Supply and demand quiz: 25 questions with answers

Questions and answers

By CanQuiz

An AI wrote the questions in this quiz from its creator’s material. It may contain mistakes.

1. 1.According to the law of demand, what happens when the price of a good rises and nothing else changes?

   • The quantity demanded of the good falls
   • The quantity demanded of the good rises
   • The demand curve for the good shifts to the left
   • The quantity demanded of the good stays the same
   Show answer

   Answer: The quantity demanded of the good falls

   Explanation: The law of demand describes an inverse relationship between a good's own price and the quantity buyers want, holding other factors constant. A higher price therefore means a smaller quantity demanded, shown as a move along the existing curve.

2. 2.On a supply and demand graph, how is a change in the price of the good itself shown on the demand side?

   • As a shift of the demand curve to the right
   • As a movement along the existing demand curve
   • As a shift of the demand curve to the left
   • As a rotation of the demand curve to vertical
   Show answer

   Answer: As a movement along the existing demand curve

   Explanation: The good's own price is on the vertical axis, so a change in it moves buyers to a different point on the same curve. Only changes in other determinants, such as income or tastes, shift the whole curve.

3. 3.Which change shifts the demand curve for a normal good to the right?

   • A fall in the good's own price
   • A rise in the price of a complement
   • A rise in consumers' incomes
   • A fall in the price of a substitute
   Show answer

   Answer: A rise in consumers' incomes

   Explanation: For a normal good, higher income makes buyers want more at every price, so demand shifts right. A complement becoming dearer or a substitute becoming cheaper shifts demand left, and a change in the own price is only a movement along the curve.

4. 4.Coffee and tea are substitutes. If the price of coffee rises, what happens in the market for tea?

   • The demand for tea decreases
   • The supply of tea increases
   • Nothing changes in the tea market
   • The demand for tea increases
   Show answer

   Answer: The demand for tea increases

   Explanation: When coffee becomes more expensive, some drinkers switch to tea, so more tea is wanted at every tea price. The demand curve for tea shifts to the right.

5. 5.If buyers expect a good's price to rise next month, current demand for that good tends to increase.

   • True
   • False
   Show answer

   Answer: True

   Explanation: Expectations are a demand shifter. Buyers who expect a higher future price bring purchases forward, which shifts today's demand curve to the right.

6. 6.What is an inferior good?

   • A good whose demand rises when consumers' incomes rise
   • A good whose demand falls when consumers' incomes rise
   • A good whose demand does not respond to its own price
   • A good produced with outdated technology
   Show answer

   Answer: A good whose demand falls when consumers' incomes rise

   Explanation: An inferior good has a negative income effect: as people earn more, they buy less of it and switch to preferred alternatives. Its income elasticity of demand is negative.

7. 7.Which of the following shifts the supply curve of a good to the left?

   • An increase in the cost of an input used to make it
   • An improvement in production technology
   • A fall in the market price of the good
   • A per-unit subsidy paid to producers
   Show answer

   Answer: An increase in the cost of an input used to make it

   Explanation: Higher input costs make each unit more expensive to produce, so sellers offer less at every price and supply shifts left. Better technology and subsidies shift supply right, while a change in the good's own price moves along the curve.

8. 8.In a competitive market, what defines the equilibrium price?

   • The price at which total revenue is highest
   • The price at which every producer covers its costs
   • The price at which quantity demanded equals quantity supplied
   • The price at which demand is unit elastic
   Show answer

   Answer: The price at which quantity demanded equals quantity supplied

   Explanation: Equilibrium is the price at which the amount buyers want to purchase matches the amount sellers want to sell. At that price there is neither a surplus nor a shortage, so there is no pressure for the price to change.

9. 9.When the market price is above the equilibrium price, what results?

   • A shortage, because quantity demanded exceeds quantity supplied
   • A shift of the supply curve to the right
   • No change in the quantities traded
   • A surplus, because quantity supplied exceeds quantity demanded
   Show answer

   Answer: A surplus, because quantity supplied exceeds quantity demanded

   Explanation: Above equilibrium, sellers want to sell more than buyers want to buy, leaving unsold goods. That excess supply tends to push the price down toward equilibrium.

10. 10.A shortage in a market tends to put upward pressure on the price.

    • True
    • False
    Show answer

    Answer: True

    Explanation: In a shortage, buyers cannot get all they want at the current price, so they compete for the limited quantity and sellers can charge more. The price tends to rise until the shortage disappears.

11. 11.A government sets a binding price ceiling on rents, below the equilibrium rent. What is the most likely result?

    • A surplus of rental housing
    • A persistent shortage of rental housing
    • Rents rise above the equilibrium level
    • No effect on the rental market
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    Answer: A persistent shortage of rental housing

    Explanation: A ceiling below equilibrium keeps the price too low for the market to clear, so quantity demanded exceeds quantity supplied. Because the price is not allowed to rise, the shortage persists.

12. 12.A government sets a minimum price for milk above the equilibrium price. What is the most likely result?

    • A surplus of milk
    • A shortage of milk
    • An increase in the demand for milk
    • A market price below the equilibrium price
    Show answer

    Answer: A surplus of milk

    Explanation: A binding price floor holds the price above the level at which the market clears. Producers offer more and buyers purchase less, so an excess supply of milk builds up.

