Economics Market Equilibrium Quiz

Multiple Choice Questions

• Question 1: Market equilibrium is determined by the balance between supply and demand, not the mismatch.
• Question 1 (Correct Answer): At equilibrium, quantity demanded equals quantity supplied.
• Question 1 (Incorrect Option 1): Equilibrium is not defined by mismatch.
• Question 1 (Incorrect Option 2): At equilibrium price, supply and demand are equal.
• Question 1 (Incorrect Option 3): Demand curve is based on consumer preferences.
• Question 1 (Incorrect Option 4): Markets naturally seek equilibrium, not disequilibrium.
• Question 2: A price increase leads to a decrease in demand, causing a movement along the demand curve.
• Question 2 (Correct Answer): The right graph illustrates this, as the event is linked to the change of price which results in the shift of the demand curve.
• Question 2 (Incorrect Option 1): A change in quantity demanded leads to a movement along the curve.
• Question 2 (Incorrect Option 2): A price change affects the whole demand curve.
• Question 2 (Incorrect Option 3): A change in price results in a shift, not a movement along the curve.
• Question 3: Finding market supply at €0.30; Market supply is the sum of individual supply schedules.
• Question 3 (Correct Answer): Richard's 5 plus Megan's 7 equals 12 units of milk at a price of €0.30.
• Question 3 (Incorrect Option 1): This answer miscalculates the combined supply.
• Question 3 (Incorrect Option 2): This option incorrectly calculates the aggregate for the market supply.
• Question 3 (Incorrect Option 3): This answer only takes into account the highest producer.
• Question 4: Area Z on the supply-demand graph represents the surplus.
• Question 4 (Correct Answer): Z denotes the surplus when the quantity supplied outpaces the quantity demanded, in this case 7 units.
• Question 4 (Incorrect Option 1): Incorrect calculation of the surplus (10 units supplied).
• Question 4 (Incorrect Option 2): Surplus is the difference between supply and demand, not just one side.
• Question 4 (Incorrect Option 3): Z represents a surplus.
• Question 5: Less elastic demand means more price sensitivity, a steeper demand curve and quantity demanded is lower after price change.
• Question 5(Correct Answer): Good A has a steeper demand curve, indicating a less elastic demand.
• Question 5 (Incorrect Option 1): Steeper curve implies less responsiveness .
• Question 5 (Incorrect Option 2): Both are the same.
• Question 5 (Incorrect Option 3): Steeper curve implies less responsiveness.
• Question 6: Indifference curves cannot cross, representing the consumer's preferences.
• Question 6 (Correct Answer): Indifference curves cannot intersect since that would indicate preferences in a single point in disagreement
• Question 6 (Incorrect Option 1): Indifference curves reflect preferences, not the opposite.
• Question 6 (Incorrect Option 2): Intersecting indifference curves are problematic in illustrating preferences.
• Question 6 (Incorrect Option 3): The slope does not define the entire curve.
• Question 7: Change in the relative price of cheese and wine causes a change in the slope of the budget line.
• Question 7 (Correct Answer): The price of wine rising or falling results in a differing slope of the budget line.
• Question 7 (Incorrect Option 1): Demand is irrelevant to the ratio between price.
• Question 7 (Incorrect Option 2): A price change creates the modified budget line and associated changes in the slope.
• Question 7(Incorrect Option 3): Demand fluctuations affect demand.
• Question 8: Points on the indifference curve are evaluated equally; points with additional options are preferable.
• Question 8 (Correct Answer): Points on the same indifference curve are equally desirable, in accordance with the consumer's preferences.
• Question 8 (Incorrect Option 1): Points higher on the curve indicate greater desirability, based on the same indifference criteria.
• Question 8 (Incorrect Option 2): This is the exact opposite.
• Question 8 (Incorrect Option 3): Equally desirable points are on a single indifference curve.
• Question 9: A reduction in income affects the quantity of inferior goods demanded positively.
• Question 9 (Correct Answer): Inferior goods: A lowering of income leads to a higher demand.
• Question 9 (Incorrect Option 1): Normal goods, not inferior goods.
• Question 9 (Incorrect Option 2): Normal goods, not inferior goods.
• Question 9 (Incorrect Option 3): The change in income results in an increase for inferior goods and not normal goods.
• Question 10: Plotting demand curve involves a pivoting of the budget line.
• Question 10 (Correct Answer): The graphs show the change in the price of a commodity.
• Question 10 (Incorrect Option 1): Deriving it involves more than a shift in the budget.
• Question 10 (Incorrect Option 2): Shifts in the demand are due to price changes in other goods.
• Question 10 (Incorrect Option 3): Shifts in the demand are due to price changes in other goods.
• Question 11: Perfect competition: Price equals marginal revenue (MR) and marginal cost (MC).
• Question 11 (Correct Answer): Profit-maximizing condition for a perfectly competitive firm is that marginal revenue equals marginal cost.
• Question 11 (Incorrect Option 1): Price equals average revenue, not marginal revenue.
• Question 11 (Incorrect Option 2): Marginal revenue equals marginal cost conditions.
• Question 11` (Incorrect Option 3): MR = MC is the profit maximising condition.
• Question 11 (Incorrect Option 4): This is false and incorrect
• Question 12: Average total cost curve (ATC) initially declines and ascends.
• Question 12(Correct Answer): Curve 2 shows average costs decreasing initially and eventually increasing due to higher variable costs.
• Question 12 (Incorrect Option 1): Costs increase steadily.
• Question 12 (Incorrect Option 2): This is the correct interpretation.
• Question 12 (Incorrect Option 3): Costs always remain under marginal cost, which is not always true.
• Question 12 (Incorrect Option 4): Costs always decrease with a decreasing price.
• Question 13: Fixed costs do not start at zero for total costs since the initial operating costs are not included in a zero cost function.
• Question 13(Correct answer): Fixed costs must be accounted for in calculating total costs.
• Question 13 (Incorrect Option 1): The cost curve does not equate to starting at zero.
• Question 13 (Incorrect Option 2): This is not the case for the starting of any function, including here.
• Question 13 (Incorrect Option 3): This response does not reflect fixed production costs.
• Question 14: Economic profit involves accounting profit, opportunity costs, and revenue.
• Question 14 (Correct Answer): Considering the opportunity costs, your economic profit is -£20,000.
• Question 14 (Incorrect Option 1): The opportunity cost of the next best alternative job is not calculated directly.
• Question 14 (Incorrect Option 2): The calculation for the profit is incorrect.
• Question 14 (Incorrect Option 3): The opportunity costs are not correctly calculated
• Question 14 (Incorrect Option 4): The alternative job and capital losses from opportunity are essential for that calculation.
• Question 15: Perfectly competitive markets: Firms do not influence price; firms are price takers; their price matches their average and marginal revenue.
• Question 15 (Correct Answer): The firm is willing to supply product on the market since the average total costs are below the intersection point of MC and MR.
• Question 15 (Incorrect Option 1): Firm behavior is not dependent on the average cost.
• Question 15 (Incorrect Option 2): ATC is above the intersection, implying the firm would not be willing to supply at the market price.
• Question 15 (Incorrect Option 3): Opportunity for profit exists only under imperfect competition.
• Question 15 (Incorrect Option 4): ATC is below the point, meaning firm should produce.

Test your knowledge on market equilibrium, supply and demand dynamics. This quiz focuses on the fundamental concepts of how price changes affect demand and equilibrium. Answer multiple choice questions to see how well you understand these economic principles.