Demand and Supply: Master the Fundamentals of Market Forces

Question 1

Define market equilibrium and explain its importance in determining market prices and quantities.

Accepted Answer

Market equilibrium occurs when the quantity supplied equals the quantity demanded at a specific price.

Answer

Market equilibrium is reached when the price is at its highest point.

Answer

Market equilibrium means that the quantity supplied is always greater than the quantity demanded.

Answer

Market equilibrium is an irrelevant concept in economics.

Question 2

Which of the following does NOT affect the demand for a product?

Accepted Answer

Availability of the product

Answer

Price of the product

Answer

Consumer income

Answer

Advertising

Question 3

At market equilibrium, what is the relationship between the quantity demanded and the quantity supplied?

Accepted Answer

Equal

Answer

Unequal

Answer

Indeterminate

Answer

It varies depending on the market

Question 4

Which of the following will cause a surplus in the market?

Accepted Answer

Excess supply

Answer

Excess demand

Answer

Price above equilibrium

Answer

Price below equilibrium

Question 5

What is the effect of an increase in income on the demand for a normal good?

Accepted Answer

Increase

Answer

Decrease

Answer

No change

Answer

Varies depending on the good

Question 6

If the cross-price elasticity between two goods is negative, the goods are considered:

Accepted Answer

Substitutes

Answer

Complements

Answer

Unrelated

Answer

Essential

Question 7

Which of the following government policies can be used to increase the quantity supplied?

Accepted Answer

Subsidies

Answer

Price controls

Answer

Taxes

Answer

Quotas

Question 8

What is the role of the profit motive in the market economy?

Accepted Answer

To encourage producers to supply goods and services

Answer

To protect consumers from exploitation

Answer

To regulate prices

Answer

To ensure fair competition

Question 9

Technology is revolutionizing industries. Analyze how technological advancements can impact both demand and supply, and discuss the potential consequences for market outcomes.

Accepted Answer

Technological advancements can drive changes in both demand and supply, leading to market innovations, disruptions, and potential shifts in market equilibrium.

Answer

Technology has no influence on demand or supply.

Answer

Technology mainly affects demand by altering consumer preferences and behaviors.

Question 10

Which of the following is NOT a determinant of demand?

Accepted Answer

Price of the same good

Answer

Consumer tastes and preferences

Answer

Consumer income

Answer

Price of a substitute good

Question 11

Following an increase in supply, what happens to the equilibrium price and quantity?

Accepted Answer

Equilibrium price decreases, equilibrium quantity increases

Answer

Equilibrium price increases, equilibrium quantity decreases

Answer

Equilibrium price decreases, equilibrium quantity decreases

Answer

Equilibrium price increases, equilibrium quantity increases

Question 12

Which example best illustrates a price ceiling?

Accepted Answer

Government-imposed rent control

Answer

Government-mandated minimum wage

Answer

Government-imposed tax on gasoline

Answer

Government-imposed cap on healthcare costs

Question 13

When the equilibrium price of a good decreases, what happens to consumer surplus?

Accepted Answer

Increases

Answer

Decreases

Answer

Stays the same

Answer

Cannot be determined

Question 14

What is the fundamental difference between a shortage and a surplus in a market?

Accepted Answer

Shortage occurs when quantity demanded exceeds quantity supplied, while surplus occurs when quantity supplied exceeds quantity demanded

Answer

Shortage occurs when quantity supplied exceeds quantity demanded, while surplus occurs when quantity demanded exceeds quantity supplied

Answer

There is no difference between a shortage and a surplus

Answer

Shortage and surplus are both examples of market equilibrium

Question 15

Examine the effectiveness of government interventions, such as price ceilings and subsidies, in addressing market failures. Discuss the potential limitations of these policies.

Accepted Answer

Government interventions can be effective in addressing market failures, but their effectiveness is limited.

Answer

Government interventions are always effective in correcting market failures.

Answer

Government interventions are never effective in correcting market failures.

Answer

Government interventions always lead to unintended consequences when addressing market failures.

Question 16

Which of the following is NOT a factor that influences the quantity demanded of a product?

Accepted Answer

Price of own product

Answer

Consumer tastes and preferences

Answer

Government regulations

Answer

Technological advancements

Question 17

When the supply of a product increases and the demand remains stable, what happens to the market price?

