Understanding Supply and Demand

What does the law of demand state?

• As the price increases, demand increases.

• As the price decreases, demand increases.

• As the price increases, demand stays the same.

• As the price decreases, demand decreases.

What does the law of supply state?

• As the price increases, supply decreases.

• As the price decreases, supply increases.

• As the price increases, supply increases.

• As the price decreases, supply stays the same.

What is the equilibrium price?

• The price at which demand is higher than supply.

• The price at which supply is higher than demand.

• The price at which demand equals supply.

• There is no such thing as an equilibrium price.

What happens to the demand curve when consumer preferences change in favor of the good?

• It shifts to the left.

• It shifts to the right.

• It remains unchanged.

• It becomes vertical.

What could cause the supply curve to shift to the left?

• A decrease in the cost of production.

• An improvement in technology.

• An increase in the cost of production.

• An increase in the number of producers.

If the price of a substitute good increases, what happens to the demand for the original good?

• It decreases.

• It increases.

• It stays the same.

• It becomes zero.

What does it mean when the demand curve shifts to the left?

• Demand has increased.

• Demand has decreased.

• Supply has increased.

• Supply has decreased.

If the government imposes a tax on the production of a good, what is likely to happen to its supply curve?

• It shifts to the right.

• It shifts to the left.

• It remains unchanged.

• It becomes horizontal.

What happens to the equilibrium price when there is an increase in demand, assuming supply remains constant?

• It decreases.

• It increases.

• It stays the same.

• It becomes zero.

What effect does an increase in production costs have on the equilibrium price and quantity, assuming demand remains constant?

• Equilibrium price decreases, and quantity increases.

• Equilibrium price increases, and quantity decreases.

• Equilibrium price and quantity both increase.

• Equilibrium price and quantity both decrease.