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Quizzes > Business & Finance > Finance & Economics

Ready to Ace Microeconomics? Take the Quiz Now!

Think You Can Tackle Supply and Demand? Try These Microeconomics Questions!

Difficulty: Moderate
2-5mins
Learning OutcomesCheat Sheet
Paper art style illustration of supply and demand graph coins scales arrows quiz challenge on coral background

This microeconomics quiz helps you practice supply and demand, elasticity, and core market ideas. Use it to spot gaps before an exam and sharpen recall with short, clear questions. Try a fast round in the supply-demand quick set , or go deeper with the theory practice set .

What does the Law of Demand state about price and quantity demanded?
They are inversely related
Price only affects supply
They are directly related
They are unrelated
The Law of Demand states that, ceteris paribus, as the price of a good falls, the quantity demanded rises, and vice versa. This inverse relationship is fundamental to market price mechanisms and consumer behavior. It holds when all other factors like income and tastes remain constant.
If a government sets a price floor above the equilibrium price, what is the likely outcome?
A surplus of the good
A shortage of the good
The market clears at equilibrium
Demand becomes perfectly elastic
A binding price floor set above equilibrium prevents the price from adjusting downward, resulting in quantity supplied exceeding quantity demanded. This surplus leads to unsold goods and wasted resources unless the government intervenes further.
What happens when a price ceiling is imposed below the market equilibrium?
A shortage of the good
No change in quantity
Supply curve shifts right
A surplus of the good
A binding price ceiling below equilibrium prevents price from rising to its market-clearing level, causing quantity demanded to exceed quantity supplied. This shortage often leads to rationing or black-market activities.
If the price of a substitute good rises, what happens to demand for the original good?
Demand increases
Quantity supplied falls
Demand decreases
Supply increases
When the price of a substitute good increases, consumers switch their purchases to the original good, increasing its demand. Substitutes are goods that satisfy similar needs, so price changes in one affect the other's demand.
What defines a normal good in microeconomics?
Demand rises as income increases
Price and demand are unrelated
Supply shifts with income changes
Demand falls as income increases
A normal good is one for which demand increases when consumers' income rises, holding prices constant. Most everyday items are normal goods. This contrasts with inferior goods, where demand falls as income increases.
What characterizes an inferior good?
Supply increases with income
Demand decreases as income rises
Demand increases as income rises
Price falls when income rises
An inferior good is one where demand falls as consumer income increases. Consumers substitute toward higher?quality or more expensive alternatives when they can afford them. Public transportation often acts as an inferior good relative to personal vehicles.
Which factor will shift the supply curve of a product?
Change in input costs
Change in consumer income
Change in demand for complements
Change in consumer tastes
Supply curve shifts occur when input costs, technology, or the number of sellers change. A rise in input costs makes production more expensive, shifting supply left. Demand factors affect demand curves, not supply.
What defines market equilibrium?
Supply curve crosses vertical axis
Quantity supplied equals quantity demanded
Price equals production cost
Demand curve crosses horizontal axis
Market equilibrium is reached when buyers' willingness to pay matches sellers' willingness to sell, so quantity demanded equals quantity supplied. At that price, there is no tendency for price to change, barring external shocks.
A surplus in the market occurs when:
Supply and demand are balanced
Price falls below equilibrium
Quantity supplied exceeds quantity demanded
Quantity demanded exceeds quantity supplied
A surplus happens when the price is set above equilibrium, leading sellers to supply more than buyers are willing to purchase. This forces downward pressure on price to restore equilibrium.
A shortage arises when:
Price is above equilibrium
Market clears
Quantity supplied exceeds quantity demanded
Quantity demanded exceeds quantity supplied
A shortage occurs if price is kept below equilibrium, causing buyers to demand more than sellers supply. This leads to upward pressure on price until the shortage is eliminated.
If the price of a complement good falls, what happens to demand for the original good?
Supply increases
Quantity supplied falls
Demand increases
Demand decreases
Complements are goods consumed together, like coffee and sugar. If the price of one complement falls, it becomes cheaper overall to consume both, increasing demand for the original good.
How is the price elasticity of demand calculated?
Change in quantity demanded divided by change in price
Percentage change in quantity demanded divided by percentage change in price
Percentage change in price divided by percentage change in quantity
Change in price times change in quantity
Price elasticity of demand measures responsiveness of quantity demanded to a price change, defined as the percentage change in quantity demanded over the percentage change in price. It is unit?free, allowing comparisons across goods.
If the price elasticity of demand for a product is greater than 1, demand is considered:
Inelastic
Elastic
Unit elastic
Perfectly inelastic
Demand is elastic when the absolute value of price elasticity exceeds 1, indicating consumers are highly responsive to price changes. In such cases, revenue moves opposite to price movements.
A positive cross-price elasticity of demand indicates goods are:
Substitutes
Inferior
Unrelated
Complements
Cross-price elasticity measures how demand for one good responds to price changes in another. A positive value means an increase in one good's price raises demand for the other, indicating substitutability.
What does a positive income elasticity of demand signify?
Demand is price inelastic
The good is normal
The good is inferior
Demand is perfectly elastic
Income elasticity of demand measures responsiveness of demand to income changes. A positive value indicates that demand rises as income increases, characteristic of normal goods.
What is consumer surplus?
Producer's profit
Area under supply curve
Total revenue minus total cost
The difference between willingness to pay and market price
Consumer surplus is the area between the demand curve and the market price, representing the benefit consumers receive by paying less than their maximum willingness to pay. It measures net gain to buyers.
What is producer surplus?
Total cost minus total revenue
Market price minus minimum supply price
Area under demand curve
Consumer's utility
Producer surplus is the difference between the market price received and the lowest price at which a producer would be willing to sell. It's the area above the supply curve and below the price.
A per-unit tax on buyers will cause the demand curve to:
Shift upward by the tax amount
Pivot clockwise around origin
Remain unchanged
Shift downward by the tax amount
A tax on buyers effectively increases the price they pay, reducing their willingness to buy at each price. This shifts the demand curve downward (or left) by the tax amount.
