Question 1

Which of the following best describes the law of demand?

Accepted Answer

When the price of a product falls, the quantity demanded of the product will increase, ceteris paribus.

Question 2

Suppose the price of electric cars falls. According to the substitution effect, what is likely to happen to the quantity demanded of electric cars?

Accepted Answer

The quantity demanded will increase because electric cars are now less expensive relative to other goods.

Question 3

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

Accepted Answer

A decrease in the price of bottled water.

Question 4

If the price of a complement to coffee, such as cream, increases, what will happen to the demand for coffee?

Accepted Answer

The demand for coffee will decrease.

Question 5

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

Accepted Answer

As income rises, the demand for instant noodles decreases.

Question 6

A supply curve will shift to the right if:

Accepted Answer

There is a positive technological change.

Question 7

Which of the following best describes market equilibrium?

Accepted Answer

It is the point where quantity demanded equals quantity supplied.

Question 8

If a natural disaster destroys several factories producing a good, what is the most likely effect on the market for that good?

Accepted Answer

The supply curve will shift to the left, increasing equilibrium price.

Question 9

Refer to the following scenario: The demand for a product increases at the same time as the supply of the product increases. What can we say with certainty about the new equilibrium?

Accepted Answer

The equilibrium quantity will increase.

Question 10

Suppose the price of a substitute good falls. What is the likely effect on the demand curve for the original good?

Accepted Answer

The demand curve will shift to the left.

Question 11

A shortage in a market occurs when:

Accepted Answer

The quantity demanded is greater than the quantity supplied.

Question 12

If both the demand and supply curves for a good shift to the left, what must happen to the equilibrium quantity?

Accepted Answer

It must decrease.

Question 13

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

Accepted Answer

A decrease in the price of smartphones.

Question 14

Suppose a government imposes a price ceiling below the equilibrium price after a hurricane. What is the most likely result?

Accepted Answer

A shortage of goods.

Question 15

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

Accepted Answer

Quantity demanded decreases; there is a movement up the demand curve.

Question 16

A decrease in the price of an input used to make a product will:

Accepted Answer

Shift the supply curve to the right.

Question 17

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

Accepted Answer

$$ Q_d = Q_s $$

Question 18

If the demand for a product decreases and the supply remains unchanged, what will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price will decrease and equilibrium quantity will decrease.

Question 19

A positive technological change in the production of a good will:

Accepted Answer

Shift the supply curve to the right, decreasing equilibrium price.

Question 20

Suppose the supply of a good decreases while demand remains constant. What will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price will increase and equilibrium quantity will decrease.

Where Prices Come From: The Interaction of Demand and Supply

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