Economics Law of Demand Quiz

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Questions and Answers

What does the Law of Demand state?

Demand is unaffected by changes in price.

When the price of a product decreases, the quantity demanded will increase. (correct)

When the price of a product rises, the quantity demanded will rise.

When the price of a product falls, the quantity demanded will decrease.

What effect explains the change in quantity demanded as a product becomes cheaper relative to substitutes?

Market effect

Demand effect

Substitution effect (correct)

Income effect

What happens when there is an increase in demand?

The quantity demanded decreases at all prices.

The price remains constant while demand decreases.

The demand curve shifts to the left.

The demand curve shifts to the right. (correct)

What occurs due to the income effect when the price of a normal good decreases?

Consumers' overall purchasing power increases. Signup and view all the answers

If the price of a product increases and the entire demand curve shifts left, this indicates what type of change?

Decrease in demand Signup and view all the answers

Which of the following factors would NOT cause a shift in the demand curve?

Change in the price of the product itself Signup and view all the answers

What is the likely effect on demand for a normal good if consumer incomes decrease?

Demand decreases. Signup and view all the answers

How does the quantity demanded change when the demand curve shifts, regardless of the price?

Quantity demanded changes at every possible price. Signup and view all the answers

What happens to the demand for a normal good when consumer income increases?

Demand increases Signup and view all the answers

What is the effect on the demand for a substitute good if the price of that substitute increases?

Demand for the original good increases Signup and view all the answers

Which of the following is an example of an inferior good?

Second-hand clothing Signup and view all the answers

How does a change in consumer tastes affect the demand for fast food if health consciousness increases?

The demand for fast food decreases Signup and view all the answers

What is the relationship between complementary goods in terms of demand?

Demand for one decreases if the price of the other increases Signup and view all the answers

What effect does having more people in a population have on the demand for a given product?

Demand generally increases Signup and view all the answers

Which of the following correctly describes the impact of expected future prices on current demand?

Current demand decreases if future prices are expected to rise Signup and view all the answers

If the price of McDonald's fries increases, what is the likely effect on the demand for Big Macs?

Demand for Big Macs decreases Signup and view all the answers

What is the law of supply?

Higher prices lead to increased quantity supplied. Signup and view all the answers

What happens to the supply curve when there is an increase in supply?

It shifts to the right. Signup and view all the answers

Which of the following factors can shift the supply curve?

Technological changes Signup and view all the answers

What effect does an increase in the price of input goods typically have on supply?

It decreases the supply. Signup and view all the answers

How does a decrease in the price of an input good affect supply?

It increases the profitability of selling the good. Signup and view all the answers

What is the implication of supply curves regarding their slope?

Supply curves slope upward. Signup and view all the answers

Which scenario describes a decrease in supply?

Input prices rise significantly. Signup and view all the answers

What occurs to the quantity supplied if the supply curve shifts leftward at constant prices?

The quantity supplied decreases at all price levels. Signup and view all the answers

What likely happens to the demand for a product if consumers expect its price to increase in the future?

Demand increases today. Signup and view all the answers

Which scenario illustrates a change in quantity demanded?

A decrease in the price of gasoline causes consumers to buy more gasoline. Signup and view all the answers

What is the primary difference between a change in demand and a change in quantity demanded?

Changes in demand shift the demand curve; changes in quantity demanded do not. Signup and view all the answers

How does Apple's policy on product speculation align with the concept of substitutes affecting demand?

It aims to stabilize the current model's demand. Signup and view all the answers

What does a supply schedule display?

The relationship between the product's price and quantity supplied. Signup and view all the answers

What effect can an anticipated decrease in future prices have on current demand?

It decreases current demand. Signup and view all the answers

What does a supply curve illustrate?

The relationship between price and quantity supplied. Signup and view all the answers

Why might an increase in the elderly population affect demand for specific services?

It increases the demand for services tailored to their needs. Signup and view all the answers

What happens to the equilibrium price and quantity when there is an increase in supply?

Equilibrium price falls and quantity rises Signup and view all the answers

When incomes increase for consumers of smartphones, what is the resulting effect on demand?

