The price of pizza falls, and students respond by buying more pizza. How would an economist describe this change?
An increase in quantity demanded
✓
An increase in demand
A decrease in supply
An increase in supply
Correct Answer
An increase in quantity demanded
A change in a good's own price causes a movement along the existing demand curve, which economists call a change in quantity demanded. An increase in demand would mean the whole curve shifts right because of a non-price factor such as income or tastes. A decrease in supply would describe a leftward shift of the supply curve, not buyers' response to price. An increase in supply is a rightward shift of the supply curve, which might lower the price but is not what buying more at a lower price describes.
Category: Demand and Supply Basics
Question 2
Concert tickets are a normal good. According to the demand and supply model, what happens in the market for concert tickets when consumer incomes rise?
Demand shifts left; price and quantity fall
Demand shifts right; price and quantity rise
✓
Supply shifts right; price falls, quantity rises
Quantity demanded rises; price stays the same
Correct Answer
Demand shifts right; price and quantity rise
For a normal good, higher income raises the quantity buyers want at every price, so the demand curve shifts right and the new equilibrium has a higher price and a higher quantity. Demand shifts left; price and quantity fall describes a normal good when incomes fall. Supply shifts right; price falls, quantity rises describes a change on the seller side, but income affects buyers. Quantity demanded rises; price stays the same treats a shift as a movement and ignores the price increase the shift causes.
Category: Demand Shifters
Question 3
Instant noodles are an inferior good for many students. When those students' incomes rise, how does their demand curve for instant noodles respond?
It shifts to the right
It stays put while quantity demanded rises
It shifts to the left
✓
It stays put while quantity demanded falls
Correct Answer
It shifts to the left
Demand for an inferior good falls as income rises, so buyers want fewer units at every price and the demand curve shifts left. It shifts to the right is the response of a normal good to higher income. It stays put while quantity demanded rises and it stays put while quantity demanded falls both describe movements along the curve, which only a change in the good's own price can cause.
Category: Demand Shifters
Question 4
Coffee and tea are substitutes. If the price of coffee rises, what happens to the demand for tea?
It decreases
It does not change
Only the quantity demanded of tea falls
It increases
✓
Correct Answer
It increases
When the price of one substitute rises, some buyers switch to the other, so demand for tea shifts to the right. It decreases is what happens to demand for a complement when the related good's price rises. It does not change ignores the link between related goods. Only the quantity demanded of tea falls is wrong because the price of tea has not changed, so there is no movement along the tea demand curve.
Category: Demand Shifters
Question 5
Hot dogs and hot dog buns are complements. According to the model, a sharp rise in the price of hot dogs causes what change in the market for buns?
Lower equilibrium price and quantity of buns
✓
Higher equilibrium price and quantity of buns
Higher price and lower quantity of buns
Lower price and higher quantity of buns
Correct Answer
Lower equilibrium price and quantity of buns
Complements are used together, so when hot dogs cost more, people buy fewer of them and want fewer buns at every price. Demand for buns shifts left, lowering both equilibrium price and quantity. Higher equilibrium price and quantity of buns would follow from an increase in demand. Higher price and lower quantity of buns would follow from a decrease in supply. Lower price and higher quantity of buns would follow from an increase in supply.
Category: Demand Shifters
Question 6
The price of flour, a key input for bakeries, rises sharply. According to the model, what happens in the market for bread?
Demand shifts left; price and quantity fall
Supply shifts left; price rises and quantity falls
✓
Supply shifts right; price falls and quantity rises
Demand shifts right; price and quantity rise
Correct Answer
Supply shifts left; price rises and quantity falls
A higher input price raises the cost of producing each loaf, so bakeries offer fewer loaves at every price and the supply curve shifts left, raising price and lowering quantity. Demand shifts left; price and quantity fall wrongly treats a cost change as a change in buyers' wants. Supply shifts right; price falls and quantity rises is what lower input costs would cause. Demand shifts right; price and quantity rise also misplaces the change on the buyers' side.
Category: Supply Shifters
Question 7
A new machine lets smartphone makers produce each phone at a lower cost. According to the model, what happens to the equilibrium price and quantity of smartphones?
