Question 1

Which of the following best describes a perfectly competitive market?

Accepted Answer

A market with many buyers and sellers, all selling identical products, and no barriers to entry.

Question 2

According to the law of demand, what happens when the price of a product falls, ceteris paribus?

Accepted Answer

The quantity demanded of the product increases.

Question 3

Which effect explains why consumers buy more of a good when its price falls, making it relatively cheaper compared to other goods?

Accepted Answer

Substitution effect

Question 4

If the demand for instant noodles increases when consumer incomes fall, instant noodles are considered:

Accepted Answer

An inferior good

Question 5

Suppose the price of gym memberships increases. What is the likely effect on the demand for reusable water bottles, assuming they are complements?

Accepted Answer

The demand for reusable water bottles will decrease.

Question 6

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

Accepted Answer

A successful advertising campaign by influencers

Question 7

What is the effect of an increase in the price of an input (e.g., plastic) used to produce reusable water bottles?

Accepted Answer

The supply curve shifts to the left.

Question 8

If a new, more efficient technology for producing water bottles is introduced, what is the likely effect on the supply curve?

Accepted Answer

The supply curve shifts to the right.

Question 9

Market equilibrium occurs when:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 10

Suppose the equilibrium price of water bottles is $20 and the equilibrium quantity is 5 million per week. If the price rises to $25, resulting in a surplus, what will likely happen to the price?

Accepted Answer

The price will fall as sellers compete to sell their surplus.

Question 11

If both the demand and supply for reusable water bottles increase, what can we predict about the equilibrium quantity?

Accepted Answer

Equilibrium quantity will increase.

Question 12

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

Accepted Answer

Consumer tastes

Question 13

A movement along the demand curve is caused by:

Accepted Answer

A change in the price of the product itself

Question 14

If a hurricane destroys several factories producing water bottles, what is the likely effect on the market?

Accepted Answer

The supply curve shifts to the left.

Question 15

Suppose the price of bottled spring water increases. What is the likely effect on the demand for reusable water bottles, assuming they are substitutes?

Accepted Answer

The demand for reusable water bottles will increase.

Question 16

Which of the following best explains why the equilibrium price may be ambiguous when both demand and supply increase?

Accepted Answer

The relative size of the shifts in demand and supply determines the direction of the price change.

Question 17

Which formula represents the law of demand?

Accepted Answer

$ Q_d = f(P) $ where $ Q_d $ decreases as $ P $ increases

Question 18

If the government restricts the number of hours workers can work in water bottle factories, what is the likely effect?

Accepted Answer

The supply of water bottles will decrease.

Question 19

Which of the following scenarios would cause a movement along the supply curve for reusable water bottles?

Accepted Answer

An increase in the market price of reusable water bottles

Question 20

Suppose consumers expect the price of reusable water bottles to rise next month. What is the likely effect on the current demand?

Accepted Answer

Current demand will increase.

Chapter 3: Where Prices Come From – The Interaction of Demand and Supply (Macroeconomics Study Notes)

Study Guide - Practice Questions

Study Guide - Flashcards