Question 1

Which of the following best describes a perfectly competitive market?

Accepted Answer

A market with many buyers and sellers, all firms selling identical products, and no barriers to entry for new firms.

Question 2

According to the law of demand, what happens to the quantity demanded of a product when its price falls, holding everything else constant?

Accepted Answer

The quantity demanded increases.

Question 3

Suppose the price of bottled water falls from $$25 to 20. $$According to the substitution effect, what is most likely to happen?

Accepted Answer

Consumers will substitute toward bottled water because it is now relatively less expensive.

Question 4

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

Accepted Answer

A decrease in the price of reusable water bottles.

Question 5

If the price of a normal good increases, what happens to the quantity demanded and why?

Accepted Answer

Quantity demanded decreases due to both the substitution and income effects.

Question 6

Which of the following events would shift the demand curve for canned tuna to the left?

Accepted Answer

A change in tastes making canned tuna less popular among younger generations.

Question 7

Which variable would NOT shift the supply curve for a product?

Accepted Answer

A change in the price of the product itself.

Question 8

Suppose a new firm enters the market for reusable water bottles. What is the most likely effect on the market equilibrium?

Accepted Answer

The supply curve shifts to the right, equilibrium price falls, and equilibrium quantity rises.

Question 9

If a technological innovation reduces the cost of producing electric cars, what is the expected effect on the supply curve and equilibrium price, ceteris paribus?

Accepted Answer

The supply curve shifts to the right, and the equilibrium price decreases.

Question 10

Which of the following best explains why a decrease in the price of a product does NOT increase demand for that product?

Accepted Answer

A decrease in price causes a movement along the demand curve, not a shift of the demand curve.

Question 11

Suppose the market for oil experiences a sudden expectation that prices will rise in the future. What is the likely immediate effect on current supply?

Accepted Answer

Current supply will decrease as producers hold back inventory to sell later at higher prices.

Question 12

At a price above the equilibrium price, what is the result in the market, and what is the likely adjustment?

Accepted Answer

A surplus occurs, and the price will fall.

Question 13

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

Accepted Answer

Equilibrium quantity will increase, but the effect on equilibrium price is ambiguous without more information.

Question 14

Given the following demand and supply equations for a product: $$Q_d = 20 - 2P$$ and $$Q_s = 4P$$, what is the equilibrium price?

Accepted Answer

$$P = 4$$

Question 15

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

Accepted Answer

Demand for the original good decreases.

Question 16

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

Accepted Answer

Equilibrium price rises and equilibrium quantity falls.

Question 17

Which of the following is an example of the income effect?

Accepted Answer

A consumer buys more bottled water because the price of bottled water falls, increasing their purchasing power.

Question 18

If the price of an input used to produce smartphones increases, what is the likely effect on the supply curve for smartphones?

Accepted Answer

The supply curve shifts to the left.

Question 19

A decrease in population in a city is likely to have what effect on the market for apartments, ceteris paribus?

Accepted Answer

Demand for apartments will decrease, shifting the demand curve to the left.

Question 20

Suppose the demand for reusable water bottles increases due to a health trend, while the supply remains unchanged. What happens to equilibrium price and quantity?

Accepted Answer

Equilibrium price rises and equilibrium quantity rises.

Market Equilibrium: The Interaction of Demand and Supply

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