Question 1

Which of the following best explains why the demand curve for a normal good slopes downward?

Accepted Answer

Because as the price decreases, consumers' real income increases and they substitute towards the good.

Question 2

Suppose the price of Coke increases. What is the expected effect on the demand for Pepsi, assuming they are substitute goods?

Accepted Answer

The demand for Pepsi will increase.

Question 3

If the market price of a good is above the equilibrium price, what will likely occur?

Accepted Answer

A surplus will develop, causing the price to fall.

Question 4

Which of the following is NOT a demand shifter?

Accepted Answer

Production Technology

Question 5

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

Accepted Answer

Increase demand for the original good

Question 6

If the annual coupon payment on a bond is $$50,000 and the current market price is 1$$,000,000, what is the current yield?

Accepted Answer

$$\frac{50,000}{1,000,000} = 0.05 or$$ $$5\%$$

Question 7

Which of the following events would cause a rightward shift in the supply curve for electric vehicles (EVs)?

Accepted Answer

A decrease in the cost of lithium batteries

Question 8

If both demand and supply increase simultaneously, what can we say about the equilibrium quantity and price?

Accepted Answer

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

Question 9

Which of the following best describes the relationship between bond prices and bond yields?

Accepted Answer

Bond prices and yields have an inverse relationship.

Question 10

A new technology reduces the cost of producing smartphones. What is the likely effect on the market for smartphones?

Accepted Answer

The supply curve shifts right, price falls, and quantity rises.

Question 11

If the price of single-family homes rises, what is the expected effect on the demand for apartments, assuming they are substitutes?

Accepted Answer

The demand for apartments will increase.

Question 12

Which of the following is a characteristic of a competitive market in equilibrium?

Accepted Answer

No buyer or seller can improve their position by changing their behavior.

Question 13

If the price of a bond falls from $$1,000,000 to 500$$,000, but the annual coupon payment remains $50,000, what happens to the current yield?

Accepted Answer

It increases to $$10\%$$

Question 14

Which of the following would cause a decrease in the demand for electric vehicles (EVs)?

Accepted Answer

A decrease in the price of gasoline (a substitute)

Question 15

What is the effect of an increase in the expected future price of a good on the current supply of that good?

Accepted Answer

Current supply decreases as sellers wait to sell at the higher future price.

Question 16

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

Accepted Answer

As income increases, demand for instant noodles decreases.

Question 17

Suppose a natural disaster destroys a large portion of wheat crops. What is the likely effect on the wheat market?

Accepted Answer

Supply decreases, price rises, and quantity falls.

Question 18

Which of the following best describes the process of finding the market demand curve?

Accepted Answer

Horizontally summing individual demand curves at each price.

Question 19

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

Accepted Answer

Demand for the original good decreases.

Question 20

Which of the following is the correct formula for the current yield of a bond?

Accepted Answer

$$	ext{Current Yield} = \frac{	ext{Annual Coupon Payment}}{	ext{Current Market Price}}$$

Supply and Demand: Principles, Mechanics, and Applications

Study Guide - Practice Questions