Markets, Supply, and Demand — High School Economics practice questions

The cost of steel rises. For car makers, this:

1. shifts supply right
2. shifts supply left
3. shifts demand left
4. moves along the supply curve

Answer: B — shifts supply left

B) Correct — Higher input costs reduce supply at every price. A) Lower input costs would do that. C) Steel costs affect sellers, not buyers. D) Only the good's own price does that.

If the price is above equilibrium, there will be a:

1. shortage
2. surplus
3. rise in demand
4. new equilibrium at that price

Answer: B — surplus

B) Correct — Quantity supplied exceeds quantity demanded. A) Happens below equilibrium. C) Price changes do not shift demand. D) The price will tend to fall.

Supply decreases while demand stays the same. Equilibrium:

1. price and quantity both rise
2. price falls and quantity rises
3. price and quantity both fall
4. price rises and quantity falls

Answer: D — price rises and quantity falls

D) Correct — The supply curve shifts left. A) Would follow a rise in demand. B) Would follow a rise in supply. C) Would follow a fall in demand.

A fall in the price of pizza causes:

1. the pizza demand curve to shift right
2. a movement along the pizza demand curve
3. the pizza demand curve to shift left
4. the pizza supply curve to shift right

Answer: B — a movement along the pizza demand curve

B) Correct — A good's own price changes quantity demanded, not demand. A) Shifts come from other factors. C) Shifts come from other factors. D) Price changes do not shift supply.

Demand is Qd = 100 − 2P and supply is Qs = 3P. What is the equilibrium price?

1. $25
2. $20
3. $50
4. $60

Answer: B — $20

B) Correct — 100 − 2P = 3P, so 5P = 100 and P = 20 (Q = 60). A) Divides 100 by 4 instead of 5. C) Uses only the demand equation. D) Is the equilibrium quantity.

Coffee and tea are substitutes. If the price of tea rises, the demand for coffee:

1. shifts right
2. shifts left
3. stays the same
4. moves along the curve

Answer: A — shifts right

A) Correct — Some tea drinkers switch to coffee. B) Would happen if they were complements. C) A substitute's price shifts demand. D) Coffee's own price has not changed.

According to the law of supply, when price rises, quantity supplied:

1. falls
2. rises
3. stays the same
4. shifts the supply curve left

Answer: B — rises

B) Correct — Higher prices make production more profitable. A) Describes the law of demand. C) Only true for perfectly inelastic supply. D) A price change moves along the curve.

According to the law of demand, when price rises, quantity demanded:

1. rises
2. stays the same
3. falls
4. shifts the demand curve right

Answer: C — falls

C) Correct — Price and quantity demanded move in opposite directions. A) Describes the law of supply. B) Only true for perfectly inelastic demand. D) A price change moves along the curve.

A minimum wage set above the equilibrium wage is a price floor that can cause:

1. a shortage of workers
2. a surplus of labor
3. lower wages for all workers
4. no change in employment

Answer: B — a surplus of labor

B) Correct — More people want jobs than firms want to hire at that wage. A) Results from a wage ceiling. C) The floor raises the wage. D) A binding floor changes hiring.

Incomes rise. For a normal good, demand:

1. shifts right
2. shifts left
3. moves down along the curve
4. does not change

Answer: A — shifts right

A) Correct — Buyers want more at every price. B) Happens for inferior goods. C) Only a price change does that. D) Income is a demand shifter.

What is a price ceiling?

A government-imposed maximum price (e.g., rent control). If below equilibrium, causes shortages.

What is a normal good?

A good for which demand increases as income rises (e.g., new cars, restaurant meals).

What is market equilibrium?

The price/quantity at which quantity demanded equals quantity supplied — where the demand and supply curves intersect.

Worked example: In a small market, demand is Qd = 100 − 2P and supply is Qs = 20 + 2P (P in dollars, Q in units). Find the equilibrium price and quantity.

Step 1 — Equilibrium occurs where Qd = Qs. Step 2 — Set the equations equal: 100 − 2P = 20 + 2P. Step 3 — Solve for P: 100 − 20 = 2P + 2P → 80 = 4P → P* = $20. Step 4 — Plug P* into either equation: Qd = 100 − 2(20) = 100 − 40 = 60, and Qs = 20 + 2(20) = 20 + 40 = 60. ✓ Step 5 — Equilibrium: P* = $20, Q* = 60 units. At any P above $20, Qs > Qd (surplus → price pressure down); below $20, Qd > Qs (shortage → price pressure up).