Demand, Supply and the Market Process

Demand, Supply, and the Market Process

Demand, supply, and the market process are key concepts in economics that describe the interactions between buyers and sellers in a market.

Demand refers to the quantity of a good or service that consumers are willing and able to purchase at different prices. The law of demand states that as the price of a good or service increases, the quantity demanded decreases. Conversely, as the price decreases, the quantity demanded increases.

Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at different prices. The law of supply states that as the price of a good or service increases, the quantity supplied increases. Conversely, as the price decreases, the quantity supplied decreases.

The market process is the interaction between buyers and sellers in a market that determines the price and quantity of a good or service. The market process is driven by the forces of supply and demand. When the quantity demanded exceeds the quantity supplied, the price increases. When the quantity supplied exceeds the quantity demanded, the price decreases. The point where the quantity supplied equals the quantity demanded is called the equilibrium point, and the price at this point is called the equilibrium price.

The market process is an ongoing process that is constantly adjusting to changes in the quantity demanded and supplied. For example, a new technology or a change in consumer preferences may increase the demand for a good or service, resulting in an increase in the price. Conversely, an increase in the supply of a good or service may decrease the price.

In conclusion, demand, supply and the market process are key concepts in economics that describe the interactions between buyers and sellers in a market. The market process is driven by the forces of supply and demand, and it is constantly adjusting to changes in the quantity demanded and supplied. The point where the quantity supplied equals the quantity demanded is called the equilibrium point, and the price at this point is called the equilibrium price.

1.A decrease in the demand for burgers is illustrated by a(n):

upward movement along the demand curve for burgers

leftward shift of the demand curve for burgers

rightward shift of the demand curve for burgers

downward movement along the demand curve for burgers

2.At a price of $650, Erin, Jordan, and Luda all purchase the latest version of the iPhone. They were willing to pay as much as $1,000, $800, and $750, respectively. The total consumer surplus generated by all three purchases is:

$400

$800

$600

$1,000

3.Which of the following is true of market prices?

Because they are set by government, market prices tend to be inflexible

Prices fail to communicate any relevant information to producers or consumers

Prices coordinate the choices of buyers and sellers

Changing market prices usually have no effect on the behavior of buyers and sellers

4.When the quantity of a good supplied is highly responsive to the price of the good, the supply curve of the good is most likely to be:

vertical

relatively steep

relatively flat

downward sloping

5.The sum of the producer’s economic cost of all resources used to produce a good will equal:

the opportunity cost of production

the sunk cost incurred due to production

the fixed cost of production

the average total cost of production

6.If the demand for a good, such as tacos, is relatively elastic:

the demand curve for the good will be vertical

a large price change will not cause much of a change in the quantity purchased

a small price change will cause a rather large change in the amount purchased

close substitutes are unavailable in the market

7.Producer surplus equals:

the consumer surplus generated by the product minus the market price

the number of units left over in inventory after all consumers desiring the good at the current price have purchased it

the difference between the amount a supplier actually receives and the minimum price required to induce the supplier to produce the given units

the ratio of the amount a supplied to the amount demanded

8.The demand for a good will be more inelastic if:

total value obtained from the good exceeds the marginal value

there are few or no close substitutes for the good

size of the consumer surplus is small

incomes of consumers are low

9.Which of the following is likely to occur when the price of peanut butter decreases from $3 per pound to $2 per pound?

A decrease in the demand for peanut butter

An increase in the quantity of peanut butter demanded

A decrease in the quantity of peanut butter demanded

An increase in the demand for peanut butter

10.Entrepreneurs acting within business firms earn a profit when:

they produce goods that consumers place low marginal values relative to the other alternatives in the market

they take higher valued resources and put them to lower valued uses

the revenues from the goods and services that they supply exceed the opportunity cost of the resources used to make them

they pay less than the market wage attempting to attract employees

11.Which of the following will most likely increase the demand for electric automobiles?

A decrease in the supply of electric automobiles

A decrease in consumer income

An increase in the price of gasoline

An expectation that there will be a decrease in the price of gas in the near future

12.Which of the following would result in the demand curve for a good being relatively elastic?

a large number of good substitutes are available

the good taking up a large share of consumer budgets

the good having a large number of complements

a high cost of production for the good

13.Consumers will tend to expand their consumption of a good until:

its total value and marginal value are equal

its marginal value equals zero

its price and marginal value are equal

its opportunity cost equals zero

14.Which of the following is likely to occur when the price of butter increases from $3 per pound to $5 per pound?

A decrease in the demand for butter

An increase in the quantity of butter demanded

An increase in the demand for margarine, a substitute for butter

A decrease in the quantity demanded of margarine, a substitute for butter

15.With consumer preferences moving toward low-carbohydrate foods, there is a decrease in the demand for high-carbohydrate foods. This would be illustrated by:

an upward movement along the supply curve of high-carbohydrate foods

a leftward shift of the demand curve for high-carbohydrate foods

a leftward shift in the supply curve of low-carbohydrate foods

a leftward shift of the demand curve for low-carbohydrate foods

16.Which of the following correctly illustrates a change in the demand for a good?

