Question 1

Refer to the demand schedule for water bottles: If the price of water bottles decreases from $$30 to 25$$, what happens to the quantity demanded, and which economic principle does this illustrate?

Accepted Answer

Quantity demanded increases; this illustrates the law of demand.

Question 2

Suppose the demand curve for orange juice shifts to the right. Which of the following could explain this shift?

Accepted Answer

An increase in the price of apple juice, a substitute for orange juice.

Question 3

Which of the following best describes the difference between a movement along the demand curve and a shift of the demand curve?

Accepted Answer

A movement along the demand curve is caused by a change in price; a shift is caused by a change in a non-price determinant.

Question 4

If the supply curve for water bottles shifts to the right, which of the following is the most likely outcome in the market?

Accepted Answer

Equilibrium price decreases and equilibrium quantity increases.

Question 5

A price ceiling is set below the equilibrium price in the apartment rental market. What is the most likely result?

Accepted Answer

A shortage of apartments.

Question 6

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

Accepted Answer

When the price of laptops falls, consumers buy more laptops because their purchasing power has increased.

Question 7

Suppose a natural disaster destroys several factories producing bottled water. What happens to the supply curve and equilibrium in the bottled water market?

Accepted Answer

Supply curve shifts left; equilibrium price rises.

Question 8

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

Accepted Answer

A surplus of workers (unemployment).

Question 9

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

Accepted Answer

An increase in the price of water bottles.

Question 10

Given the following demand equation: $$Q_d = 10 - 0.5P$$, where $$Q_d is $$quantity demanded and $$P is $$price, what is the quantity demanded when $$P = 8$$?

Accepted Answer

$$Q_d = 6$$

Question 11

If the price of a complement to bottled water (such as reusable bottle caps) decreases, what happens to the demand for bottled water?

Accepted Answer

Demand for bottled water increases.

Question 12

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Barriers to entry for new firms.

Question 13

Suppose the government imposes a price floor on milk that is above the equilibrium price. What will happen in the milk market?

Accepted Answer

There will be a surplus of milk.

Question 14

If the price of a substitute good increases, what is the expected effect on the demand for the original good?

Accepted Answer

Demand for the original good increases.

Question 15

Which of the following best explains why a decrease in the price of water bottles does NOT shift the demand curve for water bottles?

Accepted Answer

Because price changes cause movements along the demand curve, not shifts.

Question 16

A new technology reduces the cost of producing water bottles. What is the likely effect on the supply curve and equilibrium price?

Accepted Answer

Supply curve shifts right; equilibrium price falls.

Question 17

If the population of a city increases, what is the likely effect on the market for apartments, ceteris paribus?

Accepted Answer

Demand for apartments increases, shifting the demand curve to the right.

Question 18

Suppose the equilibrium price in the market for reusable water bottles is $$20, and the equilibrium quantity is 5 million bottles per week. If the government sets a price ceiling at 15$$, what will happen?

Accepted Answer

There will be a shortage of water bottles.

Question 19

Which of the following is a normative statement regarding price controls?

Accepted Answer

Rent control is bad because it prevents people from finding housing.

The Interaction of Demand and Supply: Foundations of Market Prices

Study Guide - Practice Questions

Study Guide - Flashcards