Multiple-Choice Questions (MCQs)

1.

What does the law of demand state?

a) As price increases, quantity demanded
increases
b) As price increases, quantity demanded
decreases
c) As price decreases, quantity demanded
decreases
d) Demand is independent of price
2.
1. Answer: (b)
3.

Which of the following is NOT a

determinant of demand?
a) Income
b) Technology
c) Price of related goods
d) Tastes and preferences
4.

1. Answer: (b)
5.
In a perfectly competitive market, buyers
and sellers are:
a) Price makers
b) Price takers
c) Monopolists
d) None of the above
6.

1. Answer: (b)
7.

What happens when the supply of a good

decreases?
a) The supply curve shifts to the right
b) The supply curve shifts to the left
c) The quantity supplied increases
d) The price of the good decreases
8.

1. Answer: (b)
9.

What occurs when quantity supplied is

greater than quantity demanded?
a) Shortage
b) Surplus
c) Equilibrium
d) Price stability
 10.

1. Answer: (b)
11.

If the price of coffee increases, what is likely

to happen to the demand for tea?
a) Increase
b) Decrease
c) Remain the same
d) None of the above
12.

1. Answer: (a)

Diagrams to Include
1.

Demand and Supply Curves

2.

1. Show how the quantity demanded

decreases as price increases.
2. Show how the quantity supplied increases
with price.
3.
Market Demand and Market Supply
Curves
4.

1. Illustrate how individual demands add up

to form the market demand.
2. Show the total supply as the sum of
individual supplies.
5.

Shifts in Demand Curve

6.

1. Diagram showing an increase in demand

shifting the demand curve to the right.
2. A decrease in demand shifting the curve to
the left.
7.

Shifts in Supply Curve

8.

1. Increase in supply shifting the curve to the

right.
2. Decrease in supply shifting the curve to
the left.
9.

Market Equilibrium
 10.

1. Show where supply and demand intersect.

2. Illustrate what happens when the price is
above or below equilibrium.
11.

Surplus and Shortage

12.

1. Diagram showing excess supply (surplus)

when the price is above equilibrium.
2. Excess demand (shortage) when the price
is below equilibrium.
Would you like me to create these diagrams for
you?
You said:
Big Questions Small Questions anser
ChatGPT said:
Here are the answers to the Big Questions and
Small Questions from your slides on The Market
Forces of Supply and Demand.

Big Questions with Answers

1. Explain the concept of a competitive market
and how it differs from a monopoly.
A competitive market is a market where there are
many buyers and sellers, and no single participant
has control over the price. In such a market:
 The goods offered are identical.
 Buyers and sellers are price takers, meaning
they accept the market price.
 Prices are determined by the interaction of
supply and demand.
A monopoly, on the other hand, is a market with a
single seller who controls the price and supply of
the product. A monopolist sets the price rather than
taking the market price, as no competitors exist.
2. How do shifts in demand and supply curves
affect market equilibrium?
When either the demand curve or supply curve
shifts, the equilibrium price and quantity change:
 Increase in demand → Price rises, quantity
rises.
 Decrease in demand → Price falls, quantity
falls.
 Increase in supply → Price falls, quantity
rises.
 Decrease in supply → Price rises, quantity
falls.
If both supply and demand shift simultaneously,
the final effect depends on which shift is stronger.
3. Describe the law of demand and the law of
supply with real-life examples.
 Law of Demand: When the price of a good
rises, the quantity demanded decreases, and
vice versa.
o Example: If the price of ice cream rises,
people buy less ice cream.
 Law of Supply: When the price of a good
rises, the quantity supplied increases, and vice
versa.
o Example: If the price of smartphones
rises, manufacturers produce more.
4. What happens when a market experiences a
shortage or surplus?
 Shortage (Excess Demand): Occurs when
demand exceeds supply at a given price.
Sellers raise prices, reducing demand until
equilibrium is reached.
 Surplus (Excess Supply): Occurs when
supply exceeds demand at a given price.
Sellers lower prices, increasing demand until
equilibrium is reached.
5. Analyze the impact of external factors like
natural disasters on supply and demand.
 Natural disasters (e.g., hurricanes) can reduce
supply by destroying resources, shifting the
supply curve leftward.
 Severe weather (e.g., heat waves) can increase
demand for certain goods (e.g., ice cream),
shifting the demand curve rightward.
 The result is higher equilibrium prices due to
increased demand or reduced supply.

