Demand, Supply & Equilibrium Quiz

What does the law of demand state?

• Price ↑, Quantity demanded ↑

• Price ↑, Quantity demanded ↓

• Price ↓, Quantity demanded ↓

• Price remains constant, Quantity demanded varies

Answer explanation

The law of demand states that as the price of a good increases (Price ↑), the quantity demanded decreases (Quantity demanded ↓). Therefore, the correct choice is 'Price ↑, Quantity demanded ↓'.

Which of the following causes a movement along the demand curve?

• Change in price

• Change in preferences

• Change in income

• Change in number of buyers

Answer explanation

A change in price causes a movement along the demand curve, reflecting how quantity demanded varies with price. Other options, like preferences or income, shift the entire demand curve instead.

How does an increase in income affect the demand for normal goods?

• Increases demand

• Decreases demand

• No change in demand

• Shifts demand to the left

Answer explanation

An increase in income typically leads to higher demand for normal goods, as consumers can afford to buy more. Therefore, the correct answer is 'Increases demand'.

Which of these is an example of a substitute good?

• Tennis rackets and tennis balls

• Coca-Cola and Pepsi

• Bread and butter

• Laptops and chargers

Answer explanation

Coca-Cola and Pepsi are substitute goods because they serve the same purpose as soft drinks, allowing consumers to switch between them based on preference or price. The other options represent complementary or unrelated goods.

What happens when buyers expect future prices to increase?

• Current demand decreases

• Current demand increases

• Future demand decreases

• Future supply increases

Answer explanation

When buyers expect future prices to increase, they are likely to buy more now to avoid paying higher prices later, leading to an increase in current demand.

Which curve represents the summation of all individual demand curves?

• Individual demand curve

• Market demand curve

• Aggregate supply curve

• Individual supply curve

Answer explanation

The market demand curve is the horizontal summation of all individual demand curves, representing the total quantity demanded by all consumers at various price levels.

What is the shape of the demand curve due to the substitution effect and diminishing marginal utility?

• Upward sloping

• Downward sloping

• Horizontal

• Vertical

Answer explanation

The demand curve is downward sloping due to the substitution effect, where consumers switch to cheaper alternatives, and diminishing marginal utility, which indicates that as consumption increases, the additional satisfaction decreases.

What does the law of supply state?

• Price ↑, Quantity supplied ↑

• Price ↑, Quantity supplied ↓

• Price ↓, Quantity supplied ↑

• Price and quantity supplied are unrelated

Answer explanation

The law of supply states that as the price of a good increases, the quantity supplied also increases. Therefore, the correct choice is 'Price ↑, Quantity supplied ↑'.

Which of these factors directly increases supply?

• Increase in input prices

• Increase in taxes

• Technological advancement

• Decrease in subsidies

Answer explanation

Technological advancement directly increases supply by improving production efficiency, allowing producers to create more goods at lower costs, unlike the other options which either raise costs or reduce incentives.

How does an increase in the number of sellers affect supply?

• Supply decreases

• Supply remains constant

• Supply increases

• Supply curve shifts leftward

Answer explanation

An increase in the number of sellers typically leads to more goods being available in the market, which increases overall supply. Therefore, the correct answer is that supply increases.