Supply and Demand

A change in the cost of production will cause a movement along the supply curve if:

• All other factors remain constant.

• There is a change in technology, input prices, or government subsidies.

• Both all other factors remain constant and there is a change in technology, input prices, or government subsidies.

• None of the above

If the price of a good increases and the quantity demanded remains the same, then the price elasticity of demand is:

• Elastic

• Inelastic

• Unit elastic

• Undefined

As price rises, what happens to quantity demanded?

• It goes up

• It goes down

• No change

Answer explanation

As price rises, consumers typically buy less of a good, leading to a decrease in quantity demanded. This is known as the law of demand, which states that price and quantity demanded move in opposite directions.

What happens to the demand for a product when its price drops?

• Demand increases

• Demand decreases

• Demand stays the same.

Answer explanation

When the price of a product drops, consumers are generally more willing to buy it, leading to an increase in demand. This relationship is a fundamental principle of economics known as the law of demand.

What is Supply?

• The amount of a good or service that consumers want to buy

• The amount of a good or service that producers are willing to sell.

• The price at which a good or service is sold.

Answer explanation

Supply refers to the amount of a good or service that producers are willing to sell. This is distinct from demand, which is about what consumers want to buy.

What does the equilibrium point in a market represent?

• The total number of consumers in the market

• The maximum quantity of a product that can be produced

• The price at which supply equals demand

Answer explanation

The equilibrium point in a market represents the price at which the quantity supplied equals the quantity demanded, ensuring that there is no surplus or shortage of goods.

What factors can cause a shift in demand?

• Changes in consumer income

• Changes in the price of related goods

• Both A and B

Answer explanation

Demand can shift due to changes in consumer income, which affects purchasing power, and changes in the price of related goods, such as substitutes or complements. Therefore, both factors A and B are correct.

How does consumer expectation about future prices affect current demand?

• It has no effect on current demand

• It can increase current demand if prices are expected to rise

• It can decrease current demand if prices are expected to fall

Answer explanation

Consumer expectations about future prices can significantly influence current demand. If consumers expect prices to rise, they are likely to buy more now to avoid paying higher prices later, thus increasing current demand.

What is the effect of a decrease in consumer income on demand?

• Demand increases

• Demand decreases

• Demand remains unchanged

Answer explanation

A decrease in consumer income typically leads to a reduction in purchasing power, causing demand for normal goods to decrease. Therefore, the correct answer is that demand decreases.

What is the relationship between supply and demand elasticity?

• They are unrelated.

• They are indirectly related.

• They are directly proportional.

• They are inversely proportional.