Question 1

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 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

Suppose the price of coffee increases. According to the substitution effect, what is likely to happen?

Accepted Answer

Consumers will buy more tea, a substitute for coffee.

Question 4

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

Accepted Answer

A decrease in the price of pizza.

Question 5

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

Accepted Answer

An inferior good.

Question 6

Which of the following would shift the demand curve for smartphones to the right?

Accepted Answer

An increase in consumer income, assuming smartphones are a normal good.

Question 7

What is the likely effect on the equilibrium price and quantity if both demand and supply for a product increase simultaneously?

Accepted Answer

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

Question 8

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

Accepted Answer

The supply curve shifts to the right.

Question 9

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

Accepted Answer

The demand for the original good increases.

Question 10

Which of the following best illustrates the invisible hand principle?

Accepted Answer

Individuals pursuing their own interests unintentionally promote society's economic well-being.

Question 11

A market is in equilibrium when:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 12

If a tax is imposed on the production of a good, what is the likely effect on the supply curve?

Accepted Answer

The supply curve shifts to the left.

Question 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

A bakery increases bread production because the price of bread rises.

Question 15

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

Accepted Answer

Elastic.

Question 16

Suppose the demand for a product increases. According to the model, what happens to equilibrium price and quantity?

Accepted Answer

Both equilibrium price and quantity increase.

Question 17

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

Accepted Answer

A decrease in the price of laptops.

Question 18

If the market price is above the equilibrium price, what will result?

Accepted Answer

A surplus, because quantity supplied exceeds quantity demanded.

Question 19

Which of the following is most likely to cause a leftward shift in the demand curve for gasoline?

Accepted Answer

A widespread adoption of electric vehicles.

Question 20

Suppose the supply of a product increases while demand remains unchanged. What happens to equilibrium price and quantity?

Accepted Answer

Equilibrium price decreases and equilibrium quantity increases.

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

Study Guide - Practice Questions