AP Micro Microeconomics: Supply and Demand 2 — Questions and Answers
Question 1: A simultaneous decrease in both supply and demand for a good will definitely cause:
- Price to fall
- Equilibrium quantity to fall (Correct answer)
- Price to rise
- Equilibrium quantity to rise
Correct answer: Equilibrium quantity to fall
When both supply and demand decrease, quantity falls unambiguously, but the price change is indeterminate without knowing the relative magnitudes.
Question 2: If the price of steel rises significantly, what happens in the automobile market?
- Demand for cars increases
- Supply of cars decreases (Correct answer)
- Demand for cars decreases
- Supply of cars increases
Correct answer: Supply of cars decreases
Steel is an input for automobiles, so a higher steel price raises production costs and shifts the supply curve for cars leftward (decreases supply).
Question 3: A binding price floor set above the equilibrium price results in:
- A shortage of the good
- A surplus of the good (Correct answer)
- No change in quantity supplied or demanded
- An increase in equilibrium price
Correct answer: A surplus of the good
A price floor above equilibrium keeps the price artificially high, causing quantity supplied to exceed quantity demanded, creating a surplus.
Question 4: Which scenario best illustrates a movement along the demand curve rather than a shift of the demand curve?
- Consumer incomes rise, increasing purchases of a normal good
- A good's own price rises, causing consumers to buy less (Correct answer)
- A substitute good becomes cheaper, reducing demand
- Consumer tastes shift toward the product
Correct answer: A good's own price rises, causing consumers to buy less
A change in a good's own price causes movement along the existing demand curve, while all other factors shift the curve itself.
Question 5: In a competitive market, if quantity demanded exceeds quantity supplied at the current price, we would expect:
- The price to fall until a new equilibrium is reached
- The price to rise until a new equilibrium is reached (Correct answer)
- Firms to exit the market
- The government to intervene
Correct answer: The price to rise until a new equilibrium is reached
A shortage (excess demand) creates upward pressure on price as buyers compete for scarce goods, driving price toward equilibrium.
Question 6: An improvement in production technology for a good will most likely cause:
- The demand curve to shift right
- The supply curve to shift right (Correct answer)
- Both curves to shift right
- The supply curve to shift left
Correct answer: The supply curve to shift right
Better technology lowers production costs, making producers willing and able to supply more at every price, shifting the supply curve rightward.
Question 7: If goods X and Y are complements and the price of X falls, what happens in the market for Y?
- Demand for Y decreases, lowering Y's price
- Demand for Y increases, raising Y's price (Correct answer)
- Supply of Y increases, lowering Y's price
- Supply of Y decreases, raising Y's price
Correct answer: Demand for Y increases, raising Y's price
Complements are used together; a price decrease for X increases consumption of X, which increases demand for the complementary good Y, raising Y's equilibrium price.
AP Micro Microeconomics: Supply and Demand 2
A simultaneous decrease in both supply and demand for a good will definitely cause: