?

Accepted Answer

Ramen noodles, where demand increases as income falls.

Question 9

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

Accepted Answer

Equilibrium quantity will increase, but the effect on equilibrium price is indeterminate.

Question 10

A new government regulation increases the cost of producing bottled water. What is the likely effect on the supply curve and equilibrium price?

Accepted Answer

The supply curve shifts to the left, causing equilibrium price to rise.

Question 11

Which of the following best explains the substitution effect?

Accepted Answer

When the price of a good increases, consumers switch to relatively cheaper alternatives.

Question 12

Suppose the price of inputs for making electric cars falls. What is the likely effect on the market for electric cars?

Accepted Answer

The supply curve shifts to the right, lowering equilibrium price and increasing equilibrium quantity.

Question 13

If the population of elderly people increases, what is the likely effect on the demand for medical services?

Accepted Answer

The demand for medical services will increase.

Question 14

Which of the following statements is TRUE regarding movements along versus shifts of the demand curve?

Accepted Answer

A change in the price of the good causes a movement along the demand curve, not a shift.

Question 15

If a shortage exists in a market, which of the following is true?

Accepted Answer

Quantity demanded exceeds quantity supplied at the current price.

Question 16

Suppose a pandemic causes people to work from home more often. What is the likely effect on the demand for restaurant meals and home office equipment?

Accepted Answer

Demand for restaurant meals decreases; demand for home office equipment increases.

Question 17

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

Accepted Answer

The demand for the original good decreases.

Question 18

Which of the following would NOT cause a shift in the supply curve for a product?

Accepted Answer

A decrease in the price of the product itself.

Question 19

If the expected future price of a good is anticipated to rise, what is the likely effect on the current supply of that good?

Accepted Answer

Current supply decreases as firms withhold goods to sell later at a higher price.

Question 20

A new advertising campaign increases the popularity of reusable water bottles. What is the likely effect on the market for reusable water bottles?

Accepted Answer

The demand curve shifts to the right, increasing both equilibrium price and quantity.

Chapter 3: Where Prices Come From – The Interaction of Demand and Supply

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