Question 1

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 2

Suppose the price of apples rises from $$2 to 3 $$per pound. According to the substitution effect, what is most likely to happen?

Accepted Answer

Consumers will buy fewer apples and more of other fruits.

Question 3

Which of the following would NOT shift the demand curve for orange juice?

Accepted Answer

A government subsidy to orange farmers.

Question 4

If the price of data plans falls, what happens to the demand for mobile phones?

Accepted Answer

Demand for mobile phones increases.

Question 5

Which of the following is a determinant of supply?

Accepted Answer

Prices of related goods in production.

Question 6

A decrease in the price of batteries, a key input for mobile phones, will most likely:

Accepted Answer

Shift the supply curve for mobile phones to the right.

Question 7

If the market price is set above the equilibrium price, what will occur?

Accepted Answer

A surplus will occur, causing the price to fall.

Question 8

Given the following demand schedules for pies: At $$30, Jane demands 40 pies and John demands 60 pies. What is the total market demand at 30$$?

Accepted Answer

$$100$$

Question 9

Which of the following best describes a normal good?

Accepted Answer

Demand increases as income rises.

Question 10

Suppose a new technology reduces the cost of producing electric cars. What is the likely effect on the market for electric cars?

Accepted Answer

The supply curve shifts to the right, lowering equilibrium price and increasing equilibrium quantity.

Question 11

If both the demand and supply for apples increase, what can we say about the new equilibrium?

Accepted Answer

Equilibrium quantity will rise, but the effect on equilibrium price is uncertain.

Question 12

Which equation represents the condition for market equilibrium?

Accepted Answer

$$ Q_s = Q_d $$

Question 13

A natural disaster destroys a large portion of the orange crop. What is the likely effect on the market for oranges?

Accepted Answer

Supply decreases, causing equilibrium price to rise and equilibrium quantity to fall.

Question 14

If the price of a complement good falls, what happens to the demand for the original good?

Accepted Answer

Demand for the original good increases.

Question 15

Which of the following is an example of a change in quantity supplied, not a change in supply?

Accepted Answer

A decrease in the price of the good.

Question 16

If the price of apples is set at $$80, and at this price Q_d = 20$ and Q_s = 40$, what will happen in the market?

Accepted Answer

There will be a surplus of 20 units, and the price will fall.

Question 17

Which of the following best explains why the supply curve is upward sloping?

Accepted Answer

As price increases, producers are willing to supply more to maximize profits.

Question 18

If incomes fall, what happens to the equilibrium price and quantity of inferior goods?

Accepted Answer

Both equilibrium price and quantity increase.

Question 19

A new health study finds that eating apples significantly reduces the risk of disease. What is the likely effect on the apple market?

Accepted Answer

Demand for apples increases, shifting the demand curve to the right.

Question 20

Which of the following is the opportunity cost of buying a good?

Accepted Answer

The value of the next best alternative forgone.

Supply and Demand: Foundations of Market Equilibrium

Study Guide - Practice Questions