An increase in the price of gasoline due to higher production costs resulted in a reduction in the amount of gasoline purchased

An increase in the cost of producing lumber results in higher lumber prices

An increase in the elderly population in the United States in recent years has increased the demand for medical care

Higher taxes on business firms producing beef results in many beef producers going out of business

17.When a major hurricane hits the Gulf of Mexico, oil refinery production is usually interrupted. This is illustrated as a(n):

upward movement along the oil supply curve

rightward shift of the oil supply curve

leftward shift of the oil supply curve

increase in the supply of oil

18.Francesca decides to invest $100,000 of her own savings into starting her own business producing cheese. If the current rate of interest is 5 percent, Francesca’s opportunity cost of the money she is using to start her business producing cheese would equal:

zero, there is no forgone interest

$5,000 per year in forgone interest

$100,000 per year in forgone interest

$5 per year in forgone interest

19.The height of the supply curve of a good represents:

the producer surplus associated with production of the good

the minimum price necessary to induce producers to supply each unit of the good

the maximum revenue earned by producers at the current price

the value consumers place on each unit of the good

20.When excess demand is present in a market,

price will have a tendency to rise, eliminating the imbalance by decreasing quantity supplied and increasing quantity demanded

price will have a tendency to rise, eliminating the imbalance by increasing quantity supplied and reducing quantity demanded

price will have a tendency to fall, eliminating the imbalance by increasing quantity supplied and reducing quantity demanded

price will have a tendency to fall, eliminating the imbalance by decreasing quantity supplied and increasing quantity demanded

21.Consumer surplus is equal to the:

area above the demand curve for a product but beneath the supply curve

sum of the maximum amount all consumers would be willing to pay minus the total production cost of the good

difference between the maximum amount consumers would be willing to pay and the amount they actually pay for a good

ratio of the maximum amount consumers would be willing to pay to the minimum amount suppliers would accept

22.Suppose all the students of Nowhere State University go home during their summer break. Which of the following is likely to be the effect of this on the demand curve for pizzas in the town in which the university is located?

There will be an upward movement along the curve, but no shift

It will shift inward, reflecting a decrease in demand

It will shift outward, reflecting a decrease in demand

There will be a downward movement along the curve, but no shift

23.The tendency of market prices to direct individuals pursuing their own interests to engage in activities promoting the economic well-being of society is known as the:

rational consumption theory

benevolence principle

invisible hand principle

nested market theory

24.A technological advance that lowers the cost of production of wheat is most likely to:

result in higher wheat prices

shift the supply curve of wheat leftward

increase the supply of wheat

decrease the equilibrium quantity of wheat

25.An increase in the price of apples will cause which of the following to occur in the market for oranges, a substitute product?

increase in the price and increase in the equilibrium quantity of oranges

decrease in the price and increase in the equilibrium quantity of oranges

increase in the price and decrease in the equilibrium quantity of oranges

decrease in the price and decrease in the equilibrium quantity of oranges

26.A technological advance that lowers the production cost of laptop computers would result in:

A decrease in the demand for laptop computers, and lower laptop prices

An increase in the supply of laptop computers, and lower laptop prices

A decrease in the supply of laptop computers, and higher laptop prices

An increase in the demand for laptop computers, and higher laptop prices

27.The negative slope of the demand curve for a good shows that as:

consumers have more of the good, they will be willing to pay more for it

the price of the good increases, consumers demand less of its substitute

consumers have more and more of the good, they value additional units less and less

the price of the good increases, consumers demand more of the good

28.Suppose Kayla can produce one of two goods on her farm at equal cost: barley or corn. She currently maximizes profit by producing equal amounts of both goods. If the world price of corn increases, Kayla would have a strong incentive to:

go out of business until the price of agricultural products improves

increase the production of corn and lower the production of barley

increase the production of barley and lower the production of corn

decrease the production of both corn and barley

29.Which of the following is true regarding the total and marginal value of water when it is widely available at a low price?

Both the total and marginal value of water to consumers will be very high

Both the total and marginal value of water to consumers will be very low

The marginal value derived from water will be quite high, but the total value will be low

The total value of water consumed will be very high, but the marginal value of the last unit consumed will be low

30.In a market, excess supply:

lowers the quantity supplied below its equilibrium level

results in a decrease in the stock of producer inventories

occurs when market price is above the equilibrium price

creates an upward pressure on market price

31.Which of the following is most likely to happen when the market price of cereals decreases?

