Question 1

Which of the following best describes a market in microeconomics?

Accepted Answer

An institution or mechanism that brings together buyers (demand) and sellers (supply) to determine prices.

Question 2

According to the law of demand, what happens to the quantity demanded when the price of a good increases, assuming other factors remain constant?

Accepted Answer

Quantity demanded decreases.

Question 3

Which of the following is NOT a determinant that can shift the demand curve for a product?

Accepted Answer

Change in resource prices.

Question 4

If the price of coffee increases, what is likely to happen to the demand for tea, assuming tea is a substitute for coffee?

Accepted Answer

The demand for tea will increase.

Question 5

Which effect explains why a lower price increases the purchasing power of money income, allowing consumers to buy more?

Accepted Answer

Income effect

Question 6

Given the demand schedule: $$P = 5$$, $$Q_d = 10$$; $$P = 4$$, $$Q_d = 20$$; $$P = 3$$, $$Q_d = 35$$; $$P = 2$$, $$Q_d = 55$$; $$P = 1$$, $$Q_d = 80. $$What is the slope of the demand curve between $$P = 5$$ and $$P = 4$$?

Accepted Answer

$$\frac{20 - 10}{4 - 5} = -10$$

Question 7

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

Accepted Answer

A change in the price of the good itself.

Question 8

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

Accepted Answer

The demand curve shifts to the right.

Question 9

Which of the following best explains the law of diminishing marginal utility?

Accepted Answer

As a consumer consumes more units of a good, each additional unit provides less additional satisfaction.

Question 10

Suppose the market demand for corn from three buyers at $$P = 3 is$$ $$Q_1 = 35$, Q_2$ = 39$$, $$Q_3 = 26$. What is the total market demand at this price?

Accepted Answer

$$35 + 39 + 26 = 100$$

Question 11

Which of the following is a determinant that can shift the supply curve?

Accepted Answer

Change in resource prices.

Question 12

According to the law of supply, what happens to the quantity supplied when the price of a good decreases, assuming other factors remain constant?

Accepted Answer

Quantity supplied decreases.

Question 13

If the government sets a price ceiling below the equilibrium price, what is the most likely outcome in the market?

Accepted Answer

A shortage of the product.

Question 14

A price floor set above the equilibrium price will result in:

Accepted Answer

A surplus of the product.

Question 15

If both demand and supply increase simultaneously, what happens to equilibrium quantity and price?

Accepted Answer

Equilibrium quantity increases, equilibrium price is indeterminate.

Question 16

Which of the following best describes the rationing function of prices?

Accepted Answer

Prices automatically rise and fall to eliminate shortages and surpluses, coordinating buying and selling decisions.

Question 17

If the supply of wheat increases while demand remains unchanged, what happens to the equilibrium price and quantity?

Accepted Answer

Equilibrium price decreases, equilibrium quantity increases.

Question 18

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

Accepted Answer

Bread and butter

Question 19

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

Accepted Answer

Demand for the original good increases.

Question 20

Suppose the government sets a price floor for wheat at $$P = 3$$ when the equilibrium price is $$P = 2. $$What is the likely result?

Accepted Answer

A surplus of wheat.

Demand and Supply: Foundations of Market Economics

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