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 when the price of a product increases, ceteris paribus?

Accepted Answer

The quantity demanded of the product decreases.

Question 3

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

Accepted Answer

Consumers buy more reusable water bottles when their price falls, instead of bottled spring water.

Question 4

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

Accepted Answer

An inferior good.

Question 5

Which of the following would cause a shift to the right in the demand curve for reusable water bottles?

Accepted Answer

A successful advertising campaign by influencers.

Question 6

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 7

Which of the following variables does NOT shift the demand curve for a good?

Accepted Answer

A change in the price of the good itself.

Question 8

If a natural disaster destroys several factories producing a good, what is the likely effect on the market supply curve?

Accepted Answer

The supply curve shifts to the left.

Question 9

Which of the following best explains the law of supply?

Accepted Answer

As the price of a good increases, the quantity supplied increases, ceteris paribus.

Question 10

A technological improvement in the production of water bottles will:

Accepted Answer

Shift the supply curve to the right.

Question 11

Market equilibrium occurs when:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 12

If the price of a product is above the equilibrium price, what will result?

Accepted Answer

A surplus, causing the price to fall.

Question 13

Suppose both demand and supply for a product increase. What can we predict about the equilibrium quantity and price?

Accepted Answer

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

Question 14

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 15

Which of the following is a movement along the supply curve, not a shift?

Accepted Answer

A change in the price of the good itself.

Question 16

Suppose the government restricts the number of hours workers can work in water bottle factories. What is the likely effect?

Accepted Answer

The supply curve for water bottles shifts to the left.

Question 17

If consumers expect the price of gasoline to rise tomorrow, what is the likely effect on demand today?

Accepted Answer

Demand for gasoline increases today.

Question 18

Which of the following would NOT cause a shift in the supply curve for reusable water bottles?

Accepted Answer

A decrease in the price of reusable water bottles.

Question 19

If a pandemic causes people to avoid restaurants, what is the likely effect on the demand for restaurant meals?

Accepted Answer

The demand for restaurant meals decreases.

Question 20

Suppose the price of soybeans rises. What is the likely effect on the supply of corn, if a farmer can produce either crop?

Accepted Answer

The supply of corn decreases.

Chapter 3: Where Prices Come From – The Interaction of Demand and Supply (Microeconomics Study Notes)

Study Guide - Practice Questions