Question 1

Which of the following best describes a competitive market?

Accepted Answer

A market with many buyers and many sellers, so no single buyer or seller can influence the price.

Question 2

The relative price of a good is best defined as:

Accepted Answer

The ratio of its money price to the money price of the next best alternative good.

Question 3

According to the law of demand, what happens when the price of a good increases, ceteris paribus?

Accepted Answer

The quantity demanded decreases.

Question 4

Which effect explains why a rise in the price of a good causes consumers to buy less of it and more of its substitutes?

Accepted Answer

Substitution effect

Question 5

If the price of a complement for energy bars falls, what happens to the demand for energy bars?

Accepted Answer

Demand for energy bars increases.

Question 6

Which of the following would cause a shift of the demand curve for a normal good to the right?

Accepted Answer

An increase in consumer income.

Question 7

Suppose the price of energy bars is expected to rise next month. What is likely to happen to the current demand for energy bars?

Accepted Answer

Current demand will increase.

Question 8

Which of the following is NOT a factor that shifts the supply curve?

Accepted Answer

A change in the price of the good itself

Question 9

If the price of a factor of production used to make energy bars increases, what happens to the supply of energy bars?

Accepted Answer

Supply decreases and the supply curve shifts leftward.

Question 10

A market is in equilibrium when:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 11

At a price above the equilibrium price, what will occur in the market?

Accepted Answer

A surplus will force the price down.

Question 12

If both demand and supply increase, what can be said about the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity increases, but the change in equilibrium price is uncertain.

Question 13

Suppose a new technology lowers the cost of producing energy bars. What is the most likely effect on the market for energy bars?

Accepted Answer

The supply curve shifts rightward, leading to a lower equilibrium price and higher equilibrium quantity.

Question 14

Which of the following equations represents the condition for market equilibrium?

Accepted Answer

$$ Q_d = Q_s $$

Question 15

If the price of a substitute in production for energy bars falls, what happens to the supply of energy bars?

Accepted Answer

Supply of energy bars increases.

Question 16

A decrease in supply, with demand held constant, will lead to:

Accepted Answer

A higher equilibrium price and lower equilibrium quantity.

Question 17

Which of the following best describes the income effect?

Accepted Answer

When the price of a good rises relative to income, people cannot afford all the things they previously bought, so quantity demanded decreases.

Question 18

If the population increases, what happens to the demand for most goods?

Accepted Answer

Demand increases.

Question 19

Which of the following is an example of a movement along the demand curve?

Accepted Answer

A decrease in the price of the good, with all other factors held constant.

Question 20

Suppose a natural disaster destroys part of the crop used to make energy bars. What is the likely effect on the supply curve for energy bars?

Accepted Answer

The supply curve shifts leftward.

Demand and Supply: Foundations of Market Equilibrium in Microeconomics

Study Guide - Practice Questions