Question 1

Which of the following best explains the law of demand?

Accepted Answer

As the price of a good falls, the quantity demanded increases because consumers substitute toward the cheaper good and have more purchasing power.

Question 2

Suppose the price of reusable water bottles decreases from $$30 to 20. $$According to the demand schedule, what happens to the quantity demanded?

Accepted Answer

The quantity demanded increases from 3 million to 4 million bottles per week.

Question 3

Which of the following is an example of the income effect?

Accepted Answer

A decrease in the price of bottled water increases consumers’ purchasing power, allowing them to buy more bottled water.

Question 4

If reusable water bottles and gym memberships are complements, what happens to the demand for gym memberships if the price of reusable water bottles rises?

Accepted Answer

The demand for gym memberships decreases.

Question 5

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 6

Which of the following is a normal good?

Accepted Answer

New clothes, because demand increases as income rises.

Question 7

Suppose the population of elderly people increases. What is the likely effect on the market for medical care?

Accepted Answer

The demand for medical care will increase.

Question 8

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

Accepted Answer

Demand for gasoline today will increase.

Question 9

Which of the following best describes a perfectly competitive market?

Accepted Answer

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

Question 10

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

Accepted Answer

A decrease in the price of reusable water bottles.

Question 11

Which of the following would cause the supply curve for reusable water bottles to shift to the left?

Accepted Answer

A new government regulation that restricts working hours in factories.

Question 12

Suppose the price of soybeans rises. What is the likely effect on the supply of corn, if both are substitutes in production for a farmer?

Accepted Answer

The supply of corn will decrease.

Question 13

If a natural disaster destroys several factories producing reusable water bottles, what happens to the supply curve?

Accepted Answer

The supply curve shifts to the left.

Question 14

At a price above equilibrium, such as $$25 when equilibrium is 20$$, what occurs in the market for reusable water bottles?

Accepted Answer

A surplus, because quantity supplied exceeds quantity demanded.

Question 15

Suppose both demand and supply for reusable water bottles increase. What can we predict about the new equilibrium?

Accepted Answer

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

Question 16

If the supply of reusable water bottles increases due to a new firm entering the market, what happens to equilibrium price and quantity?

Accepted Answer

Equilibrium price falls and equilibrium quantity rises.

Question 17

Which of the following is an example of a change in supply, not a change in quantity supplied?

Accepted Answer

A technological improvement in bottle production.

Question 18

Suppose the price of bottled spring water (a substitute for reusable water bottles) increases. What happens to the demand for reusable water bottles?

Accepted Answer

The demand for reusable water bottles increases.

Question 19

Which of the following best describes the effect of the Covid-19 pandemic on the market for computing equipment?

Accepted Answer

The demand for computing equipment increased as more people worked from home.

Study Guide: The Interaction of Demand and Supply in Markets

Study Guide - Practice Questions

Study Guide - Flashcards