Question 1

Which of the following best describes a perfectly competitive market?

Accepted Answer

A market where all products are identical, there are many buyers and sellers, and there are no barriers to entry.

Question 2

Market equilibrium occurs when:

Accepted Answer

The supply and demand curves intersect.

Question 3

If the market price is below the equilibrium price, what will happen?

Accepted Answer

There will be a shortage, and sellers will raise prices.

Question 4

Which of the following would cause a shift in the demand curve for pizza?

Accepted Answer

A change in consumer tastes favoring pizza.

Question 5

Suppose the price of hamburgers increases. What is likely to happen to the demand for hot dogs, a substitute good?

Accepted Answer

The demand for hot dogs will increase.

Question 6

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

Accepted Answer

Instant noodles, which people buy less of as their income rises.

Question 7

A decrease in the price of labor (an input) will likely cause the supply curve for a product to:

Accepted Answer

Shift to the right.

Question 8

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

Accepted Answer

It will definitely increase.

Question 9

Which of the following is NOT an external factor that shifts the demand curve?

Accepted Answer

Change in input prices.

Question 10

If a hurricane is expected to hit in two days, what is likely to happen to the demand for bottled water?

Accepted Answer

The demand curve will shift to the right.

Question 11

Which equation represents the condition for market equilibrium?

Accepted Answer

$$ Q_d = Q_s $$

Question 12

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

Accepted Answer

The demand decreases.

Question 13

A surplus in the market occurs when:

Accepted Answer

Quantity supplied exceeds quantity demanded.

Question 14

Which of the following would shift the supply curve for cars to the left?

Accepted Answer

An increase in labor costs.

Question 15

If the government imposes a tax on the production of a good, what is the likely effect on the supply curve?

Accepted Answer

It shifts to the left.

Question 16

Which of the following best explains why the demand for normal goods increases as income rises?

Accepted Answer

Consumers can afford to buy more of the good.

Question 17

If the price of a substitute in production rises, what happens to the supply of the original good?

Accepted Answer

The supply decreases.

Question 18

Suppose there is a simultaneous increase in demand and a decrease in supply for laptops. What will happen to the equilibrium price?

Accepted Answer

It will definitely increase.

Question 19

Which of the following is an example of a change in quantity demanded, not a change in demand?

Accepted Answer

A decrease in the price of the good causes more to be purchased.

Question 20

If the number of producers in a market increases, what is the likely effect on the supply curve?

Accepted Answer

The supply curve shifts to the right.

Demand and Supply: Foundations of Market Equilibrium

Study Guide - Practice Questions