Less of its complement will be purchased, resulting in a smaller surplus for consumers

Less of it will be purchased, resulting in a smaller surplus for consumers

More of it will be purchased, resulting in a larger consumer surplus in the market

More of its substitute will be purchased, resulting in a larger surplus for consumers

32.If consumers expect the price of gasoline to increase substantially in the near future, they are most likely to:

decrease their current demand for electric powered automobiles

increase their current demand for traditional gasoline-powered automobiles

increase their current demand for gasoline

not change their current demand for gasoline, but wait until the price rises to do so

33.When the quantity of a good purchased is highly responsive to a change in its price, the demand curve for the good is most likely to be relatively:

inelastic

flat

steep

upward sloping

34.The height of the demand curve for a good at any specific quantity shows:

the cost of producing that specific unit of the good

the consumer surplus from the consumption of that unit of the good

the maximum price consumers are willing to pay for that unit of the good

the minimum price consumers are willing to pay for that unit of the good

35.Graphically, consumer surplus is the:

area lying below the supply curve and to left of the equilibrium quantity

area lying below the demand curve and above the supply curve

triangular area lying below the demand curve and above the equilibrium price

triangular area lying below the equilibrium price and above the supply curve

36.The demand curve for a good will be downward sloping reflecting:

the direct relationship between the price of a good and the quantity supplied by producers

the direct relationship between the price of a good and the quantity demanded by consumers

the inverse relationship between the price of a good and the quantity demanded by consumers

the inverse relationship between the price of a good and the quantity supplied by producers

37.An increase in the quantity demanded of a good caused by a reduction in the price of a good is reflected by:

an upward movement along the demand curve for the good

an inward shift of the demand curve for the good

an outward shift of the demand curve for the good

a downward movement along the demand curve for the good

38.Which of the following is true when the price of a good increases?

The demand for substitutes for that good will decrease

Producers will decrease the quantity of it supplied

The opportunity cost of purchasing it rises

Consumers will increase the quantity of it demanded

39.If the quantity supplied of a good is not very responsive to a change in the price of the good, the supply curve is:

temporally inverted

relatively inelastic

relatively elastic

nonexistent

40.An increase in the price of water for irrigation increases the cost of producing wheat. Which of the following will occur?

The equilibrium quantity of wheat will decrease

The supply of wheat will decline, and the price of wheat will rise

The supply curve of wheat is likely to shift to the right

The demand for wheat will decline, and the market price of wheat will fall

41.Suppose Derek wins the lottery. For most goods he consumes we would anticipate that there would be a(n):

upward movement along his demand curve

downward movement along his demand curve

inward shift of his demand curve

outward shift of his demand curve

42.When the demand for a good is relatively inelastic, its demand curve is most likely to be:

undefined

flat

steep

upward sloping

43.Fiona loves blueberry cheesecake and she is willing to pay as much as $5 for the first slice. If Hannah’s Bakery serves a slice of the cake for $1.50, her consumer surplus from one slice equals:

$3.50

$6.50

44.The efficiency of a market organization depends on:

the ability of individuals to ignore their own self-interest

the equalization of consumer surplus and producer surplus

well-defined and enforced private-property rights

market prices that remain fairly stable and do not change often

45.Which of the following is true when a loss incurred by a producer of a good or service in a competitive marketplace?

It indicates that the good produced is valued more than the other goods those resources could have produced

The value they have created is less than the value those resources could have created elsewhere in the economy

The producer has discovered a way to improve social welfare by putting people over profit

It results in a flow of additional resources into that industry as other producers who can produce the same good enter to compete

46.If the government increases the tax imposed on cheese producers, it will result in a(n):

downward shift in the supply curve of cheese

decrease in the supply of cheese

increase in the supply of cheese

rightward shift in the supply curve of cheese

47.Which of the following is true of the demand curve for a good?

Its height indicates the cost of producing that specific unit of the good

It indicates the relationship between the price of the good and the quantity supplied by producers

Its height at each unit indicates the maximum willingness to pay or marginal benefit consumers receive from that unit of the good

It indicates the relationship between the price of the good and the income of a consumer

48.The willingness of consumers to pay a price greater than a good’s opportunity cost indicates that:

the good is less valuable than other goods that could have been produced with those resources

their total value from the consumption of the good is less than the marginal value derived from the last unit of the good

they value the good more than other things that could have been produced with the same resources

they do not value the money spent on the good

49.If the price of lumber increases, what will happen in the market for newly constructed housing?

The price of newly constructed homes will fall

The supply curve of new housing will increase (shift rightward)

The supply curve of new housing will decrease (shift leftward)

The equilibrium quantity of housing will increase

50.Which of the following is true?

At the equilibrium price the quantity supplied equals the quantity demanded

When the price of a good is lower than the equilibrium price, the quantity supplied will exceed the quantity demanded

Markets prices have no natural tendency to tend toward their equilibrium levels, which is why government must control the prices of goods and services

When the price of a good is higher than the equilibrium price, the quantity demanded will exceed the quantity supplied

Demand, Supply, and the Market Process

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