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 sandwich is $5 and the money price of a salad (the next best alternative) is $4, what is the relative price of the sandwich?

Accepted Answer

$ \frac{5}{4} = 1.25 $

Question 3

Which of the following is NOT a requirement for a consumer to demand a good?

Accepted Answer

The consumer must already own the good.

Question 4

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

Accepted Answer

The quantity demanded decreases.

Question 5

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 6

A demand curve shows the relationship between:

Accepted Answer

Price and quantity demanded

Question 7

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 8

Which of the following would cause a rightward shift in the demand curve for normal goods?

Accepted Answer

An increase in consumer income

Question 9

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

Accepted Answer

The supply curve shifts leftward.

Question 10

Which of the following is a factor that can shift the supply curve?

Accepted Answer

Prices of factors of production

Question 11

Suppose a technological advance lowers the cost of producing energy bars. What is the likely effect on the supply curve?

Accepted Answer

The supply curve shifts rightward.

Question 12

Market equilibrium occurs when:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 13

If the price of energy bars is set below the equilibrium price, what will happen in the market?

Accepted Answer

There will be a shortage of energy bars.

Question 14

If both demand and supply for energy bars increase, what happens to equilibrium quantity and price?

Accepted Answer

Equilibrium quantity increases; equilibrium price is uncertain.

Question 15

Which equation represents the opportunity cost of a good in terms of its relative price?

Accepted Answer

$ 	ext{Relative Price} = \frac{	ext{Money Price of Good}}{	ext{Money Price of Next Best Alternative}} $

Question 16

A decrease in supply, with demand unchanged, will result in:

Accepted Answer

A higher equilibrium price and lower equilibrium quantity.

Question 17

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 18

Which of the following would NOT cause a shift in the demand curve for coffee?

Accepted Answer

A change in the price of coffee itself.

Question 19

If the price of donuts is expected to rise next month, what is the likely effect on the current supply of donuts?

Accepted Answer

Current supply decreases.

Question 20

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

Accepted Answer

A movement along the supply curve is caused by a change in price; a shift is caused by a change in another factor affecting supply.

Microeconomics Chapter 3: Demand and Supply – Structured Study Notes

Study Guide - Practice Questions