Economics: Demand and Supply Multiple Choice Questions with Answers

This assignment provides a series of multiple-choice questions related to the core economic principles of demand and supply. The questions cover topics such as factors influencing shifts in demand and supply curves, the law of demand and supply, the relationship between price and quantity demanded/supplied, normal and inferior goods, and the concept of diminishing marginal utility. Each question is accompanied by a detailed solution explaining the correct answer and the economic reasoning behind it. The problems also incorporate graphical analysis, using supply and demand curves to illustrate the effects of various market changes, such as changes in income, input prices, and the prices of related goods. The assignment is designed to test and reinforce understanding of fundamental microeconomic concepts related to market equilibrium and the determinants of demand and supply.

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Demand and Supply
Student Name
University Name

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Question # 1
Which of the following will NOT cause a shift in the demand curve for compact discs?
A) a change in income
B) a change in wealth
C) a change in the price of downloadable online music
D) a change in the price of compact discs
Solution
The correct choice is D.
A change in the price of compact discs will not cause a shift in the demand curve for compact
discs. A change in the price of compact discs will cause a movement along the demand curve and
the quantity of compact discs demanded would change accordingly.
Question # 2
The "law of demand" implies that
A) as prices fall, demand increases.
B) as prices rise, demand increases.
C) as prices fall, quantity demanded increases.
D) as prices rise, quantity demanded increases.
Solution
The correct choice is C.
The “law of demand” implies that as prices fall, the quantity demanded of a good increase
keeping all other things constant. The reason is that as the price of a good decrease, people are
generally more willing to buy that good.

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Question # 3
According to the law of demand, as prices rise, ceteris paribus
A) demand increases.
B) demand decreases.
C) quantity demanded decreases.
D) quantity demanded increases.
Solution
The correct choice is C.
According to the law of demand, as prices rise, ceteris paribus, the quantity demanded of a good
decrease. The reason is that as the price of a good increase, people are generally less willing to
buy that good as they start looking for cheaper substitutes.
Question # 4
According to the law of demand there is ________ relationship between price and quantity
demanded.
A) a positive
B) a negative
C) either a positive or negative
D) a constantly changing
Solution
The correct choice is B.

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According to the law of demand, there is a negative relationship between price and quantity
demanded. As the price of a good increase, the quantity demanded of that good decreases and
vice versa.
Question # 5
As an individual consumes more of a product within a given period of time, it is likely that each
additional unit consumed will yield
A) successively less satisfaction.
B) successively more satisfaction.
C) the same amount of satisfaction.
D) less satisfaction for a while and then starts to add more satisfaction.
Solution
The correct choice is A.
As an individual consumes more of a product within a given period of time, it is likely that each
additional unit consumed will yield successively less satisfaction. This concept is generally
known as diminishing marginal utility of a good.

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Figure 3.1
Question # 6
Refer to Figure 3.1. Which of the following would be most likely to cause the demand for Dr.
Pepper to shift from D0 to D1?
A) a decrease in income, assuming that Dr. Pepper is a normal good
B) an increase in the price of 7-UP, assuming 7-UP is a substitute for Dr. Pepper
C) a decrease in the price of Dr. Pepper
D) a reduction in the price of sugar used to make Dr. Pepper
Solution
The correct choice is A.
A decrease in income, assuming that Dr. Pepper is a normal good is most likely to cause the
demand for Dr. Pepper to shift from D0 to D1. The reason is that people feel less rich as their
income decreases so they focus more on spending their money on necessary goods.
Figure 3.2

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Question # 7
Refer to Figure 3.2. Which of the following would be most likely to cause the demand for
macaroni and cheese to shift from D1 to D0?
A) an increase in the price of macaroni and cheese
B) an increase in the price of flour used to make macaroni and cheese
C) an increase in income, assuming macaroni and cheese is a normal good
D) an increase in the quantity demanded for macaroni and cheese
Solution
The correct choice is C.
An increase in income, assuming macaroni and cheese is a normal good is most likely to cause
the demand for macaroni and cheese to shift from D1 to D0. The reason being that people feel
richer as their income increases so they increase their consumption of normal goods.
Question # 8
If the demand for coffee decreases as income decreases, coffee is a(n)
A) normal good.
B) inferior good.
C) substitute good.
D) complementary good.
Solution
The correct choice is A.

