Practice Topic 2

Which of the following best defines a market in economic terms?

• A building where buying and selling occurs

• An agreement where government sets prices

• A system where buyers and sellers interact

• A place where products are stored for sale

Which of the following is a public good?

• Ice cream

• Street lighting

• Cell phone

• Private car

If the price of tea increases and consumers buy more coffee instead, this demonstrates that:

• Coffee and tea are complementary goods

• Tea has inelastic demand

• Coffee is a substitute for tea

• Tea is a necessity

The law of demand assumes:

• Consumer income changes frequently

• Prices of related goods fluctuate often

• Other factors remain constant (ceteris paribus)

• Prestige value of goods rises with income

When the demand curve shifts to the right, this indicates:

• A fall in demand

• A fall in price

• An increase in quantity demanded due to price change

• An increase in demand at all price levels

Which condition can cause a shift in the demand curve for smartphones?

• Price of smartphones falls

• Consumers' income increases

• Quantity supplied increases

• The production cost falls

A fall in the cost of microchips (a production input) will most likely:

• Increase the quantity demanded

• Increase the supply of smartphones

• Decrease market price

• Increase consumer demand

What happens when market price is set below equilibrium?

• Market clears immediately

• There is a shortage

• There is a surplus

• Price remains stable

Which curve shows a perfectly inelastic demand?

• Vertical line

• Downward-sloping curve

• Horizontal line

• Upward-sloping line

"A 50% increase in price leads to a 10% increase in quantity supplied." This supply is:

• Perfectly elastic

• Elastic

• Inelastic

• Unitary elastic