Question 1

Which of the following best describes the law of demand?

Accepted Answer

As the price of a good rises, the quantity demanded of that good decreases, all else equal.

Question 2

Suppose the price of oranges increases. What is the likely effect on the demand for apples, assuming apples and oranges are substitutes?

Accepted Answer

The demand for apples will increase.

Question 3

Which of the following would cause a movement along the demand curve for bottled water, rather than a shift of the demand curve?

Accepted Answer

A decrease in the price of bottled water.

Question 4

If bottled water is a normal good, what happens to its demand when consumer incomes rise?

Accepted Answer

Demand increases.

Question 5

Which of the following events would shift the supply curve for bottled water to the right?

Accepted Answer

A technological advancement that increases productivity.

Question 6

Suppose the price of cream rises. What is the likely effect on the supply of skim milk, if cream and skim milk are complements in production?

Accepted Answer

The supply of skim milk will increase.

Question 7

Market equilibrium occurs when:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 8

If a price ceiling is set below the equilibrium price, what is the most likely outcome in the market?

Accepted Answer

A shortage will occur.

Question 9

A minimum wage is an example of:

Accepted Answer

A price floor.

Question 10

Suppose both the demand and supply for bottled water increase. What can we say about the new equilibrium?

Accepted Answer

Equilibrium quantity will definitely increase.

Question 11

If the supply of avocados decreases while demand remains unchanged, what happens to the equilibrium price and quantity?

Accepted Answer

Price rises, quantity falls.

Question 12

Which of the following best describes a shortage in a market?

Accepted Answer

Quantity demanded exceeds quantity supplied.

Question 13

If the government imposes a price floor above the equilibrium price in the labor market, what is the likely result?

Accepted Answer

Unemployment will increase.

Question 14

Which of the following would NOT cause a shift in the supply curve for bottled water?

Accepted Answer

A change in the price of bottled water.

Question 15

Suppose a new study finds that tap water is unsafe. What is the likely effect on the market for bottled water?

Accepted Answer

Demand for bottled water increases, shifting the demand curve rightward.

Question 16

If the price of a complement in consumption falls, what happens to the demand for the related good?

Accepted Answer

Demand for the related good increases.

Question 17

Which of the following equations represents the condition for market equilibrium?

Accepted Answer

$$ Q_d = Q_s $$

Question 18

A sticky price in a market refers to:

Accepted Answer

A price that does not adjust quickly to eliminate shortages or surpluses.

Question 19

If both demand and supply decrease simultaneously, what is the effect on equilibrium quantity and price?

Accepted Answer

Equilibrium quantity decreases; the effect on price is ambiguous.

Question 20

Suppose the price of a substitute in production rises. What is the likely effect on the supply of the original good?

Accepted Answer

Supply of the original good decreases.

Demand and Supply: Foundations of Macroeconomics (Chapter 4 Study Notes)

Study Guide - Practice Questions