Question 1

Which of the following best describes a perfectly competitive market?

Accepted Answer

A market with many buyers and sellers, all firms selling identical products, and no barriers to entry.

Question 2

Suppose the price of reusable water bottles falls from $$25 to 20. $$According to the law of demand, what will happen to the quantity demanded?

Accepted Answer

The quantity demanded will increase.

Question 3

If the price of gym memberships (a complement to reusable water bottles) increases, what is the likely effect on the demand for reusable water bottles?

Accepted Answer

The demand for reusable water bottles will decrease.

Question 4

Which of the following is an example of the substitution effect?

Accepted Answer

A consumer buys more reusable water bottles because their price has fallen relative to bottled spring water.

Question 5

Which of the following would cause a movement along the demand curve for reusable water bottles, rather than a shift of the curve?

Accepted Answer

A decrease in the price of reusable water bottles.

Question 6

If reusable water bottles are a normal good, what happens to the demand curve when consumer incomes rise?

Accepted Answer

The demand curve shifts to the right.

Question 7

Suppose a new, more efficient production technology is developed for reusable water bottles. What is the likely effect on the supply curve?

Accepted Answer

The supply curve shifts to the right.

Question 8

If the price of plastic (an input for reusable water bottles) increases, what will happen to the supply of reusable water bottles?

Accepted Answer

Supply will decrease.

Question 9

Which of the following equations represents market equilibrium in a perfectly competitive market?

Accepted Answer

$$ Q_d = Q_s $$

Question 10

At a price above the equilibrium price, what will occur in the market for reusable water bottles?

Accepted Answer

There will be a surplus.

Question 11

If both the demand and supply curves for reusable water bottles shift to the right, what can we say for certain about the new equilibrium?

Accepted Answer

The equilibrium quantity will rise.

Question 12

Suppose the price of bottled spring water (a substitute for reusable water bottles) increases. What is the likely effect on the market for reusable water bottles?

Accepted Answer

The demand for reusable water bottles will increase.

Question 13

A hurricane destroys several factories that produce reusable water bottles. What is the likely effect on the supply curve?

Accepted Answer

The supply curve shifts to the left.

Question 14

If a firm expects the price of its product to be higher in the future, what is it likely to do today?

Accepted Answer

Decrease supply today.

Question 15

Which of the following best explains the difference between a change in demand and a change in quantity demanded?

Accepted Answer

A change in quantity demanded is caused by a change in the price of the good, while a change in demand is caused by other factors.

Question 16

Suppose the number of firms producing reusable water bottles increases. What is the likely effect on equilibrium price and quantity?

Accepted Answer

Equilibrium price falls and equilibrium quantity rises.

Question 17

If a pandemic causes people to avoid restaurants and instead buy more home office equipment, what is the likely effect on the demand for each?

Accepted Answer

Demand for restaurants decreases; demand for home office equipment increases.

Question 18

Which of the following is the correct formula for the law of supply?

Accepted Answer

$$ 	ext{As } P \uparrow, Q_s \uparrow $$

Question 19

A decrease in the price of an input used to make reusable water bottles will have what effect on the supply curve?

Accepted Answer

Shift the supply curve to the right.

Question 20

If the price of a product is below equilibrium, what will happen in the market?

Accepted Answer

There will be a shortage.

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

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