Unit 2: Demand and Supply Final Exam Review

Which of the following best defines "demand" in economics?

• The total amount of goods produced by a company

• How much of a product consumers are willing and able to purchase at various prices within a given period, assuming all other factors remain constant

• The price at which a product is sold in the market

• The cost of producing a product

According to the law of demand, what happens when the price of a good increases?

• The quantity demanded increases

• The quantity demanded decreases

• The quantity demanded remains the same

• The supply decreases

Which effect explains why consumers may switch to a relatively cheaper substitute when prices rise?

• Income Effect

• Diminishing Marginal Utility

• Substitution Effect

• Law of Supply

What is the income effect in the context of demand?

• When a price decrease increases consumers’ purchasing power, allowing them to buy more

• When consumers switch to a cheaper substitute

• When each additional unit of a good provides less satisfaction

• When the price of a good increases, the quantity demanded increases

What does the demand curve typically show?

• An upward slope indicating a direct relationship between price and quantity

• A downward slope indicating an inverse relationship between price and quantity

• A horizontal line indicating no change in quantity

• A vertical line indicating no change in price

What is a demand schedule?

• A graph showing the relationship between supply and demand

• A table listing quantities demanded at different price points

• A list of products available in the market

• A schedule of production costs

Which of the following best describes the concept of elasticity of demand?

• The total quantity of goods supplied in the market

• The responsiveness of the quantity demanded to a change in the product’s price

• The cost of producing an additional unit of a good

• The relationship between supply and demand

What is the correct formula for calculating the elasticity of demand?

• % change in price / % change in quantity demanded

• % change in quantity demanded / % change in price

• % change in supply / % change in demand

• % change in price / % change in supply

A company notices that as the price of their product decreases, customers buy significantly more. Which concept best explains this behavior?

• Law of Supply

• Law of Demand

• Law of Diminishing Returns

• Law of Increasing Opportunity Cost

If each additional unit of a good provides less satisfaction than the previous one, which concept does this illustrate?

• Substitution Effect

• Income Effect

• Diminishing Marginal Utility

• Elasticity of Demand