Question 1

Suppose the government imposes a price ceiling below the equilibrium price on rental apartments in a city. What is the most likely immediate effect in the market for apartments?

Accepted Answer

A shortage of apartments, as quantity demanded exceeds quantity supplied.

Question 2

If the demand for public transportation increases due to a rise in gasoline prices, which of the following best describes the relationship between public transportation and gasoline?

Accepted Answer

They are substitute goods.

Question 3

A bakery finds that when it increases the price of its bread from $$2 to 2.50$$, the quantity demanded falls from 100 loaves to 80 loaves per day. What is the price elasticity of demand for bread over this range?

Accepted Answer

$$\frac{(80-100)}{(80+100)/2} \div \frac{(2.5-2)}{(2.5+2)/2} = -0.222 \div 0.222 = -1$$

Question 4

Which of the following would cause a rightward shift in the supply curve for electric cars?

Accepted Answer

A technological advancement that reduces production costs.

Question 5

If the cross-price elasticity of demand between two goods is positive, what does this imply?

Accepted Answer

The goods are substitutes.

Question 6

A decrease in the price of smartphones leads to an increase in the quantity demanded of smartphone cases. What type of goods are smartphones and smartphone cases?

Accepted Answer

They are complementary goods.

Question 7

Suppose the market for wheat is in equilibrium. A drought destroys a large portion of the wheat crop. What will happen to the equilibrium price and quantity of wheat?

Accepted Answer

Price increases, quantity decreases.

Question 8

If the income elasticity of demand for a product is negative, what type of good is it?

Accepted Answer

An inferior good.

Question 9

A new health study reveals that eating avocados significantly reduces the risk of heart disease. What is the likely effect on the market for avocados?

Accepted Answer

Demand increases, leading to a higher equilibrium price and quantity.

Question 10

Suppose the government introduces a subsidy for solar panel producers. What is the most likely effect on the supply curve for solar panels?

Accepted Answer

The supply curve shifts to the right.

Question 11

If the price of coffee increases and, as a result, the demand for tea increases, what does this indicate about the relationship between coffee and tea?

Accepted Answer

They are substitute goods.

Question 12

Which of the following best describes the law of demand?

Accepted Answer

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

Question 13

A new tax is imposed on sugary drinks. What is the likely effect on the equilibrium price and quantity of sugary drinks?

Accepted Answer

Equilibrium price increases, equilibrium quantity decreases.

Question 14

Suppose the demand for a product is perfectly inelastic. What will happen to the quantity demanded if the price increases?

Accepted Answer

The quantity demanded will remain unchanged.

Question 15

If a decrease in the price of steel leads to an increase in the supply of cars, what is the relationship between steel and cars?

Accepted Answer

Steel is an input in the production of cars.

Question 16

A market is in equilibrium at price $$P^*$$ and quantity $$Q^*. If $$both demand and supply increase simultaneously, what can be said about the new equilibrium?

Accepted Answer

Quantity will increase, but the effect on price is indeterminate without more information.

Question 17

Which of the following is an example of a price floor?

Accepted Answer

A minimum wage law that sets the lowest legal hourly pay.

Question 18

Suppose the government restricts the amount of fish that can be caught in a season. What is the likely effect on the market for fish?

Accepted Answer

Supply decreases, leading to a higher equilibrium price and lower equilibrium quantity.

Question 19

If the government imposes a tax on sellers of gasoline, who bears the greater burden of the tax if demand is inelastic and supply is elastic?

Accepted Answer

Consumers bear the greater burden.

Question 20

Which of the following best describes consumer surplus?

Accepted Answer

The difference between what consumers are willing to pay and what they actually pay.

Microeconomics: Demand, Supply, and Market Equilibrium Study Guide

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