Question 1

According to the law of demand, what happens to the quantity demanded of a good when its price decreases, ceteris paribus?

Accepted Answer

The quantity demanded increases.

Question 2

Which of the following would cause a shift in the demand curve for bottled water to the right?

Accepted Answer

An increase in consumer income, assuming bottled water is a normal good.

Question 3

If the price of a substitute good increases, what is the likely effect on the demand for the original good?

Accepted Answer

Demand for the original good increases.

Question 4

Which of the following best describes a movement along the demand curve?

Accepted Answer

A change in the price of the good itself.

Question 5

Suppose a new technology reduces the cost of producing water bottles. What is the most likely effect on the supply curve?

Accepted Answer

The supply curve shifts to the right.

Question 6

If a natural disaster destroys a large number of orange trees, what will likely happen to the market for oranges?

Accepted Answer

The supply curve shifts to the left, raising prices.

Question 7

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

Accepted Answer

Consumer income.

Question 8

At the market equilibrium, which of the following is true?

Accepted Answer

Quantity demanded equals quantity supplied.

Question 9

If the current market price is above the equilibrium price, what will result?

Accepted Answer

A surplus.

Question 10

Suppose the demand for used cars increased dramatically between August 2020 and April 2022. What would you expect to happen to the equilibrium price and quantity of used cars?

Accepted Answer

Equilibrium price increases, equilibrium quantity increases.

Question 11

Which equation represents the condition for market equilibrium?

Accepted Answer

$$ Q_d = Q_s $$

Question 12

If both the demand and supply curves shift to the right, what can we say about the equilibrium quantity?

Accepted Answer

It will definitely increase.

Question 13

Which of the following is an example of a complement in consumption?

Accepted Answer

Printers and ink cartridges.

Question 14

If the price of an input used to produce a good increases, what happens to the supply curve for that good?

Accepted Answer

It shifts to the left.

Question 15

Which of the following best describes Adam Smith's 'invisible hand' concept?

Accepted Answer

Individuals seeking their own gain unintentionally benefit society.

Question 16

If a government policy increases the cost of recycling plastic, what is the likely effect on the market for recycled plastic?

Accepted Answer

Supply decreases, price increases.

Question 17

Which of the following is a function performed by market prices?

Accepted Answer

Prices communicate information.

Question 18

Suppose the population of a city increases rapidly. What is the likely effect on the market for apartments, assuming supply is unchanged?

Accepted Answer

Demand increases, equilibrium price increases.

Question 19

If the price of a product is expected to rise in the future, what is the likely effect on current supply?

Accepted Answer

Current supply decreases.

Question 20

A decrease in the price of a complement good will have what effect on the demand for the original good?

Accepted Answer

Demand for the original good increases.

Supply and Demand: The Foundations of Market Prices

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