Question 1

Which of the following best describes the law of demand?

Accepted Answer

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

Question 2

Suppose the price of reusable water bottles decreases. Which effect explains why consumers buy more bottles?

Accepted Answer

Both the substitution effect and the income effect, because water bottles become cheaper relative to other goods and consumers' purchasing power increases.

Question 3

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 promoting reusable water bottles.

Question 4

If the price of gym memberships (a complement to reusable water bottles) increases, what happens to the demand for reusable water bottles?

Accepted Answer

The demand for reusable water bottles decreases.

Question 5

Which of the following is an example of an inferior good?

Accepted Answer

Second-hand clothes

Question 6

Suppose the price of plastic (an input for water bottles) rises. What is the likely effect on the supply curve for reusable water bottles?

Accepted Answer

The supply curve shifts to the left.

Question 7

Which of the following best describes the law of supply?

Accepted Answer

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

Question 8

A technological improvement in the production of water bottles will likely result in:

Accepted Answer

A rightward shift of the supply curve.

Question 9

If the number of firms producing reusable water bottles increases, what happens to the market supply?

Accepted Answer

The supply curve shifts to the right.

Question 10

Suppose the equilibrium price of reusable water bottles is $$20 and the equilibrium quantity is 5 million per week. If the price is set at 25$$, what will occur?

Accepted Answer

A surplus of 2 million bottles.

Question 11

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

Accepted Answer

Equilibrium quantity will rise, but the effect on equilibrium price is ambiguous.

Question 12

Which of the following is a movement along the demand curve, not a shift of the curve?

Accepted Answer

A decrease in the price of the product.

Question 13

Suppose a hurricane damages several factories producing reusable water bottles. What is the likely effect on the market?

Accepted Answer

The supply curve shifts to the left, increasing equilibrium price.

Question 14

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

Accepted Answer

Demand for gasoline today increases.

Question 15

Which equation represents market equilibrium in a perfectly competitive market?

Accepted Answer

$$ Q_d = Q_s $$

Question 16

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

Accepted Answer

Decrease demand for the original good.

Question 17

Which of the following scenarios would most likely cause a leftward shift in the supply curve for reusable water bottles?

Accepted Answer

A new government regulation that restricts working hours in factories.

Question 18

Suppose the demand for used cars increased in 2020 due to supply shortages of new cars. What happened to the equilibrium price and quantity of used cars?

Accepted Answer

Equilibrium price increased and equilibrium quantity increased.

Question 19

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

Accepted Answer

A shortage will develop, causing the price to rise.

Chapter 3: Where Prices Come From – The Interaction of Demand and Supply

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