IMPORTANT QUESTION WITH ANSWERS RELATED TO DEMAND AND SUPPLY
What is the law of demand?
a) As price increases, demand increases
b) As price increases, demand decreases
c) As price increases, supply decreases
d) As price increases, supply increases
Answer: b) As price increases, demand decreases
What does the demand curve represent?
a) The relationship between price and quantity demanded
b) The relationship between price and quantity supplied
c) The relationship between income and consumption
d) The relationship between price and cost
Answer: a) The relationship between price and quantity demanded
When the price of a product increases, what happens to the quantity demanded, ceteris paribus?
a) It increases
b) It decreases
c) It remains unchanged
d) It depends on the product
Answer: b) It decreases
Which of the following factors does NOT affect demand?
a) Price of the product
b) Income of consumers
c) Price of related goods
d) Cost of production
Answer: d) Cost of production
What is the law of supply?
a) As price increases, supply increases
b) As price increases, supply decreases
c) As price increases, demand increases
d) As price increases, demand decreases
Answer: a) As price increases, supply increases
What does the supply curve represent?
a) The relationship between price and quantity demanded
b) The relationship between price and quantity supplied
c) The relationship between income and consumption
d) The relationship between price and cost
Answer: b) The relationship between price and quantity supplied
When the price of a product increases, what happens to the quantity supplied, ceteris paribus?
a) It increases
b) It decreases
c) It remains unchanged
d) It depends on the product
Answer: a) It increases
Which of the following factors does NOT affect supply?
a) Price of the product
b) Technology
c) Number of consumers
d) Input prices
Answer: c) Number of consumers
What is the equilibrium price in a market?
a) The price at which supply is greater than demand
b) The price at which demand is greater than supply
c) The price at which quantity demanded equals quantity supplied
d) The highest possible price a seller can charge
Answer: c) The price at which quantity demanded equals quantity supplied
What happens to the equilibrium price and quantity when demand increases while supply remains constant?
a) Equilibrium price increases, quantity decreases
b) Equilibrium price decreases, quantity increases
c) Equilibrium price and quantity both increase
d) Equilibrium price and quantity both decrease
Answer: c) Equilibrium price and quantity both increase
What is a price ceiling?
a) A government-imposed maximum price
b) A government-imposed minimum price
c) A price set by producers
d) A price set by consumers
Answer: a) A government-imposed maximum price
What is a price floor?
a) A government-imposed maximum price
b) A government-imposed minimum price
c) A price set by producers
d) A price set by consumers
Answer: b) A government-imposed minimum price
If a binding price ceiling is set below the equilibrium price, what is likely to happen in the market?
a) A surplus of the product
b) A shortage of the product
c) No change in quantity supplied
d) An increase in demand
Answer: b) A shortage of the product
Which of the following is an example of a complementary good?
a) Coffee and tea
b) Peanut butter and jelly
c) Hot dogs and buns
d) Gasoline and bicycles
Answer: c) Hot dogs and buns
If the cross-price elasticity of two goods is positive, what can be concluded about their relationship?
a) They are substitutes
b) They are complements
c) They are normal goods
d) They are inferior goods
Answer: a) They are substitutes
Which of the following is NOT a determinant of price elasticity of demand?
a) Availability of substitutes
b) Necessity vs. luxury
c) Advertising budget
d) Time horizon
Answer: c) Advertising budget
When demand is inelastic, a price increase will result in:
a) A large decrease in quantity demanded
b) A small decrease in quantity demanded
c) No change in quantity demanded
d) An increase in quantity demanded
Answer: b) A small decrease in quantity demanded
When supply is perfectly elastic, a small change in price will result in:
a) No change in quantity supplied
b) A large change in quantity supplied
c) Infinite change in quantity supplied
d) A decrease in quantity supplied
Answer: c) Infinite change in quantity supplied
Which of the following statements is true regarding the price elasticity of supply?
a) It is always elastic in the short run
b) It is always inelastic in the long run
c) It depends on the time horizon and production constraints
d) It is always unitary elastic
Answer: c) It depends on the time horizon and production constraints
What is the formula for price elasticity of demand?
a) (Change in quantity demanded / Change in price)
b) (Change in price / Change in quantity demanded)
c) (Change in income / Change in quantity demanded)
d) (Change in quantity supplied / Change in price)
Answer: a) (Change in quantity demanded / Change in price)
If the price elasticity of demand is greater than 1 (in absolute value), the demand is:
a) Elastic
b) Inelastic
c) Unitary elastic
d) Perfectly elastic
Answer: a) Elastic
If the price elasticity of demand is less than 1 (in absolute value), the demand is:
a) Elastic
b) Inelastic
c) Unitary elastic
d) Perfectly elastic
Answer: b) Inelastic
Which of the following is a characteristic of perfectly competitive markets?
a) Many buyers and many sellers
b) A single seller with significant market power
c) Product differentiation
d) Government price controls
Answer: a) Many buyers and many sellers
In a monopolistic market structure, what is the level of market power held by the firm?
a) None, there is no market power
b) Significant market power
c) Complete market power
d) Market power depends on government regulations
Answer: b) Significant market power
Which market structure is characterized by a few large firms dominating the market?
a) Perfect competition
b) Monopoly
c) Oligopoly
d) Monopolistic competition
Answer: c) Oligopoly
What is a natural monopoly?
a) A monopoly that occurs naturally without government intervention
b) A monopoly that produces natural products
c) A monopoly that is environmentally friendly
d) A monopoly that is controlled by a government agency
Answer: a) A monopoly that occurs naturally without government intervention
Which of the following is a barrier to entry in a market?
a) Perfect information
b) Low production costs
c) Government regulations
d) Many available substitutes
Answer: c) Government regulations
What is a public good?
a) A good that is provided by the government
b) A good that is non-excludable and non-rivalrous
c) A good that is available only to the public
d) A good that is provided by private firms
Answer: b) A good that is non-excludable and non-rivalrous
Which of the following is an example of a positive externality?
a) Pollution from a factory
b) Vaccination programs
c) Traffic congestion
d) Noise pollution from construction
Answer: b) Vaccination programs
What is the tragedy of the commons?
a) A situation where private individuals overuse a shared resource, leading to its depletion
b) A situation where private individuals underuse a shared resource, leading to waste
c) A situation where the government controls all resources
d) A situation where resources are evenly distributed among individuals
Answer: a) A situation where private individuals overuse a shared resource, leading to its depletion
