Chpt. 10 – The Interaction of Demand and Supply | Quiz

A market is in equilibrium. If there is an increase in supply and no change in demand, how does this affect the equilibrium position?

• A. Equilibrium price rises and equilibrium quantity remains the same.

• B. Equilibrium price falls and equilibrium quantity rises.

• C. There will be no change in the equilibrium position.

• D. Equilibrium price falls and equilibrium quantity falls.

Answer explanation

The supply curve will shift to the right. The equilibrium price will fall and there will be an increase in the quantity of goods traded.

A market is in equilibrium. There is then a fall in supply and an increase in demand for the product. How does this affect the equilibrium price and quantity?

• A. increase | increase

• B. increase | decrease

• C. decrease | increase

• D. decrease | decrease

Answer explanation

A fall in supply is represented by a shift to the left of the supply curve. The increase in demand

should increase the quantity traded. The combined effect is an increase in both equilibrium price and equilibrium quantity.

The linear demand curve for a product is shown by Qd = 100 – 5p where p is the price in dollars. The linear supply curve is Qs = –20 + 10p. Calculate the equilibrium price of the product.

• A. $5

• B. $8

• C. $16

• D. $24

Answer explanation

The equilibrium price is where demand and supply are equal. So, 100 – 5p = −20 + 10p.

Therefore p = $8.

The diagram shows the supply and demand curves – S1 and D1 – for Red Bull, a caffeine drink, in a market. The market equilibrium is at X.

Which point, A, B, C or D, on the diagram will be the new equilibrium position if there is a fall in the production costs of Red Bull and a rise in price of Eastroc Super, another caffeine drink? EXPLAIN YOUR REASONING.

Answer explanation

Point D is correct because a fall in production costs of Red Bull will shift the supply curve downwards to the right. The rise

in price of the substitute drink shifts the demand curve for Red Bull to the right.

A market is in disequilibrium when:

• A. there is excess supply in the market.

• B. consumers’ wants are being satisfied.

• C. prices are almost stable.

• D. sellers have more control over the market than buyers.

Answer explanation

The definition of disequilibrium in a market is when demand and supply are not equal. B, C and D make no mention of this essential requirement.

What is the relationship between lemons and lemon juice?

• A. substitutes

• B. complements

• C. joint supply

• D. derived demand

Answer explanation

Lemon juice comes from a lemon. So the demand for lemon juice is derived from the demand for lemons. Lemon juice and lemons are not in joint supply – only the lemons are supplied. They are not substitutes as lemon juice comes from the lemon fruit.

A train journey is an example of a derived demand because:

• A. it is the only way of making the journey.

• B. it is the cheapest way of making the journey.

• C. it is necessary in order to get too work.

• D. it is preferable to other means of transport.

Answer explanation

Derived demand is one where the demand for a good or service depends on the use that can

be made of it. A train journey is not demanded other than to provide a means of transport for

someone to get to work.