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 the quantity demanded to fall.

Question 2

Suppose the price of coffee increases. According to the law of demand, what is the expected effect on the quantity demanded of coffee, ceteris paribus?

Accepted Answer

The quantity demanded of coffee will decrease.

Question 3

If the price of tea (a substitute for coffee) increases, what is likely to happen to the demand curve for coffee?

Accepted Answer

The demand curve for coffee will shift to the right.

Question 4

Which of the following would cause a movement along the supply curve for laptops, rather than a shift of the supply curve?

Accepted Answer

A decrease in the price of laptops.

Question 5

Suppose a new technology reduces the marginal cost of producing electric cars. What is the likely effect on the supply curve for electric cars?

Accepted Answer

The supply curve will shift to the right.

Question 6

At the equilibrium price in a competitive market:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 7

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

Accepted Answer

A shortage will develop, putting upward pressure on price.

Question 8

Which of the following events would cause the supply curve for corn to shift to the left?

Accepted Answer

An increase in the expected future price of corn.

Question 9

If both the demand and supply for a product increase simultaneously, what can be said about the new equilibrium?

Accepted Answer

The equilibrium quantity will definitely increase, but the effect on price is ambiguous.

Question 10

Suppose the government imposes a price ceiling below the equilibrium price for rental apartments. What is the most likely outcome?

Accepted Answer

A shortage of apartments and long waiting lists for tenants.

Question 11

Which of the following best describes the income effect as it relates to the law of demand?

Accepted Answer

When the price of a good rises, the purchasing power of consumers falls, so they buy less.

Question 12

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

Accepted Answer

It will increase the demand for the original good.

Question 13

Which of the following is NOT a factor that shifts the demand curve for a good?

Accepted Answer

A change in the price of the good itself.

Question 14

If the supply of a good decreases while demand remains unchanged, what will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price will rise and equilibrium quantity will fall.

Question 15

Suppose the market for oranges is in equilibrium. A sudden frost destroys a large portion of the orange crop. What is the most likely immediate effect?

Accepted Answer

The supply curve shifts to the left, raising the price.

Question 16

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

Accepted Answer

$$Q_d = Q_s$$

Question 17

If the government sets a minimum wage above the equilibrium wage, what is the likely result in the labor market?

Accepted Answer

A surplus of labor (unemployment).

Question 18

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

Accepted Answer

A staple food like potatoes during a famine, where higher prices lead to higher quantity demanded.

Question 19

Suppose the demand for a product increases and the supply decreases at the same time. What is the effect on equilibrium price and quantity?

Accepted Answer

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

Question 20

Which of the following best describes the substitution effect?

Accepted Answer

When the price of a good rises, consumers buy less of it and more of other goods.

Supply and Demand: Foundations of Market Economics

Study Guide - Practice Questions

Study Guide - Flashcards