Accepted Answer

It decreases

Answer

It increases

Answer

It remains the same

Answer

It becomes fluctuating

Question 18

What is the term used to describe the market condition where quantity supplied equals quantity demanded?

Accepted Answer

Equilibrium

Answer

Scarcity

Answer

Surplus

Answer

Price floor

Question 19

What happens to the equilibrium price when both supply and demand decrease by the same proportionate amount?

Accepted Answer

It remains the same

Answer

It increases

Answer

It decreases

Answer

It becomes indeterminate

Question 20

Which of the following is a likely consequence of a price ceiling set below the equilibrium price?

Accepted Answer

Shortage

Answer

Surplus

Answer

Higher quality products

Answer

Increased competition

Question 21

What is the key difference between a perfectly competitive market and a monopoly?

Accepted Answer

A perfectly competitive market has many buyers and sellers, while a monopoly has only one seller

Answer

A monopoly has many buyers and sellers, while a perfectly competitive market has only one seller

Answer

They are the same thing

Answer

A perfectly competitive market is a physical place, while a monopoly is not

Question 22

Which of the following is an example of a non-price determinant of supply?

Accepted Answer

Government subsidies

Answer

Number of firms in the industry

Answer

Consumer demand

Answer

Price of the product

Question 23

What is the primary goal of a profit-maximizing monopolist?

Accepted Answer

To maximize profit

Answer

To produce the highest possible quantity of output

Answer

To sell at the lowest possible price

Answer

To benefit consumers

Question 24

Which of the following is a key factor that influences the quantity of a product or service demanded by consumers?

Accepted Answer

Consumer preferences and income levels

Answer

Price of the product or service

Answer

Number of suppliers in the market

Answer

Level of technology used in production

Question 25

When the quantity supplied of a product or service is greater than the quantity demanded, what is the expected impact on the market price?

Accepted Answer

Price will decrease to restore equilibrium

Answer

Price will remain unchanged

Answer

Price will increase due to scarcity

Answer

Quantity demanded will automatically increase

Question 26

Which of the following would result in an increase in the quantity supplied of a particular product or service?

Accepted Answer

Government subsidies for producers

Answer

An increase in the cost of production

Answer

A decrease in the selling price

Answer

An increase in demand for the product or service

Question 27

In a market, the equilibrium price refers to the point where:

Accepted Answer

Quantity supplied equals quantity demanded

Answer

Consumers are willing to pay the highest price

Answer

Producers are willing to accept the lowest price

Answer

There is no surplus or shortage of the product or service

Question 28

When a 10% increase in the price of a product or service results in a 10% decrease in the quantity demanded, this indicates:

Accepted Answer

Elastic demand

Answer

Inelastic demand

Answer

Perfectly elastic demand

Answer

Perfectly inelastic demand

Question 29

Which of the following is NOT a factor that determines the quantity demanded of a good or service?

Accepted Answer

(C) Production costs

Answer

(A) Price of the product

Answer

(B) Consumer preferences

Answer

(D) Income of consumers

Question 30

Which of the following events would most likely cause a shift to the right in the demand curve for a product?

Accepted Answer

(A) An increase in consumer income

Answer

(B) A decrease in the price of a substitute good

Answer

(C) A technological advancement that makes production cheaper

Answer

(D) A decrease in consumer confidence

Question 31

As per the law of supply, what is the relationship between price and quantity supplied?

Accepted Answer

(A) As price increases, quantity supplied increases

Answer

(B) As price increases, quantity supplied decreases

Answer

(C) Supply remains constant regardless of price changes

Answer

(D) Quantity supplied is directly proportional to price

Question 32

Which of the following events would most likely cause a shift to the right in the supply curve for a product?

Accepted Answer

(A) An improvement in production technology

Answer

(B) An increase in the cost of raw materials

Answer

(C) A decrease in government subsidies to producers

Answer

(D) A natural disaster that disrupts production

Question 33

In a perfectly competitive market, the equilibrium point is reached when:

Accepted Answer

(A) Demand equals supply

Answer

(B) Price is at its highest level

Answer

(C) There is a shortage of the good or service

Answer

(D) Demand is greater than supply

Question 34

Which of the following describes a situation where quantity supplied exceeds quantity demanded?

