Question 1

If pencils and paper are complements, an increase in the price of pencils causes the demand for paper to decrease or shift to the left.

Accepted Answer

When the price of pencils increases, people will buy fewer pencils. This means they will also need fewer sheets of paper to use with their pencils, so the demand for paper decreases. Therefore, pencils and paper are complements and an increase in the price of pencils causes the demand for paper to shift to the left.

Question 2

The law of demand states that an increase in the price of a good

Accepted Answer

The law of demand states that there is an inverse relationship between the price of a good and the quantity demanded for it. This means that as the price of a good increases, the quantity demanded for it decreases. Therefore, B is the correct answer. Option A is incorrect because an increase in price would not increase the supply of that good. Option C is incorrect because demand is a measure of how much consumers are willing to buy at a given price, not how many units of a good are available. Option D is incorrect because an increase in the price of a good would not increase the quantity supplied of that good, unless there were some other reason for producers to increase their output.

Question 3

An increase in the price of steel will shift the supply of cars to the right.

Accepted Answer

An increase in the price of steel, which is an input for producing cars, will increase the cost of production for cars, causing a decrease in supply, or a leftward shift of the supply curve.

Question 4

The demand curve for iPhones shows the quantity of iPhones demanded

Accepted Answer

The demand curve for iPhones shows the quantity of iPhones demanded at each possible price of iPhones. It does not depend on the suppliers of those phones or the level of income. And while the equilibrium price is a point on the demand curve, the demand curve itself shows the relationship between quantity demanded and price for all possible prices, not just the equilibrium price.

Question 5

The market supply curve is the horizontal summation of the individual supply curves.

Accepted Answer

The market supply curve represents the total quantity supplied by all the firms in the market at different prices. It is obtained by horizontally adding up the individual supply curves of all the firms in the market.

Question 6

Suppose that a large dairy farmer is able to raise the market price of milk by withholding milk supply from the market. In this instance,

Accepted Answer

If a large dairy farmer is able to raise the market price of milk by withholding milk supply from the market, it signifies that the market is not perfectly competitive. In a perfectly competitive market, no single supplier can influence the market price. Therefore, the milk market being influenced by the actions of a single supplier suggests that the market is imperfectly competitive.

Question 7

The amount of a good or service that buyers would be willing and able to purchase at a specific price is known as

Accepted Answer

Quantity demanded is the specific amount of a good or service that buyers are willing and able to purchase at a given price. Demand refers to the overall willingness of buyers to purchase a good or service at various prices. Supply relates to the quantity of a good or service that producers are willing and able to offer for sale at a given price. Quantity supplied is the specific amount of a good or service that producers are willing and able to offer for sale at a specific price.

Question 8

If an increase in the price of coffee leads to an increase in the demand for tea, then coffee and tea are likely to be

Accepted Answer

When an increase in the price of one good leads to an increase in the demand for another good, the two goods are considered substitutes. In this case, an increase in the price of coffee leads consumers to switch to tea instead, indicating that coffee and tea are substitutes.

Question 9

A perfectly competitive market consists of products that are all slightly different from one another.

Accepted Answer

A perfectly competitive market consists of products that are identical or homogeneous, not slightly different from one another.

Question 10

Which of the following are the best examples of substitute goods?

Accepted Answer

Samsung Galaxy and Apple iPhone are both smartphones with similar features and functionalities, making them a good example of substitute goods. Personal computers and computer software programs may complement each other rather than be substitutes, while milk and cookies and hot dogs and mustard are not related goods at all.

Question 11

If there is a shortage of a good, then the price of that good tends to fall.

Accepted Answer

If there is a shortage of a good, it means that demand exceeds supply. This typically results in an increase in price as consumers compete for the limited supply.

Question 12

When the price of a good is below the equilibrium price, it causes a surplus.

Accepted Answer

When the price of a good is below the equilibrium price, it causes a shortage, as the quantity demanded exceeds the quantity supplied.

Question 13

Because there are many buyers and sellers in a perfectly competitive market, neither has any power to influence price. They are said to be price takers.

Accepted Answer

In a perfectly competitive market, no single buyer or seller can influence the price, they are forced to accept the market price, making them price takers.

Question 14

The law of demand states that an increase in the price of a good decreases the demand for that good.

Accepted Answer

This is the basic principle of the law of demand. When the price of a good increases, consumers are less willing and able to purchase it, causing the demand for that good to decrease. Conversely, when the price of a good decreases, consumers are more willing and able to purchase it, causing the demand to increase.

Question 15

An advance in the technology employed to manufacture roller blades will result in a decrease in the equilibrium price and an increase in the equilibrium quantity bought and sold in the market for roller blades.

Accepted Answer

An advance in technology should lead to a decrease in production costs, which will lead to a decrease in the equilibrium price and an increase in the equilibrium quantity bought and sold. This is in line with the basic principles of supply and demand.

Question 16

If Coke and Pepsi are substitutes, an increase in the price of Coke will cause an increase in the equilibrium price and quantity bought and sold in the market for Pepsi.

Accepted Answer

If the price of Coke increases, consumers will switch to Pepsi as a substitute. This will shift the demand curve for Pepsi to the right, leading to an increase in both the equilibrium price and quantity bought and sold in the market for Pepsi.

Question 17

A group of buyers and sellers with the potential to trade is known as

Accepted Answer

A market is a group of buyers and sellers who have the potential to trade. A cartel is a group of sellers who collude to restrict output and raise prices. An industry is a group of businesses that produce and sell a particular good or service. A sector is a broader term that refers to a larger category of industries or businesses, such as the financial sector or the healthcare sector.

Question 18

A perfectly competitive market has

Accepted Answer

A perfectly competitive market is characterized by a large number of buyers and sellers, each of whom has no market power to influence the price of the product. Therefore, a perfectly competitive market has many buyers and sellers, making option B the correct answer.

Question 19

In a perfectly competitive market, both buyers and sellers have ________ knowledge and so are able to make decisions independently

Accepted Answer

In a perfectly competitive market, buyers and sellers have perfect knowledge about the market conditions, including prices, quality, and availability of goods or services. Therefore, they can make informed decisions independently without being influenced by any external factors or information asymmetries.

Question 20

The commercial airliner industry, consisting of Boeing and Airbus, represents

Accepted Answer

The commercial airliner industry is dominated by two main players, Boeing and Airbus, giving it the characteristics of an oligopoly. This is because there are significant barriers to entry, such as high capital costs and strong brand recognition, which limit the number of competitors in the market. Additionally, both companies have a significant impact on pricing and product development within the industry.

Quiz 3: The Market Forces of Supply and Demand