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

If the money price of a chocolate bar is $2 and the money price of a granola bar (the next best alternative) is $1.50, what is the relative price of the chocolate bar?

Accepted Answer

$ \frac{2}{1.5} = 1.33 $

Question 3

According to the law of demand, what happens to the quantity demanded of a good when its price increases, all else remaining the same?

Accepted Answer

Quantity demanded decreases.

Question 4

Which effect explains why consumers buy less of a good when its price rises, because they can no longer afford all the things they previously bought?

Accepted Answer

Income effect

Question 5

If the price of a substitute for energy bars rises, what happens to the demand for energy bars?

Accepted Answer

Demand for energy bars increases.

Question 6

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

Accepted Answer

A decrease in the price of apples.

Question 7

A normal good is defined as:

Accepted Answer

A good for which demand increases as income increases.

Question 8

Which of the following will shift the supply curve for wheat to the right?

Accepted Answer

An improvement in technology used to produce wheat.

Question 9

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

Accepted Answer

Supply of cars decreases.

Question 10

Suppose the price of energy bars is above the equilibrium price. What will happen in the market?

Accepted Answer

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

Question 11

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

Accepted Answer

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

Question 12

Which formula represents the equilibrium condition in a market?

Accepted Answer

$ Q_d = Q_s $

Question 13

A decrease in supply, with demand remaining constant, will result in:

Accepted Answer

A higher equilibrium price and lower equilibrium quantity.

Question 14

If the price of a complement in production rises, what happens to the supply of the related good?

Accepted Answer

Supply of the related good increases.

Question 15

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

Accepted Answer

Change in the price of the good itself.

Question 16

A natural disaster affecting wheat crops will likely:

Accepted Answer

Shift the supply curve for wheat to the left.

Question 17

If the price of oranges (a substitute for apples) falls, what happens to the demand for apples?

Accepted Answer

Demand for apples decreases.

Question 18

Suppose the government expects the price of gasoline to rise next month. What is likely to happen to the current demand for gasoline?

Accepted Answer

Current demand for gasoline will increase.

Question 19

Which of the following best explains the substitution effect?

Accepted Answer

When the price of a good rises, people buy less because they switch to alternatives.

Question 20

If the population of a city increases, what is the likely effect on the demand for housing?

Accepted Answer

Demand for housing increases.

chapter 3

Study Guide - Practice Questions

Study Guide - Flashcards