What determines the incidence of a tax between buyers and sellers?
Market equilibrium price
Government budget surplus
Absolute size of the tax
Relative elasticities of supply and demand
Tax incidence depends on how easily buyers and sellers can adjust their quantities in response to price changes. The side of the market that is less elastic bears more of the tax burden.
The deadweight loss from a tax arises because:
Tax revenues exceed government spending
It causes a surplus
Consumers pay less than producers receive
It reduces mutually beneficial trades
Deadweight loss measures the loss of economic efficiency when equilibrium output is reduced by taxation. It represents trades that would benefit both buyers and sellers but no longer occur.
A binding price ceiling often leads to:
Higher producer surplus
Rationing and black markets
Excess supply
No change in consumer welfare
A binding price ceiling below equilibrium creates a shortage, forcing non-price rationing mechanisms like long queues or favoritism, and may encourage black markets. Consumers can't buy as much at the artificially low price.
A binding price floor typically results in:
Shortages
Improved allocative efficiency
Wasteful surplus and unsold inventory
Market clearance
A binding price floor set above equilibrium causes quantity supplied to exceed quantity demanded, creating a surplus. This leads to unsold goods unless the government buys the excess or imposes quotas.
If both supply and demand increase simultaneously, what is the effect on equilibrium?
Price falls; quantity is indeterminate
Price rises; quantity is indeterminate
Both price and quantity fall
Quantity rises; price is indeterminate
When supply and demand both shift right, they both push equilibrium quantity up. The net effect on price depends on the relative sizes of the shifts, making price indeterminate without further information.
What happens when supply increases and demand decreases at the same time?
Both price and quantity fall
Quantity falls; price is indeterminate
Price falls; quantity is indeterminate
Both price and quantity rise
An increase in supply puts downward pressure on price, while a decrease in demand also lowers price. Thus price must fall. However, quantity could either rise or fall depending on shift magnitudes, so quantity is indeterminate.
Why is the demand curve generally downward sloping?
Marginal benefit decreases as consumption increases
Supply constraints bind at high prices
Income always increases
Marginal cost rises with higher prices
A downward?sloping demand curve reflects diminishing marginal utility: each additional unit yields less satisfaction, so consumers will only buy more if price falls. This underpins consumer behavior and demand theory.
How is the market demand curve derived from individual demands?
By summing individual quantities horizontally
By summing consumer incomes
By summing prices vertically
By averaging market prices
The market demand curve is the horizontal sum of individual demand curves at each price. You add each consumer's quantity demanded to get total market quantity at that price.
In perfect competition, a firm's supply curve is its:
Average cost curve above price
Marginal cost curve above average variable cost
Marginal revenue curve
Average revenue curve
Under perfect competition, firms take price as given. They produce where marginal cost equals price, provided price covers average variable cost. Thus the portion of the MC curve above AVC is the supply curve.
What is price discrimination?
Charging different prices to different consumers for the same good
Binding price ceilings
Imposing a single price floor
Setting a uniform price for all buyers
Price discrimination occurs when a seller charges different prices to different consumers for reasons not related to cost differences. It can increase producer surplus by capturing more consumer surplus.
How does a binding price floor affect consumer surplus?
It decreases consumer surplus
It has no effect
It creates consumer surplus from deadweight loss
It increases consumer surplus
A binding price floor raises the price above equilibrium, forcing consumers to pay more or buy less. This reduces consumer surplus by shrinking the difference between willingness to pay and market price.
When are deadweight losses from policy interventions larger?
When supply and demand are more elastic
When supply and demand are more inelastic
When one curve is vertical
When price is at equilibrium
Deadweight loss measures lost trades due to policy distortions. If supply or demand is highly elastic, quantity changes more in response to price distortions, creating larger inefficiencies.
Which good has an upward?sloping demand curve due to strong income effect?
Inferior good
Normal good
Veblen good
Giffen good
A Giffen good is an inferior good with such a strong income effect that when its price rises, consumers buy more of it. This counterintuitive outcome leads to an upward?sloping demand curve.
What characterizes a Veblen good?
Higher price makes it more desirable
Income effect dominates substitution
Lower price reduces demand
Demand is perfectly inelastic
A Veblen good is a luxury item where demand increases as price rises because higher price signals prestige. Consumers view the higher price as part of the product's appeal.
Compared to perfect competition, a single-price monopoly will:
Produce less output and charge a higher price
Produce more output and charge a lower price
Produce more output and charge a higher price
Produce the same output at the same price
A single?price monopoly restricts output to maximize profit where marginal cost equals marginal revenue, leading to a higher price and lower quantity than under perfect competition. This creates deadweight loss.
Which equation splits the total effect of a price change into substitution and income effects?
Slutsky equation
Euler's theorem
Hicks - Allen decomposition
Lagrange multiplier
The Slutsky equation decomposes the total change in demand due to a price change into substitution and income effects, holding purchasing power constant for the substitution portion. It is fundamental to consumer theory.
Which identity expresses Marshallian demand functions in terms of the indirect utility function?
Shephard's lemma
Roy's identity
Slutsky equation
Euler's theorem
Roy's identity relates the Marshallian (uncompensated) demand functions to the indirect utility function by taking the ratio of partial derivatives of the utility function. It's a key result in consumer choice.
According to Shephard's lemma, the derivative of the expenditure function with respect to a price gives:
Hicksian demand for that good
Marginal utility of income
Total utility
Marshallian demand for that good
Shephard's lemma states that the partial derivative of the expenditure function with respect to a price equals the compensated or Hicksian demand for that good. This links cost minimization to demand.
Which property holds for the expenditure function e(p,u)?
Increasing returns to scale
Homogeneous of degree one in prices
Homogeneous of degree zero in utility
Strictly convex in utility
The expenditure function is homogeneous of degree one in prices, meaning if all prices double, the minimum expenditure needed to reach the same utility doubles. It is also concave in prices.
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Study Outcomes

