Q: Which formula correctly expresses the relative price of good A in terms of good B?

$$\text{Relative price of A in terms of B} = \frac{\text{Money price of A}}{\text{Money price of B}}$$

Question 1

Which of the following best describes a competitive market?

Accepted Answer

A market with many buyers and many sellers for the exact same good, where no single buyer or seller can affect the price.

Question 2

If the money price of an orange is $$4 and the money price of an apple is 1$$, what is the relative price of an orange in terms of apples?

Accepted Answer

$$4/1 = 4$ apples

Question 3

Which formula correctly expresses the relative price of good A in terms of good B?

Accepted Answer

$$	ext{Relative price of A in terms of B} = \frac{	ext{Money price of A}}{	ext{Money price of B}}$$

Question 4

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

Accepted Answer

The quantity demanded decreases.

Question 5

Which effect explains why a higher price reduces quantity demanded?

Accepted Answer

Both the substitution effect and the income effect.

Question 6

A movement along the demand curve is caused by:

Accepted Answer

A change in the price of the good.

Question 7

Which of the following would cause a shift in the demand curve for ketchup?

Accepted Answer

An increase in the price of mustard, a complement.

Question 8

If the expected future price of gasoline increases and gasoline can be stored, what happens to the demand for gasoline today?

Accepted Answer

Demand increases.

Question 9

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

Accepted Answer

Public transportation, which people use less as their income rises.

Question 10

Which of the following would cause a shift in the supply curve for chocolate chip cookies?

Accepted Answer

A decrease in the price of chocolate chips, a factor of production.

Question 11

If the price of mittens (a substitute in production for wool socks) increases, what happens to the supply of wool socks?

Accepted Answer

Supply of wool socks decreases.

Question 12

If the expected future price of a good decreases, what happens to the supply of that good today?

Accepted Answer

Supply increases.

Question 13

Which of the following best describes equilibrium in a market?

Accepted Answer

Quantity supplied equals quantity demanded.

Question 14

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

Accepted Answer

A shortage.

Question 15

If both demand and supply increase, what can we say for certain about the new equilibrium?

Accepted Answer

The equilibrium quantity will increase.

Question 16

Suppose the price of a chicken sandwich (a substitute for hamburgers) decreases. What happens to the equilibrium price and quantity of hamburgers?

Accepted Answer

Equilibrium price and quantity of hamburgers both decrease, as demand for hamburgers falls.

Question 17

If the population increases and the price of ground beef (a factor of production for hamburgers) increases at the same time, what can we say about the equilibrium quantity of hamburgers?

Accepted Answer

It may increase, decrease, or stay the same; more information is needed.

Question 18

Refer to the second image provided. What does the intersection point of the supply and demand curves represent?

Accepted Answer

The equilibrium price and quantity.

Question 19

Refer to the third image provided. If the demand curve shifts to the right, what happens to the equilibrium price and quantity?

Accepted Answer

Equilibrium price increases, equilibrium quantity increases.

Question 20

Refer to the fourth image provided. If the price is set above the equilibrium price, what is the result?

Accepted Answer

A surplus.

Demand, Supply, and Market Equilibrium: Core Concepts in Macroeconomics

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