Demand shifts to the right Signup and view all the answers

If both demand and supply increase simultaneously, what is certain about equilibrium quantity?

Equilibrium quantity will rise Signup and view all the answers

Which of the following statements regarding price is accurate when demand increases while supply remains unchanged?

Price will likely rise Signup and view all the answers

What can be said about the direction of equilibrium price and quantity following a shift in demand to the right?

Both price and quantity rise Signup and view all the answers

What is the effect on equilibrium price when supply decreases while demand remains constant?

Price will rise Signup and view all the answers

Which of the following impacts both equilibrium price and quantity when supply increases more than demand?

Equilibrium price falls, quantity rises Signup and view all the answers

In the market where both supply and demand are shifting to the right, what is uncertain about the equilibrium price?

Its direction cannot be determined Signup and view all the answers

Study Notes

The Law of Demand

The law of demand states that when the price of a product falls, the quantity demanded will increase, and when the price rises, the quantity demanded will decrease.
The demand curve slopes downward.

Factors Explaining the Law of Demand

Substitution Effect: Consumers substitute towards a cheaper product relative to other options.
Income Effect: Consumers have greater purchasing power when prices fall and choose to purchase more goods overall.

Increase and Decrease in Demand

Increase in demand: A shift in the entire demand curve to the right (D1 to D2), meaning consumers are willing to purchase more at every price.
Decrease in demand: A shift in the entire demand curve to the left (D1 to D3), meaning consumers are willing to purchase less at every price.

Factors that Influence Market Demand

Income of Consumers:
- Normal Good: Demand increases as income rises and decreases as income falls.
- Inferior Good: Demand decreases as income rises and increases as income falls.
Prices of Related Goods:
- Substitutes: An increase in the price of a substitute good increases the demand for the other good.
- Complements: An increase in the price of a complementary good decreases the demand for the other good.
Tastes: Changes in consumer preferences can lead to increased or decreased demand.
Population and Demographics: An increase in the population or a change in demographics may increase demand for certain products.
Expected Future Prices: Expectations of higher prices can increase current demand, while expectations of lower prices can decrease current demand.

Change in Demand vs. Change in Quantity Demanded

Change in Quantity Demanded: Movement along the demand curve due to a change in the price of the product itself.
Change in Demand: A shift in the entire demand curve caused by factors other than the price of the product.

The Law of Supply

The law of supply states that when the price of a product increases, the quantity supplied will also increase, and when the price decreases, the quantity supplied will decrease.
The supply curve slopes upward.

Increase and Decrease in Supply

Increase in supply: A shift in the entire supply curve to the right (S1 to S3), meaning suppliers are willing to offer more at every price.
Decrease in supply: A shift in the entire supply curve to the left (S1 to S2), meaning suppliers are willing to offer less at every price.

Factors that Influence Market Supply

Prices of Inputs: A decrease in the price of inputs (resources used in production) will increase supply, while an increase in input prices will decrease supply.
Technological Change: Advances in technology can lead to increased efficiency, lowering production costs and increasing supply.
Prices of Substitutes in Production: If the price of a good that can also be produced decreases, its supply may increase, leading to a decrease in the supply of the original good.
Number of Firms in the Market: Increasing the number of producers will increase supply, while decreasing the number of firms will decrease supply.
Expected Future Prices: Expectations of higher future prices can decrease current supply, while expectations of lower future prices can increase current supply.

The Effect of Shifts in Supply on Equilibrium

An increase in supply will lead to a lower equilibrium price and a higher equilibrium quantity.

The Effect of Shifts in Demand on Equilibrium

An increase in demand will lead to a higher equilibrium price and a higher equilibrium quantity.

Shifts in Demand and Supply Over Time

Over time, both demand and supply are likely to change.
If demand shifts more than supply, equilibrium quantity will increase, but the effect on price is not certain.

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Description

Test your understanding of the Law of Demand, including factors such as the substitution and income effects. Explore how changes in price can cause shifts in the demand curve and what influences market demand. This quiz is a great way to reinforce key concepts in microeconomics.