Question 1

Which of the following best describes a competitive market?

Accepted Answer

A market where all participants are too small to have any aggregate effect on price.

Question 2

Suppose the price of apples increases. According to the law of demand, what is most likely to happen to the quantity demanded of apples, ceteris paribus?

Accepted Answer

The quantity demanded will decrease.

Question 3

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 4

Which of the following is an example of a change in demand rather than a change in quantity demanded?

Accepted Answer

An increase in consumer income for a normal good.

Question 5

Given the demand function $$P = a - bQ$$ and the supply function $$P = c + dQ$$, how do you solve for the equilibrium quantity $$Q^*$$?

Accepted Answer

$$Q^* = \frac{a - c}{b + d}$$

Question 6

If the supply curve shifts to the right, which of the following is most likely to occur, assuming demand remains constant?

Accepted Answer

Equilibrium price decreases and equilibrium quantity increases.

Question 7

A market for smartphones experiences an increase in both demand and supply. What is the most likely effect on equilibrium price and quantity?

Accepted Answer

Equilibrium price may increase, decrease, or stay the same; equilibrium quantity will increase.

Question 8

Which of the following best explains the substitution effect when the price of a good rises?

Accepted Answer

Consumers buy less of the good and more of its substitutes because the opportunity cost has increased.

Question 9

Suppose the demand for public transportation is an inferior good. What happens to its demand if consumer incomes rise?

Accepted Answer

Demand for public transportation decreases.

Question 10

If the market price is set above the equilibrium price, what is the result?

Accepted Answer

A surplus will occur.

Question 11

Which of the following is NOT a factor that shifts the supply curve?

Accepted Answer

Changes in consumer preferences.

Question 12

A new technology reduces the marginal cost of producing electric cars. What is the most likely effect on the supply curve for electric cars?

Accepted Answer

The supply curve shifts to the right.

Question 13

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

Accepted Answer

Demand for the original good decreases.

Question 14

Which equation represents the market clearing condition in a competitive market?

Accepted Answer

$$Q_d = Q_s$$

Question 15

A city has too few doctors, resulting in high salaries for new doctors. What market mechanism is illustrated by this scenario?

Accepted Answer

Prices influence trade volume.

Question 16

If the demand curve for a product is $$P = 12 - 2Q$$ and the supply curve is $$P = 2 + Q$$, what is the equilibrium price?

Accepted Answer

$$P^* = 10$$

Question 17

Which of the following best describes the income effect when the price of a good rises?

Accepted Answer

Consumers have less purchasing power and buy less of the good.

Question 18

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

Accepted Answer

A change in the price of the good itself.

Question 19

If the population of a city increases, what is the most likely effect on the demand for housing?

Accepted Answer

Demand for housing increases.

Question 20

Suppose the supply curve for oranges is upward sloping because marginal cost increases with quantity. What does this imply about producers' willingness to sell?

Accepted Answer

Producers are willing to sell more only at higher prices.

Supply and Demand: Principles and Applications in Competitive Markets

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