Small Questions with Answers

1. What is the definition of a market?
A market is a group of buyers and sellers who
exchange goods or services.
2. What are the key characteristics of a perfectly
competitive market?
 Many buyers and sellers.
 Identical products.
 Price takers (no influence over market price).
3. Define “quantity demanded” and explain how
it changes with price.
Quantity demanded is the amount of a good
consumers are willing to buy at a given price. It
decreases when the price increases and increases
when the price decreases (law of demand).
4. What is a demand curve? How is it different
from a supply curve?
A demand curve slopes downward, showing an
inverse relationship between price and quantity
demanded. A supply curve slopes upward,
showing a direct relationship between price and
quantity supplied.
5. What are the main factors that cause a shift in
the demand curve?
 Income changes.
 Prices of related goods (substitutes and
complements).
 Changes in tastes.
 Expectations of future prices.
 Number of buyers.
6. What is the equilibrium price?
The price at which quantity demanded = quantity
supplied, ensuring market balance.
7. What happens when the price is set above the
equilibrium level?
A surplus occurs, meaning suppliers produce more
than buyers demand, causing prices to decrease.
8. Explain the concept of price elasticity of
demand.
Price elasticity of demand measures how much
quantity demanded changes in response to price
changes. If demand is elastic, consumers react
strongly to price changes. If inelastic, demand
remains stable despite price changes.
9. How do expectations about the future affect
current demand?
 If consumers expect prices to rise, they
increase current demand.
 If they expect prices to fall, they delay
purchases, decreasing current demand.
10. What is the role of prices in allocating
resources in a market economy?
Prices signal scarcity and surplus, directing
resources toward profitable production. Higher
prices attract more sellers, while lower prices
reduce supply.

### **Big Questions**

1. **Explain the concept of equilibrium in a
market. How do surpluses and shortages lead to
price adjustments?**
- *Answer*: Equilibrium occurs where quantity
demanded equals quantity supplied. A surplus
(excess supply) causes sellers to lower prices,
increasing quantity demanded and reducing
quantity supplied until equilibrium is restored. A
shortage (excess demand) leads to price increases,
reducing quantity demanded and increasing
quantity supplied until equilibrium is reached.

2. **Discuss the factors that shift the demand

curve. Provide real-world examples for each.**
- *Answer*: Factors include:
- **Income** (e.g., luxury cars demand rises
with higher income).
- **Prices of related goods** (e.g., if coffee
prices rise, tea demand increases as a substitute).
- **Tastes** (e.g., health trends boosting
demand for organic food).
- **Expectations** (e.g., anticipated price hikes
causing immediate demand spikes).
- **Number of buyers** (e.g., population
growth increasing housing demand).

3. **Analyze how a simultaneous increase in

demand and decrease in supply affects equilibrium
price and quantity. Use a diagram to support your
answer.**
- *Answer*: The demand curve shifts right
(higher quantity at every price), and the supply
curve shifts left (lower quantity at every price).
Equilibrium price unambiguously rises. Quantity
may rise, fall, or stay the same depending on the
magnitude of shifts (see Figure 12 in slides).

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### **Small Questions**

1. **Define "price taker" in a perfectly competitive
market.**
- *Answer*: A buyer or seller who cannot
influence the market price and must accept the
prevailing equilibrium price.

2. **What is the difference between a movement

along the supply curve and a shift in supply?**
- *Answer*: A movement along the curve is
caused by a price change (change in quantity
supplied). A shift is due to non-price factors (e.g.,
input costs, technology).

3. **Give an example of complementary goods.**

- *Answer*: Printers and ink cartridges (if printer
prices rise, ink demand falls).

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### **MCQ Questions**

1. **Which of the following would shift the
demand curve for smartphones to the right?**
a) A decrease in consumer income
 b) A rise in the price of landline phones (a
substitute)
c) A decrease in the price of smartphone
accessories (complements)
d) A technological improvement in smartphone
production
- *Answer*: **B** (substitute price rise
increases smartphone demand).

2. **A surplus in the ice cream market implies:**

a) Quantity demanded > Quantity supplied
b) Quantity supplied > Quantity demanded
c) Equilibrium price is too low
d) The supply curve shifts left
- *Answer*: **B**.

3. **If the price of steel increases, what happens to

the supply curve for cars?**
a) Shifts left
b) Shifts right
c) Movement along the curve
d) No change
- *Answer*: **A** (steel is an input; higher
costs reduce supply).

4. **In a perfectly competitive market, firms are

"price takers" because:**
a) They collude to set prices
b) They have monopoly power
 c) No single buyer/seller can influence the market
price
d) Government regulates prices
- *Answer*: **C**.

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**Answers Key for MCQs**:

1. B | 2. B | 3. A | 4. C

Let me know if you need further refinements! 😊