Question 1

Which of the following best explains why the demand curve is downward sloping?

Accepted Answer

Because as the price of a good rises, both the substitution effect and the income effect cause quantity demanded to fall.

Question 2

Suppose the price of coffee increases. According to the law of demand, what will happen to the quantity demanded of coffee, ceteris paribus?

Accepted Answer

It will decrease.

Question 3

Which of the following would cause a rightward shift in the demand curve for electric cars?

Accepted Answer

An increase in the price of gasoline, a substitute for electric cars.

Question 4

If the price of a complement good increases, what happens to the demand for the original good?

Accepted Answer

Demand decreases.

Question 5

Which of the following is an example of a movement along the demand curve rather than a shift of the demand curve?

Accepted Answer

A decrease in the price of the good itself.

Question 6

Suppose a severe pandemic causes many factories to close, reducing the number of producers in the market. What is the likely effect on the supply curve?

Accepted Answer

The supply curve shifts leftward.

Question 7

Which of the following would NOT shift the supply curve for wheat?

Accepted Answer

A change in the price of wheat.

Question 8

If the market price is set below the equilibrium price, what is the likely result?

Accepted Answer

A shortage will occur, putting upward pressure on price.

Question 9

Suppose both the demand and supply curves for laptops shift rightward. What can we say about the new equilibrium?

Accepted Answer

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

Question 10

Which of the following best describes the effect of an increase in supply, holding demand constant?

Accepted Answer

Price falls and quantity rises.

Question 11

A new technology reduces the marginal cost of producing smartphones. What is the most likely effect in the smartphone market?

Accepted Answer

The supply curve shifts rightward, leading to a lower equilibrium price and higher equilibrium quantity.

Question 12

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

Accepted Answer

A shortage will develop.

Question 13

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

Accepted Answer

$Q_d = Q_s$

Question 14

Suppose the price of a normal good increases. Which of the following is NOT a reason for the resulting decrease in quantity demanded?

Accepted Answer

A shift of the demand curve to the left.

Question 15

If the price of corn rises and farmers can use their land to grow either corn or soybeans, what is the likely effect on the supply of soybeans?

Accepted Answer

The supply of soybeans will decrease.

Question 16

Which of the following is an example of a Giffen good, an exception to the law of demand?

Accepted Answer

During a famine, the price of potatoes rises and poor households buy more potatoes because they cannot afford other foods.

Question 17

Suppose a city imposes rent controls that set the maximum rent below the equilibrium level. What is a likely long-term effect?

Accepted Answer

A shortage of rental housing and long waiting lists.

Question 18

If the price of a normal good is expected to rise in the future, what is the likely effect on current supply?

Accepted Answer

Current supply will decrease.

Question 19

Which of the following best describes the effect of a simultaneous increase in demand and decrease in supply?

Accepted Answer

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

Question 20

Which of the following statements about price controls is supported by economic theory?

Accepted Answer

Price controls can cause shortages or surpluses by preventing prices from reaching equilibrium.

Chapter 3: Supply and Demand: Foundations and Applications in Macroeconomics

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