IG1 Practice 1

Supply and demand: What happens to the equilibrium price and quantity when there is an increase in demand and a decrease in supply?

• Equilibrium price will decrease, equilibrium quantity will remain the same

• Equilibrium price will increase, equilibrium quantity ambiguous

• Equilibrium price will decrease, equilibrium quantity will increase

• Equilibrium price will remain the same, equilibrium quantity will decrease

Answer explanation

When there is an increase in demand and a decrease in supply, the equilibrium price will increase. However, the effect on equilibrium quantity is ambiguous.

Supply and demand: Explain the concept of price elasticity of demand and its impact on consumer behavior.

• Price elasticity of demand measures the quantity supplied of a good in response to a change in price.

• Price elasticity of demand measures the quality of a good in response to a change in price.

• Price elasticity of demand measures how much the quantity demanded of a good responds to a change in price.

• Price elasticity of demand has no impact on consumer behavior.

Answer explanation

Price elasticity of demand measures how much the quantity demanded of a good responds to a change in price. It helps understand consumer behavior.

Supply and demand: How does the concept of market equilibrium help in understanding the interaction between supply and demand?

• Market equilibrium helps in understanding the interaction between supply and demand by showing how prices and quantities adjust to bring supply and demand into balance.

• Market equilibrium has no impact on supply and demand

• Market equilibrium causes prices to remain constant regardless of supply and demand

• Market equilibrium only affects demand, not supply

Answer explanation

Market equilibrium shows how prices and quantities adjust to balance supply and demand.

Market equilibrium: What factors can cause a shift in the demand curve and how does it impact the market equilibrium?

• Changes in government regulations

• Weather conditions

• Number of producers in the market

• Changes in consumer income, preferences, prices of related goods, and expectations. It impacts the market equilibrium by causing a change in the quantity and price at which the quantity demanded equals the quantity supplied.

Answer explanation

Changes in consumer income, preferences, prices of related goods, and expectations can shift the demand curve and impact market equilibrium by changing the quantity and price at which quantity demanded equals quantity supplied.

Market equilibrium: Discuss the concept of surplus and shortage in the context of market equilibrium.

• Surplus and shortage occur when the market price is too low

• Surplus and shortage occur when the market price is not at equilibrium.

• Surplus and shortage occur when the market price is exactly at equilibrium

• Surplus and shortage occur when the market price is too high

Answer explanation

Surplus and shortage occur when the market price is not at equilibrium.

Market equilibrium: How does the government intervention through price controls affect the market equilibrium?

• It has no impact on the market equilibrium

• It results in higher consumer satisfaction

• It can create either a surplus or a shortage of goods and services.

• It leads to increased competition in the market

Answer explanation

Government intervention through price controls can create either a surplus or a shortage of goods and services, affecting the market equilibrium.

Utility maximization: Explain the concept of marginal utility and its role in consumer decision making.

• Marginal utility is the price of a good or service, and it does not play a role in consumer decision making.

• Marginal utility is the total satisfaction or benefit from consuming all units of a good or service, and it is not relevant to consumer decision making.

• Marginal utility is the cost of producing an additional unit of a good or service, and it has no impact on consumer decision making.

• Marginal utility is the additional satisfaction or benefit from consuming an additional unit of a good or service, and it helps consumers make optimal allocation decisions.

Answer explanation

Marginal utility is the additional satisfaction or benefit from consuming an additional unit of a good or service, and it helps consumers make optimal allocation decisions.

Utility maximization: How does the budget constraint affect the consumer's utility maximization decision?

• It only affects the price of goods and services

• It increases the consumer's ability to purchase goods and services

• It limits the consumer's ability to purchase goods and services

• It has no impact on the consumer's utility maximization decision

Answer explanation

The budget constraint limits the consumer's ability to purchase goods and services.

Utility maximization: Discuss the concept of indifference curves and their role in utility maximization.

• Indifference curves represent combinations of goods that provide decreasing levels of satisfaction to the consumer.

• Indifference curves have no role in utility maximization.

• Indifference curves represent combinations of goods that provide different levels of satisfaction to the consumer.

• Indifference curves represent combinations of goods that provide the same level of satisfaction to the consumer.

Answer explanation

Indifference curves represent combinations of goods that provide the same level of satisfaction to the consumer.

Elasticity of demand: What factors determine the price elasticity of demand for a product?

• Distance from the store, availability of parking, and store layout

• Availability of substitutes, necessity of the product, and proportion of income spent on the product

• Weather conditions, time of day, and customer's mood

• Color of the product, brand popularity, and packaging design

Answer explanation

The price elasticity of demand for a product is determined by the availability of substitutes, necessity of the product, and proportion of income spent on the product.