Chapter 4

The Market Forces of Supply and Demand

TRUE/FALSE
1. The law of demand states that, other things equal, when the price of a good rises, the quantity demanded of the
good rises, and when the price falls, the quantity demanded falls.

2. A decrease in income will shift the demand curve for an inferior good to the right.

3. An increase in the price of a substitute good will shift the demand curve for a good to the right.

4. Cocoa and marshmallows are complements, so a decrease in the price of cocoa will cause an increase in the
demand for marshmallows.

5. An increase in the price of pizza will shift the demand curve for pizza to the left.

6. The law of supply states that, other things equal, when the price of a good rises, the quantity supplied of the
good falls.

7. A movement along a supply curve is called a change in supply while a shift of the supply curve is called a
change in quantity supplied.

8. If there is an improvement in the technology used to produce a good, then the supply curve for that good will
shift to the left.

9. Supply and demand together determine the price and quantity of a good sold in a market.

10. When the market price is above the equilibrium price, the quantity of the good demanded exceeds the quantity
supplied.

11. When the market price is above the equilibrium price, suppliers are unable to sell all they want to sell.

Multiple Choice
1. The forces that make market economies work are
a. work and leisure.
b. politics and religion.
c. supply and demand.
d. taxes and government spending.

2. Which of the following statements is correct?

a. Buyers determine supply and sellers determine demand.
b. Buyers determine demand and sellers determine supply.
c. Buyers determine both demand and supply.
d. Sellers determine both demand and supply.

3. A competitive market is one in which

a. there is only one seller, but there are many buyers.
b. there are many sellers and each seller has the ability to set the price of his product.
c. there are many sellers and they compete with one another in such a way that some sellers are
always being forced out of the market.
d. there are so many buyers and so many sellers that each has a negligible impact on the price of the
product.

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202
 Chapter 4 /The Market Forces of Supply and Demand v 203

4. A downward-sloping demand curve illustrates

a. that demand decreases over time.
b. that prices fall over time.
c. the relationship between income and quantity demanded.
d. the law of demand.

5. The following table contains a demand schedule for a good.

Price Quantity Demanded

$10 100
$20 ?

If the law of demand applies to this good, then “?” could be

a. 0.
b. 100.
c. 200.
d. 400.

6. Which of the following is not held constant in a demand schedule?

a. Income
b. Tastes
c. Price
d. Expectations

7. An increase in quantity demanded

a. results in a movement downward and to the right along a fixed demand curve.
b. results in a movement upward and to the left along a fixed demand curve.
c. shifts the demand curve to the left.
d. shifts the demand curve to the right.

8. Each of the following is a determinant of demand except

a. tastes.
b. technology.
c. expectations.
d. the prices of related goods.

9. If a decrease in income increases the demand for a good, then the good is
a. a substitute good.
b. a complementary good.
c. a normal good.
d. an inferior good.

10. Two goods are complements when a decrease in the price of one good
a. decreases the quantity demanded of the other good.
b. decreases the demand for the other good.
c. increases the quantity demanded of the other good.
d. increases the demand for the other good.

11. A very hot summer in Atlanta will cause

a. the demand curve for lemonade to shift to the left.
b. the demand for air conditioners to decrease.
c. the demand for jackets to decrease.
d. a movement downward and to the right along the demand curve for tank tops.

12. What will happen in the rice market now if buyers expect higher rice prices in the near future?
a. The demand for rice will increase.

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or distributed without the prior consent of the publisher.
204 v Chapter 4 /The Market Forces of Supply and Demand
b. The demand for rice will decrease.
c. The demand for rice will be unaffected.
d. The supply of rice will increase.

13. The following table contains a supply schedule for a good.

Price Quantity Supplied

$10 100
$20 ?

If the law of supply applies to this good, then “?” could be

a. 0.
b. 50.
c. 100.
d. 150.

14. The sum of all the individual supply curves for a product is called
a. total supply.
b. market supply.
c. aggregate supply.
d. total output.

15. Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect
the supply of
a. crystal to be unaffected.
b. crystal to decrease.
c. crystal to increase.
d. lead to increase.

16. A technological advance will shift the

a. supply curve to the right.
b. supply curve to the left.
c. demand curve to the right.
d. demand curve to the left.

17. If suppliers expect the price of their product to fall in the future, then they will
a. decrease supply now.
b. increase supply now.
c. decrease supply in the future but not now.
d. increase supply in the future but not now.

18. In markets, prices move toward equilibrium because of

a. the actions of buyers and sellers.
b. government regulations placed on market participants.
c. increased competition among sellers.
d. buyers' ability to affect market outcomes.

19. A surplus exists in a market if

a. there is an excess demand for the good.
b. the situation is such that the law of supply and demand would predict an increase in the price of the
good from its current level.
c. the current price is above its equilibrium price.
d. quantity demanded exceeds quantity supplied.

20. If a shortage exists in a market, then we know that the actual price is
a. above the equilibrium price and quantity supplied is greater than quantity demanded.
b. above the equilibrium price and quantity demanded is greater than quantity supplied.

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 Chapter 4 /The Market Forces of Supply and Demand v 205
c. below the equilibrium price and quantity demanded is greater than quantity supplied.
d. below the equilibrium price and quantity supplied is greater than quantity demanded.

21. If the demand for a product increases, then we would expect

a. equilibrium price to increase and equilibrium quantity to decrease.
b. equilibrium price to decrease and equilibrium quantity to increase.
c. equilibrium price and equilibrium quantity both to increase.
d. equilibrium price and equilibrium quantity both to decrease.
ANS: C

22. Suppose buyers of computers and printers regard those two goods as complements. Then an increase in the
price of computers will cause
a. a decrease in the demand for printers and a decrease in the quantity supplied of printers.
b. a decrease in the supply of printers and a decrease in the quantity demanded of printers.
c. a decrease in the equilibrium price of printers and an increase in the equilibrium quantity of
printers.
d. an increase in the equilibrium price of printers and a decrease in the equilibrium quantity of
printers.
ANS: A

23. If the supply of a product increases, then we would expect

a. equilibrium price to increase and equilibrium quantity to decrease.
b. equilibrium price to decrease and equilibrium quantity to increase.
c. equilibrium price and equilibrium quantity both to increase.
d. equilibrium price and equilibrium quantity both to decrease.
ANS: B
24. Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction
in input prices. What would we expect to occur in this market?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
ANS: A

25. What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and
the price of tea fell?
a. Price would fall and the effect on quantity would be ambiguous.
b. Price would rise and the effect on quantity would be ambiguous.
c. Quantity would fall and the effect on price would be ambiguous.
d. Quantity would rise and the effect on price would be ambiguous.
ANS: A

26. Which of the following events will definitely cause equilibrium quantity to rise?
a. demand increases and supply decreases
b. demand and supply both decrease
c. demand decreases and supply increases
d. demand and supply both increase
ANS: D

27. Which of the following events would definitely result in a higher price in the market for Snickers?
a. Demand for Snickers increases and supply of Snickers decreases.
b. Demand for Snickers and supply of Snickers both decrease.
c. Demand for Snickers decreases and supply of Snickers increases.
d. Demand for Snickers and supply of Snickers both increase
ANS: A

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
or distributed without the prior consent of the publisher.