Question 1

Which of the following best describes a perfectly competitive market?

Accepted Answer

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

Question 2

According to the law of demand, what happens to the quantity demanded of a product when its price increases, ceteris paribus?

Accepted Answer

The quantity demanded decreases.

Question 3

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

Accepted Answer

When the price of tea falls, consumers buy more tea instead of coffee.

Question 4

If the demand for ramen noodles increases as income falls, ramen noodles are considered:

Accepted Answer

An inferior good.

Question 5

Which of the following would cause a movement along the demand curve for pizza?

Accepted Answer

A decrease in the price of pizza.

Question 6

Suppose the price of smartphones falls. What is the most likely effect on the demand for smartphone cases (a complement)?

Accepted Answer

The demand for smartphone cases will increase.

Question 7

Which of the following would shift the supply curve for wheat to the right?

Accepted Answer

A technological improvement in wheat farming.

Question 8

If a firm expects the price of its product to rise in the future, what is the most likely immediate effect on its current supply?

Accepted Answer

The firm will decrease current supply.

Question 9

Which of the following best describes market equilibrium?

Accepted Answer

A situation where quantity demanded equals quantity supplied.

Question 10

Suppose the demand for electric cars increases due to a rise in consumer income, and at the same time, the supply of electric cars increases due to technological advances. What will happen to the equilibrium quantity?

Accepted Answer

Equilibrium quantity will increase.

Question 11

If the supply of a product is perfectly inelastic, how will an increase in demand affect the equilibrium price and quantity?

Accepted Answer

Equilibrium price will increase, but equilibrium quantity will remain unchanged.

Question 12

Which of the following is NOT a shifter of the demand curve?

Accepted Answer

A change in the price of the good itself.

Question 13

A decrease in the price of an input used to produce laptops will most likely:

Accepted Answer

Shift the supply curve for laptops to the right.

Question 14

If the government imposes a tax on the production of gasoline, what is the most likely effect on the supply curve for gasoline?

Accepted Answer

The supply curve will shift to the left.

Question 15

Which of the following equations represents market equilibrium?

Accepted Answer

$Q_d = Q_s$

Question 16

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, causing the equilibrium price to rise and equilibrium quantity to fall.

Question 17

Which of the following statements about the invisible hand principle is correct?

Accepted Answer

Individuals pursuing their own interests can promote the economic well-being of society.

Question 18

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

Accepted Answer

The change in equilibrium price is indeterminate without knowing the magnitude of the shifts.

Question 19

Which of the following best illustrates the income effect?

Accepted Answer

When the price of bread falls, consumers feel wealthier and buy more bread.

Question 20

If the price elasticity of demand for a product is greater than 1, the demand is considered:

Accepted Answer

Elastic.

Supply, Demand, and the Market Process: Chapter 3 Study Notes

Study Guide - Practice Questions

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