Question 1

Which of the following best describes a competitive market?

Accepted Answer

A market with many buyers and sellers, each of whom has a negligible impact on the market price.

Question 2

According to the law of demand, what happens when the price of a good increases, all else being equal?

Accepted Answer

The quantity demanded of the good falls.

Question 3

Suppose the price of bagels (a complement to cream cheese) increases. What is the likely effect on the demand for cream cheese?

Accepted Answer

The demand for cream cheese decreases, shifting the demand curve to the left.

Question 4

If the price of laptops (a substitute for tablets) falls, what happens to the demand for tablets?

Accepted Answer

The demand for tablets decreases, shifting the demand curve to the left.

Question 5

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

Accepted Answer

A decrease in the price of orange juice.

Question 6

Which of the following would shift the supply curve for muffins to the right?

Accepted Answer

A technological improvement that reduces the cost of producing muffins.

Question 7

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

Accepted Answer

There will be a surplus, and the price will tend to fall.

Question 8

Suppose the price of flour (an input for muffins) rises. What is the likely effect on the supply curve for muffins?

Accepted Answer

The supply curve shifts to the left.

Question 9

Which of the following equations represents the condition for market equilibrium?

Accepted Answer

$$Q^D = Q^S$$

Question 10

If both the demand and supply curves for a good 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.

Question 11

A new study shows that drinking orange juice reduces cholesterol. What is the likely effect on the market for orange juice?

Accepted Answer

The demand curve shifts to the right, increasing both equilibrium price and quantity.

Question 12

Which of the following is NOT a determinant of demand?

Accepted Answer

Technology used in production.

Question 13

If the number of sellers in a market increases, what happens to the supply curve?

Accepted Answer

It shifts to the right.

Question 14

Suppose Uber does not use surge pricing on New Year's Eve, resulting in a shortage of rides. What is the economic explanation for this outcome?

Accepted Answer

The price was set below equilibrium, so quantity demanded exceeded quantity supplied.

Question 15

Which of the following would cause a shift in the supply curve for orange juice, but not a movement along the curve?

Accepted Answer

A technological advance in orange juice production.

Question 16

If the price of a normal good falls, what happens to the quantity demanded and the demand curve?

Accepted Answer

Quantity demanded increases; there is a movement down along the demand curve.

Question 17

Which of the following best explains why prices are considered signals in a market economy?

Accepted Answer

Prices guide the allocation of scarce resources by signaling where goods are most valued.

Question 18

Suppose the price of pizza (a substitute for hamburgers) increases. What is the likely effect on the market for hamburgers?

Accepted Answer

The demand for hamburgers increases, shifting the demand curve to the right.

Question 19

If sellers expect the price of oil to rise in the future, what is the likely effect on the current supply of oil?

Accepted Answer

Current supply decreases, shifting the supply curve to the left.

Question 20

Which of the following is the correct three-step method for analyzing changes in equilibrium in a supply-and-demand diagram?

Accepted Answer

1. Decide which curve(s) shift. 2. Decide the direction of the shift(s). 3. Compare the new and initial equilibrium.

Chap 4 EC 201

Study Guide - Practice Questions