Supply and Demand Quiz

How would an increase in the cost of production for a good affect supply?

• Increase supply

• Decrease supply

• No change in supply

• Increase demand

Answer explanation

An increase in the cost of production raises expenses for producers, leading to a decrease in the quantity supplied at existing prices. Therefore, the correct answer is 'Decrease supply'.

If a company bought new technology, how would it affect their supply?

• Increase supply

• Decrease supply

• No change in supply

• Increase demand

Answer explanation

When a company acquires new technology, it typically enhances production efficiency, leading to an increase in the quantity of goods produced. Therefore, this would result in an increase in supply.

If income increases for people, how would it affect demand for goods?

• Increase demand

• Decrease demand

• No change in demand

• Decrease supply

Answer explanation

As income increases, people generally have more purchasing power, leading to an increase in demand for goods. This is because consumers are likely to buy more or higher-quality items when they can afford them.

If people’s taste changes for a good and more people dislike it, what would occur with demand?

• Increase demand

• Decrease demand

• No change in demand

• Increase supply

Answer explanation

If more people dislike a good, their demand for it decreases. This shift in consumer preference leads to a decrease in demand, making 'Decrease demand' the correct choice.

If the government imposes a tax on a good, what will occur with supply?

• Increase supply

• Decrease supply

• No change in supply

• Increase demand

Answer explanation

When the government imposes a tax on a good, it increases the cost of production for suppliers. This typically leads to a decrease in supply, as producers may reduce output due to lower profit margins.

Supply and demand determine

• needs and wants.

• all goods produced.

• the price for a good or service.

• All of the above.

Answer explanation

Supply and demand primarily determine the price for a good or service in a market economy. While they influence production and consumer needs, the direct impact is on pricing.

Equilibrium is

• when there is a surplus.

• when there is a shortage.

• when there is both a surplus and a shortage.

• when the producer and the consumers agree on a price.

Answer explanation

Equilibrium occurs when the producer and consumers agree on a price, balancing supply and demand. This is different from surplus (excess supply) and shortage (excess demand), which indicate imbalances.

The law of demand says

• producers will supply more when prices decrease.

• producers will supply more when prices increase.

• consumers will buy more when prices increase.

• consumers will buy less when prices increase.

Answer explanation

The law of demand states that as prices increase, consumers tend to buy less of a good or service. Therefore, the correct choice is that consumers will buy less when prices increase.

A producer will cause a shortage,

• if the price for a good is set too high.

• if the price for a good is set too low.

• If the price is set at the equilibrium point.

• None of the above.

Answer explanation

A producer will cause a shortage if the price is set too low, as this leads to higher demand than supply. When prices are low, consumers want to buy more, but producers are less willing to supply, resulting in a shortage.

A price floor is when

• the government sets a maximum price for a good.

• the government sets a minimum price of a good.

• The government allows the market to decide the price for a good.

• All of the above.

Answer explanation

A price floor is established when the government sets a minimum price for a good, ensuring it cannot be sold for less. This prevents prices from falling too low, unlike a price ceiling which sets a maximum price.