Price rises and quantity falls
Both price and quantity rise
Price falls and quantity rises
✓
Both price and quantity fall
Correct Answer
Price falls and quantity rises
Better technology lowers production costs, so the supply curve shifts right, and the new equilibrium has a lower price and a higher quantity. Price rises and quantity falls is the result of a decrease in supply. Both price and quantity rise is the result of an increase in demand. Both price and quantity fall is the result of a decrease in demand.
Category: Supply Shifters
Question 8
At a price of $6, buyers want to purchase 200 units of a good and sellers want to sell 350 units. Which describes this market?
A shortage of 150 units
A surplus of 550 units
A shortage of 350 units
A surplus of 150 units
✓
Correct Answer
A surplus of 150 units
Quantity supplied exceeds quantity demanded, so there is a surplus equal to 350 - 200 = 150 units, and the price must be above equilibrium. A shortage of 150 units reverses which side is larger. A surplus of 550 units adds the two quantities instead of subtracting. A shortage of 350 units mistakes the quantity supplied for the size of the gap and gets the direction wrong.
Category: Equilibrium
Question 9
At the current price in a market, quantity demanded exceeds quantity supplied. What does the demand and supply model predict will happen next?
The price will rise toward equilibrium
✓
The price will fall toward equilibrium
The supply curve will shift right to close the gap
The demand curve will shift left to close the gap
Correct Answer
The price will rise toward equilibrium
A shortage means buyers compete for scarce units and sellers can charge more, so the price rises, quantity demanded falls and quantity supplied rises until they are equal. The price will fall toward equilibrium is the adjustment to a surplus. The supply curve will shift right to close the gap and the demand curve will shift left to close the gap are wrong because a price change moves the market along both curves rather than shifting either one.
Category: Equilibrium
Question 10
In a market, quantity demanded and quantity supplied are 80 and 20 at $2, 60 and 40 at $3, 50 and 50 at $4, and 40 and 60 at $5. What is the equilibrium price?
$2
$4
✓
$3
$5
Correct Answer
$4
Equilibrium is the price at which quantity demanded equals quantity supplied, and that happens at $4, where both are 50 units. At $2 and at $3, quantity demanded is larger than quantity supplied, so those prices produce shortages. At $5, quantity supplied of 60 exceeds quantity demanded of 40, so that price produces a surplus.
Category: Equilibrium
Question 11
A government sets a legal minimum price for milk that is above the market equilibrium price. According to the model, what results?
A shortage of milk
An increase in the demand for milk
A surplus of milk
✓
A decrease in the supply of milk
Correct Answer
A surplus of milk
A legal minimum is a price floor, and when it sits above equilibrium, farmers offer more milk than buyers want at that price, leaving a surplus. A shortage of milk is the result of a binding price ceiling. An increase in the demand for milk and a decrease in the supply of milk are both wrong because a price control does not shift either curve; it only holds the market at a point on each curve.
Category: Price Controls
Question 12
In a market, quantity demanded is 60 and quantity supplied is 40 at $3, and both equal 50 at $4. If the government imposes a price ceiling of $3, what results?
A surplus of 20 units
A shortage of 10 units
No change from the $4 outcome
A shortage of 20 units
✓
Correct Answer
A shortage of 20 units
A ceiling of $3 is below the $4 equilibrium, so it binds; buyers want 60 units but sellers offer only 40, a shortage of 60 - 40 = 20 units. A surplus of 20 units gets the direction backward, since a ceiling below equilibrium makes quantity demanded the larger amount. A shortage of 10 units compares only one quantity with the equilibrium quantity of 50. No change from the $4 outcome would be true only for a ceiling set above equilibrium.
Category: Price Controls
Question 13
According to the demand and supply model, what does a binding rent ceiling do to the number of apartments landlords offer for rent?
Quantity supplied falls
✓
Quantity supplied rises
Supply shifts to the right
Quantity supplied stays the same
Correct Answer
Quantity supplied falls
A binding ceiling holds rent below equilibrium, and at a lower price landlords move down along the supply curve and offer fewer units. Quantity supplied rises would require a higher price. Supply shifts to the right is wrong because the controlled price changes the point on the curve, not the curve itself. Quantity supplied stays the same would hold only if the ceiling were not binding.
Category: Price Controls
Question 14
A student would have paid up to $50 for a used textbook, but she buys it for $35. What is her consumer surplus on this purchase?
