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 new firms entering the market.

Question 2

According to the law of demand, what happens when the price of a product falls, ceteris paribus?

Accepted Answer

The quantity demanded of the product increases.

Question 3

If reusable water bottles become more fashionable due to influencer marketing, what is the most likely effect on the market for reusable water bottles?

Accepted Answer

The demand curve for reusable water bottles shifts to the right.

Question 4

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

Accepted Answer

Instant noodles, because demand increases as income falls.

Question 5

Suppose the price of gym memberships falls. What is the likely effect on the demand for reusable water bottles, assuming they are complements?

Accepted Answer

The demand for reusable water bottles increases.

Question 6

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

Accepted Answer

A decrease in the price of bottled water.

Question 7

If the price of plastic (an input for water bottles) increases, what is the expected effect on the supply curve for reusable water bottles?

Accepted Answer

The supply curve shifts to the left.

Question 8

A technological improvement in the production of reusable water bottles will most likely result in:

Accepted Answer

An increase in supply, shifting the supply curve to the right.

Question 9

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

Accepted Answer

The firm will decrease its current supply to sell more later at a higher price.

Question 10

What is the equilibrium price in a market?

Accepted Answer

The price at which quantity demanded equals quantity supplied.

Question 11

Suppose the market price of reusable water bottles is above the equilibrium price. What will happen in the market?

Accepted Answer

There will be a surplus, and the price will fall.

Question 12

If both the demand and supply curves for a product shift to the right, what can we say for certain about the new equilibrium?

Accepted Answer

The equilibrium quantity will increase.

Question 13

Which of the following equations represents the law of demand?

Accepted Answer

$ Q_d = f(P) $ where $ Q_d $ decreases as $ P $ increases, ceteris paribus.

Question 14

A hurricane destroys several factories that produce reusable water bottles. What is the most likely immediate effect on the market?

Accepted Answer

The supply curve shifts to the left, increasing the equilibrium price.

Question 15

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

Accepted Answer

The demand for the original good increases.

Question 16

Which of the following best illustrates the difference between a change in demand and a change in quantity demanded?

Accepted Answer

A change in demand is a shift of the demand curve; a change in quantity demanded is a movement along the demand curve.

Question 17

Suppose a new firm enters the market for reusable water bottles. What is the most likely effect on equilibrium price and quantity?

Accepted Answer

Equilibrium price falls and equilibrium quantity rises.

Question 18

If a pandemic causes people to avoid restaurants and instead buy more home cooking equipment, what is the likely effect on the market for restaurant meals?

Accepted Answer

Demand for restaurant meals decreases, shifting the demand curve to the left.

Question 19

Which of the following is the correct formula for market equilibrium?

Accepted Answer

$ Q_d = Q_s $

Question 20

A decrease in the price of an input used to make a product will:

Accepted Answer

Increase supply, shifting the supply curve to the right.

Chapter 3: Where Prices Come From – The Interaction of Demand and Supply

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