Question 1

Suppose the price of gasoline is expected to rise next month. According to the law of demand and the concept of consumer expectations, what is likely to happen to the current demand for gasoline, ceteris paribus?

Accepted Answer

Current demand for gasoline will increase.

Question 2

Which of the following best describes the law of supply?

Accepted Answer

As the price of a good increases, the quantity supplied increases.

Question 3

If the price of peanut butter decreases, what is likely to happen to the demand for jelly, assuming they are complements?

Accepted Answer

The demand for jelly will increase.

Question 4

A decrease in the cost of production for a good will have what effect on the supply curve, ceteris paribus?

Accepted Answer

It will cause a rightward shift in the supply curve.

Question 5

If a tax on a good is decreased, what is the predicted effect on the market for that good?

Accepted Answer

Supply will increase and demand will increase.

Question 6

Which of the following scenarios would cause a leftward shift in the demand curve for a normal good?

Accepted Answer

A decrease in consumer income.

Question 7

Suppose the government legalizes a previously illegal good. What is the likely effect on the market for that good?

Accepted Answer

Demand will increase and supply will increase.

Question 8

If the equilibrium price ($$P_e) in a $$market is above the current market price, what will occur?

Accepted Answer

A shortage will exist, and prices will rise.

Question 9

Which of the following is an example of a supply shifter?

Accepted Answer

A change in technology used in production.

Question 10

If the price of a substitute good decreases, what happens to the demand for the original good?

Accepted Answer

The demand for the original good decreases.

Question 11

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

Accepted Answer

Equilibrium price decreases, equilibrium quantity increases.

Question 12

Which equation correctly represents market equilibrium?

Accepted Answer

$$QD = QS$$

Question 13

If tastes and preferences for a good decrease, what is the likely effect on the market for that good?

Accepted Answer

Demand decreases, shifting the demand curve left.

Question 14

A rightward shift in the supply curve can be caused by which of the following?

Accepted Answer

An improvement in technology.

Question 15

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

Accepted Answer

Equilibrium quantity will increase.

Question 16

Which of the following best describes an inferior good?

Accepted Answer

A good for which demand decreases as income increases.

Question 17

If a surplus exists in a market, what will happen to the price?

Accepted Answer

The price will fall.

Question 18

Which of the following is NOT a demand shifter?

Accepted Answer

Number of sellers.

Question 19

Suppose a drought reduces hay production, increasing the cost of feeding cattle. What is the likely effect on the market for beef?

Accepted Answer

Supply decreases, equilibrium price increases.

Question 20

If the government increases subsidies for producing electric cars, what is the likely effect on the market for electric cars?

Accepted Answer

Supply will increase, shifting the supply curve right.

Where Prices Come From: The Interaction of Demand and Supply

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