Question 1

Which of the following best describes a perfectly competitive market?

Accepted Answer

A market with many buyers and sellers, identical products, and no barriers to entry.

Question 2

According to the law of demand, what happens when the price of a product falls, ceteris paribus?

Accepted Answer

The quantity demanded of the product increases.

Question 3

If bottled water and sports drinks are substitutes, what happens to the demand for bottled water if the price of sports drinks increases?

Accepted Answer

The demand for bottled water increases.

Question 4

Which of the following would cause a movement along the demand curve for pizza, rather than a shift of the curve?

Accepted Answer

A decrease in the price of pizza.

Question 5

Suppose the price of plastic (an input for water bottles) increases. What is the likely effect on the supply curve for water bottles?

Accepted Answer

The supply curve shifts to the left.

Question 6

If a technological improvement allows firms to produce more output with the same inputs, what happens to the supply curve?

Accepted Answer

It shifts to the right.

Question 7

Which of the following best explains the income effect?

Accepted Answer

A change in the quantity demanded resulting from a change in consumer purchasing power due to a price change.

Question 8

If the demand for a good increases and the supply remains unchanged, what happens to the equilibrium price and quantity?

Accepted Answer

Equilibrium price and quantity both increase.

Question 9

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

Accepted Answer

The demand curve shifts to the right.

Question 10

If a firm expects the price of its product to rise in the future, what is the most likely immediate effect on its current supply?

Accepted Answer

The firm will decrease current supply.

Question 11

Which of the following is an example of an inferior good?

Accepted Answer

Demand increases as income falls.

Question 12

Suppose a hurricane destroys several factories producing bottled water. What is the likely effect on the market supply curve for bottled water?

Accepted Answer

The supply curve shifts to the left.

Question 13

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

Accepted Answer

Equilibrium quantity increases.

Question 14

Which equation represents market equilibrium?

Accepted Answer

$$Q_d = Q_s$$

Question 15

A shift in the demand curve for a product, holding supply constant, will:

Accepted Answer

Change both the equilibrium price and quantity.

Question 16

If the price of a substitute in production increases, what is the likely effect on the supply of the original good?

Accepted Answer

The supply curve shifts to the left.

Question 17

Which of the following scenarios best illustrates the substitution effect?

Accepted Answer

When the price of bottled water falls, consumers buy more bottled water and less soda.

Question 18

If the population of a city increases, what is the likely effect on the demand for public transportation?

Accepted Answer

The demand curve shifts to the right.

Question 19

Which of the following would NOT cause a shift in the supply curve for laptops?

Accepted Answer

A decrease in the price of laptops.

Question 20

Suppose the demand for a product decreases while the supply remains unchanged. What happens to the equilibrium price and quantity?

Accepted Answer

Both equilibrium price and quantity decrease.

Where Prices Come From: The Interaction of Demand and Supply

Study Guide - Practice Questions