Question 1

Which of the following best explains why the demand curve is downward sloping?

Accepted Answer

Because as the price of a good increases, both the substitution effect and the income effect cause the quantity demanded to fall.

Question 2

Suppose the price of coffee increases. According to the law of demand, what will happen to the quantity demanded of coffee, ceteris paribus?

Accepted Answer

The quantity demanded of coffee will decrease.

Question 3

Which of the following would cause a rightward shift in the demand curve for new cars?

Accepted Answer

An increase in the price of public transportation, a substitute for cars.

Question 4

If the price of soybeans increases and corn is a substitute in production, what is likely to happen to the supply of corn?

Accepted Answer

The supply of corn will decrease.

Question 5

Which of the following equations represents market equilibrium?

Accepted Answer

$$Q_d = Q_s$$

Question 6

A new technology reduces the marginal cost of producing smartphones. What is the likely effect on the supply curve and equilibrium price, ceteris paribus?

Accepted Answer

The supply curve shifts rightward, and the equilibrium price falls.

Question 7

If a government imposes a price ceiling below the equilibrium price, what is the most likely outcome in the market?

Accepted Answer

A shortage will occur because quantity demanded exceeds quantity supplied.

Question 8

During a severe famine, the price of potatoes rises, but poor households buy more potatoes and less meat. This is an example of:

Accepted Answer

A Giffen good.

Question 9

Suppose both the demand and supply curves for electric cars shift rightward. What can we say about the new equilibrium?

Accepted Answer

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

Question 10

Which of the following would NOT shift the demand curve for laptops?

Accepted Answer

A change in the price of laptops.

Question 11

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

Accepted Answer

There will be a surplus, putting downward pressure on price.

Question 12

Which of the following best describes the income effect?

Accepted Answer

When the price of a good rises, the purchasing power of consumers falls, so they buy less of the good.

Question 13

A decrease in the cost of production for solar panels will most likely result in:

Accepted Answer

A rightward shift of the supply curve.

Question 14

If the price of a complement good increases, what happens to the demand for the original good?

Accepted Answer

Demand for the original good decreases.

Question 15

Which of the following is an example of a movement along the supply curve?

Accepted Answer

An increase in the price of the good itself.

Question 16

Suppose a new study shows that eating avocados improves health, and at the same time, a disease destroys half the avocado crop. What will happen to the equilibrium price and quantity of avocados?

Accepted Answer

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

Question 17

Which of the following is NOT a determinant of supply?

Accepted Answer

Consumer preferences.

Question 18

If the government sets a minimum wage above the equilibrium wage, what is the likely result in the labor market?

Accepted Answer

A surplus of labor (unemployment).

Question 19

Which of the following best describes the substitution effect?

Accepted Answer

When the price of a good rises, consumers buy less of it and more of other goods.

Question 20

Which of the following statements about price controls is supported by economic theory?

Accepted Answer

Price ceilings can cause shortages and discourage investment in additional supply.

Supply and Demand: Foundations of Market Economics

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