Question 1

If the price is above equilibrium in the free market:&#10;A) The price will increase to restore equilibrium.&#10;B) There will be a shortage.&#10;C) There will be a surplus.&#10;D) The government will intervene.

Accepted Answer

When the price is above the equilibrium, it means that the price is higher than where demand and supply intersect. This leads to a surplus because producers are willing to supply more of the product than consumers are willing to buy at that higher price.

Question 2

A decrease in supply will usually lead to:&#10;A) A higher equilibrium price and higher quantity&#10;B) A higher equilibrium price but lower quantity&#10;C) A lower equilibrium price and quantity&#10;D) A lower equilibrium price and higher quantity

Accepted Answer

A decrease in supply typically results in a higher equilibrium price due to the reduced availability of the product, but it also leads to a lower quantity being sold because the price increase can reduce demand.

Question 3

An increase in demand is likely to lead to:&#10;A) A higher equilibrium price but lower quantity&#10;B) A lower equilibrium price and lower quantity&#10;C) A higher equilibrium price and higher quantity&#10;D) A lower equilibrium price but higher quantity

Accepted Answer

An increase in demand typically results in a higher equilibrium price and higher quantity as the demand curve shifts to the right, leading to a new equilibrium point where both price and quantity are higher.

Question 4

An increase in supply is likely to lead to:&#10;A) A higher equilibrium price but lower quantity&#10;B) A lower equilibrium price and lower quantity&#10;C) A higher equilibrium price and higher quantity&#10;D) A lower equilibrium price but higher quantity

Accepted Answer

An increase in supply, assuming demand remains constant, typically results in a lower equilibrium price because there is more of the good available. However, because the price is lower, more consumers are willing to purchase the good, leading to a higher quantity sold.

Question 5

If there is a shortage in a market:&#10;A) The price is likely to increase.&#10;B) The supply curve is likely to shift outwards.&#10;C) Demand will shift outwards.&#10;D) The price will fall.

Accepted Answer

When there is a shortage in a market, it means that the demand for a product exceeds its supply at the current price, leading to an increase in price as consumers are willing to pay more to obtain the product.

Question 6

If there is a surplus in a free market:&#10;A) The price is likely to increase.&#10;B) The supply curve will shift to the left.&#10;C) The demand curve will shift to the right.&#10;D) The price is likely to fall.

Accepted Answer

In a free market, a surplus occurs when the quantity supplied exceeds the quantity demanded at the current price. To eliminate the surplus and reach equilibrium, sellers will lower the price, making D the correct choice.

Question 7

An increase in indirect tax will usually lead to:&#10;A) A higher equilibrium price but lower quantity&#10;B) A lower equilibrium price and lower quantity&#10;C) A higher equilibrium price and higher quantity&#10;D) A lower equilibrium price but higher quantity

Accepted Answer

An increase in indirect tax on a product makes it more expensive for producers to supply, leading to a higher equilibrium price and a lower quantity sold, as the tax is often partially or fully passed on to consumers in the form of higher prices.

Question 8

If demand increases the supply curve will automatically shift as well.

Accepted Answer

The supply curve represents how much of a good or service suppliers are willing to offer at different prices, independent of demand. A change in demand does not automatically shift the supply curve; it shifts the demand curve instead. Supply curve shifts are caused by factors such as changes in production costs, technology, or number of sellers.

Question 9

In a free market the price will increase if there is excess demand and decrease if there is excess supply to bring about equilibrium.

Accepted Answer

In a free market, prices adjust due to the forces of supply and demand. If there is excess demand (more buyers than sellers at a given price), prices will rise to reduce demand and increase supply until equilibrium is reached. Conversely, if there is excess supply (more sellers than buyers at a given price), prices will fall to increase demand and reduce supply until equilibrium is achieved.

Question 10

If supply and demand are equal and there is no pressure on the price or output to change, this is because the market is in ___________.

Accepted Answer

The answer of If supply and demand are equal and...

Question 11

If the price is below equilibrium in a free market:&#10;A) The price will fall to restore equilibrium.&#10;B) There will be a surplus.&#10;C) There will be a shortage.&#10;D) The government will intervene.

Accepted Answer

The answer of If the price is below equilibrium in...

Question 12

A decrease in indirect tax will usually lead to:&#10;A) A lower equilibrium price and higher quantity&#10;B) A lower equilibrium price and quantity&#10;C) A higher equilibrium price and quantity&#10;D) None of the above

Accepted Answer

The answer of A decrease in indirect tax will usually...

Question 13

Producers and consumers make decisions:&#10;A) Interdependently&#10;B) Through third parties&#10;C) By talking to one another&#10;D) Independently of one another.

Accepted Answer

The answer of Producers and consumers make decisions:&#10;A) Interdependently&#10;B) Through...

Question 14

A market that is initially in equilibrium may find that demand for a normal good increases due to:&#10;A) A fall in price of a substitute good&#10;B) A fall in price of a complementary good&#10;C) A fall in consumer income&#10;D) A fall in manufacturing costs

Accepted Answer

The answer of A market that is initially in equilibrium...

Deck 7: Market Equilibrium