Q: Which equation represents the opportunity cost of a good in terms of its relative price?

$$ \text{Relative Price} = \frac{\text{Money Price of Good}}{\text{Money Price of Next Best Alternative}} $$

Question 1

Which of the following best describes a competitive market?

Accepted Answer

A market with many buyers and many sellers, so no single buyer or seller can influence the price.

Question 2

If the money price of a sandwich is $$5 and the money price of a salad (the next best alternative) is 4$$, what is the relative price of the sandwich?

Accepted Answer

$$ \frac{5}{4} = 1.25 $$

Question 3

Which of the following is NOT a requirement for a consumer to demand a good?

Accepted Answer

The consumer must already own the good.

Question 4

According to the law of demand, what happens to the quantity demanded when the price of a good increases, all else equal?

Accepted Answer

Quantity demanded decreases.

Question 5

Which effect explains why a consumer buys less of a good when its price rises, holding income constant?

Accepted Answer

Substitution effect

Question 6

If the price of a substitute for energy bars rises, what happens to the demand for energy bars?

Accepted Answer

Demand for energy bars increases.

Question 7

Which of the following will cause a movement along the demand curve for apples?

Accepted Answer

A change in the price of apples.

Question 8

If income increases and apples are a normal good, what happens to the demand curve for apples?

Accepted Answer

It shifts rightward.

Question 9

Which of the following is a factor that can shift the supply curve for a good?

Accepted Answer

A change in technology.

Question 10

Suppose the price of wheat (a factor of production for bread) rises. What happens to the supply curve for bread?

Accepted Answer

It shifts leftward.

Question 11

If the price of a complement in production rises, what happens to the supply of the related good?

Accepted Answer

Supply of the related good increases.

Question 12

What is the equilibrium price in a market?

Accepted Answer

The price at which quantity demanded equals quantity supplied.

Question 13

If the price of energy bars is below the equilibrium price, what will happen in the market?

Accepted Answer

There will be a shortage of energy bars.

Question 14

If both demand and supply for coffee increase, what happens to the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity increases; equilibrium price is uncertain.

Question 15

Which equation represents the opportunity cost of a good in terms of its relative price?

Accepted Answer

$$ 	ext{Relative Price} = \frac{	ext{Money Price of Good}}{	ext{Money Price of Next Best Alternative}} $$

Question 16

A technological advance in the production of donuts occurs. What is the most likely effect on the supply curve for donuts?

Accepted Answer

The supply curve shifts rightward.

Question 17

If the price of a good is expected to rise in the future, what happens to current supply?

Accepted Answer

Current supply decreases.

Question 18

Which of the following best describes a movement along the supply curve?

Accepted Answer

A change in the price of the good itself.

Question 19

Suppose a natural disaster destroys a large portion of wheat crops. What is the likely effect on the supply curve for wheat?

Accepted Answer

The supply curve shifts leftward.

Question 20

If demand for coffee decreases and supply for coffee increases at the same time, what happens to the equilibrium price and quantity?

Accepted Answer

Equilibrium price falls; equilibrium quantity is uncertain.

Microeconomics Chapter 3: Demand and Supply – Study Notes

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