  1. Analyze Supply and Demand Dynamics -

    Apply insights from the microeconomics quiz to graph and interpret how shifts in supply and demand curves influence market equilibrium price and quantity.

  2. Evaluate Price Elasticity -

    Calculate and interpret price elasticity of demand and supply to determine how responsive consumers and producers are to price changes in different market scenarios.

  3. Distinguish Market Structures -

    Identify and compare characteristics of perfect competition, monopoly, monopolistic competition, and oligopoly to understand their effects on pricing and output.

  4. Assess Government Interventions -

    Analyze the impact of taxes, subsidies, price floors, and ceilings on supply, demand, and overall market efficiency.

  5. Interpret Real”World Scenarios -

    Solve engaging microeconomics questions by applying core theories to everyday market situations, enhancing your economic reasoning skills.

Cheat Sheet

  1. Law of Demand and Supply -

    The law of demand states that as price falls, quantity demanded rises, and vice versa, while the law of supply indicates that higher prices incentivize more production. Draw the demand curve downward-sloping and supply curve upward-sloping to visualize their inverse and direct relationships. Remember for your microeconomics quiz that P↑→Qd↓ (demand) and P↑→Qs↑ (supply).

  2. Market Equilibrium -

    Equilibrium occurs where quantity demanded equals quantity supplied (Qd=Qs), determining the market-clearing price and quantity. Sketching both curves on the same graph reveals the unique intersection point that balances buyers and sellers. This concept is fundamental for solving microeconomics questions on price adjustments and surplus elimination.

  3. Price Elasticity of Demand -

    Price elasticity of demand (PED) = % change in Qd / % change in P, measuring responsiveness of quantity demanded to price changes. A PED >1 is elastic, <1 is inelastic, and =1 is unit elastic; practice classifying goods (e.g., luxury vs. necessity) for quiz confidence. Use the midpoint formula to avoid asymmetry: (ΔQ/avg Q)/(ΔP/avg P).

  4. Shifters of Curves (Mnemonics) -

    Remember "T I M E" (Taste, Income, Market size, Expectations) for demand shifters and "C O G E S" (Costs, Other goods, Government, Expectations, Sellers) for supply. These determinants shift curves outward or inward, not just along them, and are often tested in microeconomics trivia. A quick mnemonic: "TIME for buyers, COGES for sellers" helps lock in the right factors.

  5. Consumer & Producer Surplus -

    Consumer surplus is the area above market price and below the demand curve; producer surplus is the area below market price and above the supply curve. These surpluses measure welfare gains and are key to welfare analysis in basic economics quizzes. Practice calculating triangle areas (½×base×height) to ace surplus-related questions.

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