Question 1

Which of the following best describes a competitive market?

Accepted Answer

A market where all participants are too small to have any aggregate effect on price.

Question 2

Suppose the price of apples increases. According to the law of demand, what is most likely to happen to the quantity demanded of apples, ceteris paribus?

Accepted Answer

The quantity demanded will decrease.

Question 3

If the price of bananas (a substitute for apples) decreases, what is the expected effect on the demand for apples?

Accepted Answer

The demand for apples will decrease.

Question 4

Which of the following is an example of a change in demand rather than a change in quantity demanded?

Accepted Answer

An increase in consumer income for a normal good.

Question 5

The supply curve typically slopes upward because:

Accepted Answer

Marginal cost tends to increase as quantity increases.

Question 6

Which of the following would cause a shift in the supply curve for smartphones?

Accepted Answer

An improvement in production technology.

Question 7

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

Accepted Answer

A surplus will occur.

Question 8

Given the demand function $P = a - bQ$ and the supply function $P = c + dQ$, how do you solve for the equilibrium quantity $Q^*$?

Accepted Answer

Set $a - bQ = c + dQ$ and solve for $Q^*$.

Question 9

If both demand and supply increase simultaneously, what is the expected effect on equilibrium quantity and price?

Accepted Answer

Equilibrium quantity will increase, but the effect on price is ambiguous.

Question 10

A decrease in the price of a complement good will likely cause:

Accepted Answer

An increase in demand for the original good.

Question 11

Suppose the supply function for a product is $P = 2 + Q$ and the demand function is $P = 10 - 2Q$. What is the equilibrium price?

Accepted Answer

$P = 6$

Question 12

Which of the following best illustrates the substitution effect?

Accepted Answer

A consumer buys more bananas when the price of apples rises.

Question 13

If the price of labor (an input) increases, what is the likely effect on the supply curve for manufactured goods?

Accepted Answer

The supply curve will shift to the left.

Question 14

Which of the following is NOT a determinant of demand?

Accepted Answer

Production technology.

Question 15

A market is in equilibrium when:

Accepted Answer

Quantity demanded equals quantity supplied.

Question 16

If a new technology reduces the cost of production for electric cars, what is the expected effect on the market?

Accepted Answer

The supply curve for electric cars will shift to the right.

Question 17

Which of the following scenarios best demonstrates comparative statics?

Accepted Answer

Analyzing how equilibrium changes when consumer income increases.

Question 18

If the price of a normal good increases, what happens to the quantity demanded, assuming all other factors remain constant?

Accepted Answer

Quantity demanded decreases.

Question 19

Suppose the demand for public transportation increases due to a rise in gasoline prices. What is the most likely effect on the equilibrium price and quantity of public transportation services?

Accepted Answer

Equilibrium price and quantity will both increase.

Question 20

If the supply function is $P = 4 + Q$ and the demand function is $P = 16 - 2Q$, what is the equilibrium quantity $Q^*$?

Accepted Answer

$Q^* = 4$

Supply and Demand: Principles and Applications in Competitive Markets

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