$35
$15
✓
$50
$85
Correct Answer
$15
Consumer surplus is the most a buyer is willing to pay minus the price actually paid, so 50 - 35 = $15. $35 is the price she paid, not her gain. $50 is her maximum willingness to pay. $85 adds the two amounts instead of subtracting them.
Category: Surplus and Efficiency
Question 15
A seller would have accepted as little as $20 for a used bicycle, but he sells it for $32. What is his producer surplus on this sale?
$20
$32
$12
✓
$52
Correct Answer
$12
Producer surplus is the price received minus the lowest price the seller would have accepted, so 32 - 20 = $12. $20 is his minimum acceptable price, not his gain. $32 is the price he received. $52 adds the two amounts instead of subtracting them.
Category: Surplus and Efficiency
Question 16
What does deadweight loss measure in a market?
The money the government spends to enforce a price control
The surplus moved from sellers to buyers by a price ceiling
The total amount consumers spend at the equilibrium price
The social surplus lost when output is not at the efficient quantity
✓
Correct Answer
The social surplus lost when output is not at the efficient quantity
Deadweight loss is the drop in combined consumer and producer surplus when a market produces more or less than the efficient quantity, so some gains from trade are never realized. The money the government spends to enforce a price control is a budget cost, not the lost surplus. The surplus moved from sellers to buyers by a price ceiling is a transfer between groups, not a loss to society. The total amount consumers spend at the equilibrium price is total revenue, which is a different measure.
Category: Surplus and Efficiency
Question 17
According to the demand and supply model, at which quantity is social surplus in a competitive market largest?
The equilibrium quantity
✓
The quantity traded under a binding price floor
The quantity traded under a binding price ceiling
The largest quantity buyers would ever purchase
Correct Answer
The equilibrium quantity
Social surplus, the sum of consumer and producer surplus, is maximized at the equilibrium quantity, where every unit worth more to buyers than it costs sellers is traded. The quantity traded under a binding price floor and the quantity traded under a binding price ceiling are both smaller than equilibrium, which creates deadweight loss. The largest quantity buyers would ever purchase includes units that cost more to produce than they are worth to buyers.
Category: Surplus and Efficiency
Question 18
Demand for avocados increases while, at the same time, the supply of avocados increases. What can be concluded with certainty?
Equilibrium price rises; the quantity change is uncertain
Equilibrium quantity rises; the price change is uncertain
✓
Both equilibrium price and quantity rise
Equilibrium price falls; the quantity change is uncertain
Correct Answer
Equilibrium quantity rises; the price change is uncertain
Both shifts push equilibrium quantity up, so quantity definitely rises, but the demand increase pushes price up while the supply increase pushes it down, so the price change depends on which shift is larger. Equilibrium price rises; the quantity change is uncertain reverses which variable is known. Both equilibrium price and quantity rise assumes the demand shift is larger, which is not given. Equilibrium price falls; the quantity change is uncertain assumes the supply shift is larger and wrongly treats quantity as unknown.
Category: Combined Shifts
Question 19
When economists draw a demand curve, what does the assumption of ceteris paribus mean?
Price is held constant while income changes
Buyers and sellers have equal bargaining power
Other factors that affect demand are held constant
✓
Quantity demanded equals quantity supplied at every price
Correct Answer
Other factors that affect demand are held constant
Ceteris paribus means other things being equal, so a demand curve shows how quantity demanded responds to price while income, tastes, related prices and other factors stay fixed. Price is held constant while income changes reverses the idea, since price is the variable that changes along the curve. Buyers and sellers have equal bargaining power is not part of the assumption. Quantity demanded equals quantity supplied at every price is false, since that equality happens only at equilibrium.
Category: Demand and Supply Basics
Question 20
Shoppers learn that the price of televisions will rise sharply next month. According to the model, what happens to the demand for televisions this month?
Current demand falls
Current quantity supplied rises
Current demand is unaffected
Current demand rises
✓
Correct Answer
Current demand rises
Expectations about future prices shift current demand, and an expected price increase leads buyers to purchase sooner, shifting this month's demand curve to the right. Current demand falls is the response to an expected price decrease. Current quantity supplied rises describes a seller response, not the buyer behavior described. Current demand is unaffected ignores expectations, which are one of the factors that shift demand.
Category: Demand Shifters