Understanding Demand and Supply Concepts

• A shift of the entire demand curve to the right

• A contraction in quantity demanded along the existing demand curve

• An expansion in quantity demanded along the existing demand curve

• A shift of the entire demand curve to the left

If the price of coffee rises significantly, what would most likely happen to the demand curve for tea, assuming tea is a substitute for coffee?

• The demand curve for tea shifts to the left

• The demand curve for tea remains unchanged

• The demand curve for tea shifts to the right

• The quantity demanded of tea decreases along the same curve

Which of the following correctly describes the Law of Supply?

• As price decreases, quantity supplied increases, ceteris paribus

• As price increases, quantity supplied decreases, ceteris paribus

• As price increases, quantity supplied increases, ceteris paribus

• As price increases, demand increases, ceteris paribus

A government imposes a price ceiling below the equilibrium price in the market for rental housing. Which of the following outcomes would most likely result?

• A surplus of rental housing

• A shortage of rental housing

• An increase in the supply of rental housing

• No change in the quantity demanded of rental housing

• Equilibrium price and quantity both remain unchanged

A country experiences a simultaneous decrease in consumer income (assuming the good is a normal good) and an improvement in production technology. Using your understanding of demand and supply, predict the most likely effect on equilibrium price and quantity.

• Equilibrium price definitely falls; equilibrium quantity change is ambiguous

• Equilibrium price definitely rises; equilibrium quantity definitely falls

• Equilibrium price definitely rises; equilibrium quantity change is ambiguous

• Equilibrium quantity definitely rises; equilibrium price change is ambiguous

Two goods, X and Y, are complements. If the government imposes a significant tax on good X, causing its price to rise, reason through the chain of effects and identify the final impact on the equilibrium price and quantity of good Y.

• The demand for Y increases, causing equilibrium price and quantity of Y to rise

• The demand for Y decreases, causing equilibrium price and quantity of Y to fall

• The supply of Y decreases, causing equilibrium price of Y to rise and quantity to fall

• There is no effect on good Y since the tax is only on good X

A market is initially in equilibrium. Suppose consumer incomes rise (the good is a normal good) and simultaneously the cost of raw materials used in production increases. Using strategic thinking, evaluate the combined effect on equilibrium price and quantity.

• Equilibrium price definitely rises; equilibrium quantity change is ambiguous

• Equilibrium price change is ambiguous; equilibrium quantity definitely rises

• Equilibrium price definitely falls; equilibrium quantity definitely rises

• Both equilibrium price and quantity definitely rise