Microeconomics: Supply and Demand Flashcards
7 cards from real AP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Microeconomics: Supply and Demand flashcards as text
Which of the following would cause a rightward shift of the supply curve for corn?
Answer: A decrease in the price of fertilizer used to grow corn
Lower input prices (fertilizer) reduce production costs, making farmers willing to supply more corn at every price, shifting supply rightward.
In a market with a negative externality (such as pollution), the unregulated market output is:
Answer: Greater than the socially optimal quantity
With a negative externality, the private supply curve understates true social costs, causing the market to overproduce relative to the social optimum.
A Giffen good is unusual because:
Answer: Its demand curve slopes upward — higher prices lead to more consumption
A Giffen good violates the law of demand: as its price rises, consumption increases because the income effect (consumers are poorer) outweighs the substitution effect.
If the government imposes a per-unit subsidy on producers of a good, the equilibrium price paid by consumers will:
Answer: Decrease but by less than the full subsidy amount (unless supply or demand is perfectly elastic/inelastic)
A subsidy shifts supply rightward, lowering the consumer price, but the price drop is less than the subsidy unless one side is perfectly elastic or inelastic.
The 'law of supply' states that, ceteris paribus:
Answer: As price increases, quantity supplied increases
The law of supply establishes a direct (positive) relationship between price and quantity supplied: higher prices create greater profit incentives, leading to higher quantity supplied.
When two goods are substitutes in production (e.g., wheat and corn grown on the same land), a rise in the price of wheat will:
Answer: Decrease the supply of corn
If wheat becomes more profitable, farmers shift resources from corn to wheat production, reducing the supply of corn.
Market equilibrium is defined as the point where:
Answer: Quantity demanded equals quantity supplied at a given price
Equilibrium occurs when the market clears — the quantity consumers want to buy exactly equals the quantity producers want to sell at the prevailing price.