Accepted Answer

(A) A surplus

Answer

(B) A shortage

Answer

(C) An equilibrium

Answer

(D) A market imbalance

Question 35

How can government intervention in a market affect the equilibrium price?

Accepted Answer

(D) By doing any of the above

Answer

(A) By shifting the demand curve

Answer

(B) By shifting the supply curve

Answer

(C) By setting a price ceiling or floor

Question 36

Which of the following is NOT a key determinant of elasticity?

Accepted Answer

Government subsidies

Answer

Price

Answer

Income

Answer

Availability of substitutes

Question 37

Which market structure is characterized by a single dominant seller facing numerous small, independent buyers?

Accepted Answer

Monopoly

Answer

Perfect Competition

Answer

Oligopoly

Answer

Monopsony

Question 38

A decrease in supply will result in:

Accepted Answer

Higher prices and lower quantity

Answer

Higher prices and higher quantity

Answer

Lower prices and higher quantity

Answer

No change in prices or quantity

Question 39

A perfectly competitive market is characterized by:

Accepted Answer

Many buyers and sellers

Answer

Government price controls

Answer

High barriers to entry

Question 40

The equilibrium price in a market occurs when:

Accepted Answer

Quantity demanded equals quantity supplied

Answer

Quantity supplied exceeds quantity demanded

Answer

Total revenue is maximized

Answer

Quantity demanded exceeds quantity supplied

Question 41

An increase in consumer income will:

Accepted Answer

Increase demand for normal goods

Answer

Decrease demand for normal goods

Answer

Increase demand for inferior goods

Question 42

A surplus in a market occurs when:

Accepted Answer

Quantity supplied exceeds quantity demanded

Answer

Quantity demanded exceeds quantity supplied

Answer

Price is above equilibrium

Question 43

A perfectly inelastic demand curve is vertical because:

Accepted Answer

Changes in price do not affect quantity demanded

Answer

Changes in price have a proportional effect on quantity demanded

Answer

Changes in price have a greater-than-proportional effect on quantity demanded

Answer

Changes in price have a less-than-proportional effect on quantity demanded

Question 44

The law of diminishing marginal utility states that:

Accepted Answer

As a consumer consumes more of a good, the additional satisfaction derived from each unit declines

Answer

As a consumer consumes more of a good, the total satisfaction derived from all units consumed increases

Answer

As a consumer consumes more of a good, the additional satisfaction derived from each unit increases

Question 45

If the supply of a good decreases, what will typically happen to its equilibrium price and quantity?

Accepted Answer

Increase in equilibrium price, decrease in equilibrium quantity

Answer

Decrease in equilibrium price, decrease in equilibrium quantity

Answer

Increase in equilibrium price, increase in equilibrium quantity

Question 46

What term describes the point where the demand and supply curves intersect?

Accepted Answer

Market equilibrium

Answer

Consumer surplus

Answer

Market shortage

Answer

Market surplus

Question 47

In a market economy, what is the primary role of prices?

Accepted Answer

To allocate scarce resources and coordinate economic activity

Answer

To minimize consumer spending

Answer

To maximize producer profits

Question 48

If the government sets a price ceiling below the equilibrium price, what is the likely outcome?

Accepted Answer

Market shortage

Answer

Decrease in equilibrium price

Answer

Increase in equilibrium quantity

Answer

Market surplus

Question 49

Which of the following goods or services is likely to have a price elasticity of demand close to zero?

Accepted Answer

Demand for insulin

Answer

Demand for petrol

Answer

Demand for clothing

Answer

Demand for luxury cars

Question 50

What is the primary objective of government subsidies?

Accepted Answer

To increase the supply of a good or service

Answer

To decrease the demand for a good or service

Answer

To increase the price of a good or service

Answer

To decrease the quantity of a good or service

Question 51

Which of the following is a key characteristic of a perfectly competitive market?

Accepted Answer

Many buyers and sellers, homogeneous products

Answer

Few buyers and sellers, differentiated products

Answer

Many buyers and one seller, differentiated products

Answer

One buyer and many sellers, homogeneous products