13. 13.Demand for a good increases while supply does not change. What happens to the equilibrium price and quantity?

    • The price rises and the quantity falls
    • The price falls and the quantity rises
    • Both the price and the quantity rise
    • Both the price and the quantity fall
    Show answer

    Answer: Both the price and the quantity rise

    Explanation: A rightward shift of demand along an unchanged supply curve creates a shortage at the old price. The price climbs and sellers respond by supplying more, so both rise.

14. 14.Supply of a good increases while demand does not change. What happens to the equilibrium price and quantity?

    • The price rises and the quantity rises
    • The price rises and the quantity falls
    • The price falls and the quantity falls
    • The price falls and the quantity rises
    Show answer

    Answer: The price falls and the quantity rises

    Explanation: A rightward shift of supply creates a surplus at the old price, so the price drops. The lower price moves buyers down the demand curve, and the quantity traded increases.

15. 15.A fall in the price of a good shifts its supply curve to the left.

    • True
    • False
    Show answer

    Answer: False

    Explanation: A change in the good's own price is a movement along the supply curve: a lower price means a smaller quantity supplied, not a shift. The curve itself shifts only when another determinant, such as input costs, changes.

16. 16.Both demand and supply for a good increase at the same time. What can be said with certainty about the new equilibrium?

    • The quantity rises; the change in price depends on which shift is larger
    • The price rises; the change in quantity depends on which shift is larger
    • Both the price and the quantity rise
    • The price falls; the change in quantity depends on which shift is larger
    Show answer

    Answer: The quantity rises; the change in price depends on which shift is larger

    Explanation: Both shifts push the quantity up, so it certainly rises. The demand shift pushes the price up and the supply shift pushes it down, so the price change depends on the relative size of the two shifts.

17. 17.How is the price elasticity of demand calculated?

    • The percentage change in price divided by the percentage change in quantity demanded
    • The percentage change in quantity demanded divided by the percentage change in price
    • The change in quantity demanded, in units, divided by the change in price, in currency
    • The percentage change in quantity demanded divided by the percentage change in income
    Show answer

    Answer: The percentage change in quantity demanded divided by the percentage change in price

    Explanation: Price elasticity of demand compares the proportional response of quantity to a proportional change in price. Using percentages makes it independent of units; the version with income instead of price is the income elasticity.

18. 18.The price of a good rises by 10% and the quantity demanded falls by 20%. What is the price elasticity of demand, in absolute value?

    • 0.5, so demand is inelastic
    • 2, so demand is inelastic
    • 2, so demand is elastic
    • 0.5, so demand is elastic
    Show answer

    Answer: 2, so demand is elastic

    Explanation: Elasticity is 20% divided by 10%, which equals 2. A value above 1 means quantity responds more than proportionally to price, so demand is elastic.

19. 19.Demand for a good is price inelastic. If the seller raises the price, what happens to total revenue?

    • It falls
    • It stays the same
    • It falls by the same percentage as the price rise
    • It rises
    Show answer

    Answer: It rises

    Explanation: With inelastic demand, the percentage fall in quantity is smaller than the percentage rise in price. Price times quantity therefore increases.

20. 20.Along a straight-line, downward-sloping demand curve, the price elasticity of demand is the same at every point.

    • True
    • False
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    Answer: False

    Explanation: A straight line has a constant slope, but elasticity also depends on the ratio of price to quantity, which changes along the line. Demand is more elastic at high prices and less elastic at low prices.

21. 21.Which of the following tends to make the demand for a good more price elastic?

    • Many close substitutes are available
    • The good is a necessity
    • The good takes up a very small share of buyers' budgets
    • Buyers have very little time to adjust
    Show answer

    Answer: Many close substitutes are available

    Explanation: When good substitutes exist, buyers can easily switch away after a price rise, so quantity demanded responds strongly. Necessities, small budget shares and short time horizons all make demand less elastic.

22. 22.What does the demand curve look like when demand is perfectly inelastic?

    • Horizontal
    • Vertical
    • Downward sloping with a slope of minus one
    • Upward sloping
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    Answer: Vertical

    Explanation: Perfectly inelastic demand means the quantity demanded does not change at all when the price changes. Plotted with price on the vertical axis, that is a vertical line.

23. 23.The cross-price elasticity of demand between two goods is negative. What does this suggest about the goods?

    • They are substitutes
    • They are both inferior goods
    • They are complements
    • They are both normal goods
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    Answer: They are complements

    Explanation: A negative cross-price elasticity means a rise in one good's price lowers the quantity demanded of the other. That is the pattern of goods used together, such as printers and ink cartridges.

24. 24.Using the midpoint method, the price rises from 4 to 6 and the quantity demanded falls from 120 to 80. What is the price elasticity of demand, in absolute value?

    • 0.67
    • 1.5
    • 2
    • 1
    Show answer

    Answer: 1

    Explanation: The quantity change is 40 over an average of 100, or 40%, and the price change is 2 over an average of 5, also 40%. Their ratio is 1, so demand is unit elastic over this range.

25. 25.The price elasticity of supply of a good tends to be greater in the long run than in the short run.

    • True
    • False
    Show answer

    Answer: True

    Explanation: Over a longer period, firms can build capacity, hire and train workers, and new firms can enter the market. Producers can therefore adjust quantity more fully to a price change.