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If the demand for coffee decreases as income decreases, coffee is a normal good. A normal good
is defined as any economic good whose demand increases as income increases and vice versa.
Question # 9
If the demand for sardines increases as income decreases, sardines are a(n)
A) normal good.
B) inferior good.
C) substitute good.
D) complementary good.
Solution
The correct choice is B.
If the demand for sardines increases as income decreases, sardines are characterized as inferior
goods. An inferior good is defined as any economic good whose demand increases as income
decreases and vice versa.
Question # 10
According to the law of supply, there is a
A) negative relationship between price and the quantity of a good supplied.
B) positive relationship between price and the quantity of a good supplied.
C) negative relationship between price and the change in supply.
D) positive relationship between price and the change in supply.
Solution
The correct choice is B.

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According to the law of supply, there is a positive relationship between price and the quantity of
a good supplied. As the price of a good increase, firms tend to increase their production in order
to generate profits thus increasing the overall supply of the good in the market.
Question # 11
The price of hard drives used in the manufacturing of laptop computers has risen. This will lead
to ________ laptop computers.
A) an increase in the supply of
B) a decrease in the supply of
C) an increase in the quantity supplied of
D) a decrease in the quantity supplied of
Solution
The correct choice is B.
If the price of hard drives used in the manufacturing of laptop computers has risen, it will lead to
a decrease in the supply of laptop computers. The reason is that the increase in the price of hard
drives will make it more costly for firms to produce laptop computers if they are not willing to
compromise on their profits.
Question # 12
If the price of chili increases, there will be ________ of chili cheese fries.
A) an increase in the supply
B) a decrease in the supply
C) an increase in the quantity supplied

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D) a decrease in the quantity supplied
Solution
The correct choice is B.
If the price of chili increases, there will be a decrease in the supply of chili cheese fries. The
reason being that it will be now less profitable for firms to produce cheese fries since the price of
input has increased.
Question # 13
A frozen food manufacturer can produce either pizzas or calzones. As the result of an increase in
the price of calzones, the firm produces more calzones and fewer pizzas. An economist would
explain this by saying
A) the supply of calzones increased and the supply of pizzas decreased.
B) there has been an increase in the quantity supplied of calzones and a decrease in the quantity
supplied of pizzas.
C) there has been an increase in the quantity supplied of calzones and a decrease in the supply of
pizza.
D) the supply of calzones increased and the quantity supplied of pizza decreased.
Solution
The correct choice is C.
An economist would explain the current situation by saying that there has been an increase in the
quantity supplied of calzones and a decrease in the supply of pizza. The law of supply perfectly
explains this situation. An increase in the supply of calzones results in a movement along the

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supply curve resulting in an increase in the quantity supplied of calzones. The supply of pizza
would decrease because of the external shock of the change of price of calzones.
Figure 3.14
Question # 14
Refer to Figure 3.14. A decrease in the wage rate of pizza makers will cause a movement from
Point B on supply curve S2 to
A) Point A on supply curve S2.
B) Point B on supply curve S2.
C) supply curve S3.
D) supply curve S1.
Solution
The correct choice is C.
A decrease in the wage rate of pizza makers will cause the supply curve to shift from S2 to S3.
The reason is that the decrease in the wage rate makes it more profitable for firms to increase the
supply of pizza in the market.

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Question # 15
Refer to Figure 3.14. An increase in supply is represented by the movement from
A) S2 to S3.
B) S2 to S1.
C) Point B to Point A along supply curve S2.
D) Point B to Point C along supply curve S2.
Solution
The correct choice is A.
An increase in the supply is represented by the shift in the supply curve from S2 to S3. The
supply curve shifts when there is an external supply shock.
Question # 16
Refer to Figure 3.14. A decrease in quantity supplied is represented by a movement from
A) S2 to S3.
B) S2 to S1.
C) Point B to Point A along supply curve S2.
D) Point B to Point C along supply curve S2.
Solution
The correct choice is D.

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A decrease in the quantity supplied is represented by a movement from point B to point C along
supply curve S2. This decrease in the quantity supplied is most likely because of a decrease in
the price of the good.
Question # 17
Refer to Figure 3.14. An increase in the price of pizza sauce will cause a movement from Point B
on supply curve S2 to
A) supply curve S3.
B) supply curve S1.
C) Point A on supply curve S2.
D) Point C on supply curve S2.
Solution
The correct choice is B.
An increase in the price of pizza sauce will cause the supply curve to shift from S2 to S1. Since
pizza sauce is an input for pizzas, firms respond to an increase in the input prices by decreasing
the supply of the good.
Question # 18
Refer to Figure 3.14. A movement from Point A to Point B on supply curve S2 would be caused
by a(n)
A) increase in the price of pizza.
B) decrease in the demand for pizza.