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 $$30 to 25. $$According to the law of demand, what will happen to the quantity demanded?

Accepted Answer

The quantity demanded will increase.

Question 3

Which effect explains why consumers buy more of a good when its price falls, because it becomes less expensive relative to other goods?

Accepted Answer

Substitution effect

Question 4

If the demand for instant noodles increases as income falls, instant noodles are classified as:

Accepted Answer

An inferior good

Question 5

Reusable water bottles and bottled spring water are substitutes. If the price of reusable water bottles increases, what happens to the demand for bottled spring water?

Accepted Answer

Demand for bottled spring water increases.

Question 6

Which of the following will cause a shift of the demand curve for reusable water bottles to the right?

Accepted Answer

An increase in consumer income, assuming reusable water bottles are a normal good.

Question 7

If a hurricane damages manufacturing plants, what is the likely effect on the supply curve for reusable water bottles?

Accepted Answer

The supply curve shifts to the left.

Question 8

Which of the following is NOT a variable that shifts market supply?

Accepted Answer

Quantity demanded

Question 9

Suppose a new firm enters the market for reusable water bottles. What is the expected effect on equilibrium price and quantity?

Accepted Answer

Equilibrium price falls, equilibrium quantity rises.

Question 10

If both demand and supply for reusable water bottles increase over time, what can we be certain about regarding equilibrium?

Accepted Answer

Equilibrium quantity will rise.

Question 11

A movement along the demand curve is caused by:

Accepted Answer

A change in the price of the product itself.

Question 12

If the price of a product is set above equilibrium, what will occur in the market?

Accepted Answer

A surplus will occur.

Question 13

Which formula represents market equilibrium in a perfectly competitive market?

Accepted Answer

$$Q_d = Q_s$$

Question 14

Suppose the price of gym memberships (a complement to reusable water bottles) decreases. What is the expected effect on the demand for reusable water bottles?

Accepted Answer

Demand for reusable water bottles increases.

Question 15

If technological change allows firms to produce reusable water bottles more efficiently, what happens to the supply curve?

Accepted Answer

It shifts to the right.

Question 16

A decrease in the price of an input used to make reusable water bottles will:

Accepted Answer

Increase supply.

Question 17

If consumers expect the price of gasoline to rise tomorrow, what will happen to the demand for gasoline today?

Accepted Answer

Demand will increase today.

Question 18

Which of the following scenarios best illustrates a shift in the supply curve rather than a movement along it?

Accepted Answer

A new firm enters the market.

Question 19

If both the demand and supply curves shift to the right, but demand increases more than supply, what happens to equilibrium price and quantity?

Accepted Answer

Equilibrium price rises, equilibrium quantity rises.

Question 20

Suppose the price of reusable water bottles is $10, and at this price, quantity demanded is 7 million and quantity supplied is 3 million. What is the market condition?

Accepted Answer

There is a shortage of 4 million bottles.

Market Demand and Supply: Where Prices Come From

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