Question 1

Which of the following best describes the law of demand?

Accepted Answer

As the price of a good increases, the quantity demanded decreases, ceteris paribus.

Question 2

Suppose the price of energy bars rises from $$1.00 to 1.50. $$According to the demand schedule, the quantity demanded falls from 12 to 8 bars. What is the price elasticity of demand over this interval?

Accepted Answer

$$\frac{(8-12)}{(8+12)/2} \div \frac{(1.50-1.00)}{(1.50+1.00)/2} = -0.4 \div 0.4 = -1$$

Question 3

Which of the following would cause a shift of the demand curve for energy bars to the right?

Accepted Answer

An increase in consumer income, assuming energy bars are a normal good.

Question 4

If the price of a related good increases and energy bars are complements, what happens to the demand for energy bars?

Accepted Answer

Demand for energy bars decreases.

Question 5

Which effect explains why a consumer might buy more of a good when its price falls, even if their income remains unchanged?

Accepted Answer

Substitution effect

Question 6

A movement along the supply curve is caused by:

Accepted Answer

A change in the price of the good itself.

Question 7

If the expected future price of a good increases, what is the likely effect on current supply?

Accepted Answer

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

Question 8

Which of the following is NOT a determinant of supply?

Accepted Answer

Consumer preferences.

Question 9

At the market equilibrium, which of the following is true?

Accepted Answer

Quantity demanded equals quantity supplied.

Question 10

Suppose a new technology reduces the cost of producing energy bars. What is the likely effect on the supply curve?

Accepted Answer

The supply curve shifts to the right.

Question 11

If both demand and supply for a good increase, what happens to equilibrium quantity and price?

Accepted Answer

Equilibrium quantity increases, but the effect on price is indeterminate without more information.

Question 12

Which of the following best describes a shortage in the market?

Accepted Answer

Quantity demanded exceeds quantity supplied at the current price.

Question 13

If the price of strawberries falls due to a bumper crop, what is the most likely market outcome?

Accepted Answer

Quantity supplied decreases and quantity demanded increases.

Question 14

Which formula represents the calculation of equilibrium price in a market with linear demand and supply curves?

Accepted Answer

Set $$Q_d = Q_s$$ and solve for $$P.$$

Question 15

A decrease in the price of a substitute good will likely have what effect on the demand for the original good?

Accepted Answer

Decrease demand for the original good.

Question 16

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

Accepted Answer

A shortage of the good.

Question 17

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

Accepted Answer

A change in the price of the good itself.

Question 18

If the price of a factor of production rises, what is the likely effect on supply?

Accepted Answer

Supply decreases.

Question 19

Which of the following best describes the income effect?

Accepted Answer

When the price of a good falls, consumers feel richer and buy more.

Question 20

Suppose the demand for oil increases globally due to economic growth. What is the likely effect on the equilibrium price and quantity in the oil market?

Accepted Answer

Equilibrium price and quantity both increase.

Demand and Supply: Foundations of Market Analysis

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