Economics Demand and Supply Quiz

If a consumer’s preferences intensify for product X, the price of a substitute increases, expected future prices rise, and income increases for a normal good, then the consumer’s willingness and ability to pay rises. Holding other factors constant, this describes:

• A movement along the demand curve

• An increase in demand (rightward shift)

• A decrease in demand

• A change in quantity demanded

When choosing between two activities, a smart decision-maker uses Key 2, comparing marginal benefits with marginal opportunity costs while ignoring sunk costs, which cannot be recovered. This principle explains why the willingness to pay reflects:

• Total benefit

• Average benefit

• Marginal benefit

• Fixed cost recovery

The diamond–water paradox occurs because diamonds have high marginal benefits, while water, though having high total benefits, has low marginal benefits due to abundance. Therefore, price reflects:

• Total benefit differences

• Marginal benefit differences

• Sunk cost differences

• Opportunity cost differences

A consumer who switches toward substitutes when the price of a product rises is demonstrating the combined effect of willingness/ability to pay and marginal benefit. This reflects:

• Law of supply

• Law of demand

• Sunk cost fallacy

• Market surplus

Reading a demand curve up-and-over gives the maximum price a consumer is willing to pay, which equals the marginal benefit. Reading a demand curve over-and-down gives:

• Marginal cost

• Quantity demanded at a given price

• Total surplus

• Sunk cost

Market demand increases when the number of consumers increases and preferences intensify, even if the price stays constant. This is described as:

• Change in quantity demanded

• Movement along an unchanged demand curve

• Shift of the entire demand curve

• Law of diminishing marginal utility

A fall in the price of a complement and a rise in consumer income for a normal good, holding everything else constant, cause:

• Decrease in quantity demanded

• Increase in demand

• Decrease in demand

• Increase in marginal cost

A business facing rising marginal opportunity costs as it increases output experiences:

• Constant marginal cost due to equally productive inputs

• Increasing marginal cost due to less productive inputs being used

• Decreasing marginal cost due to economies of scale only

• Zero opportunity cost

The law of supply states that firms increase quantity supplied when price rises because higher prices cover higher marginal opportunity costs. Supply is interpreted as businesses’ willingness to produce, which depends on:

• Total cost only

• Marginal cost only

• Average benefit

• Sunk cost recovery

If all workers and equipment are equally productive in all tasks, then increasing output causes constant marginal opportunity cost. The supply curve in this case would:

• Be horizontal

• Be vertical

• Slope upward

• Bend backward