Direction: Encircle the correct answer. Direction: Encircle the correct answer.

1. Which of the following best describes the law of demand? 1. Which of the following best describes the law of demand?
a. As price increases, quantity demanded decreases a. As price increases, quantity demanded decreases
b. As price decreases, quantity demanded decreases b. As price decreases, quantity demanded decreases
c. As price increases, quantity demanded increases c. As price increases, quantity demanded increases
d. As price decreases, quantity demanded increases d. As price decreases, quantity demanded increases
2. What happens to the demand curve when there is an 2. What happens to the demand curve when there is an
increase in consumer income? increase in consumer income?
a. Shifts to the left a. Shifts to the left
b. Shifts to the right b. Shifts to the right
c. Becomes steeper c. Becomes steeper
d. Flattens out d. Flattens out
3. When quantity demanded exceeds quantity supplied in a 3. When quantity demanded exceeds quantity supplied in a
market, it is known as: market, it is known as:
a. Surplus a. Surplus
b. Shortage b. Shortage
c. Equilibrium c. Equilibrium
d. Elasticity d. Elasticity
4. Which of the following is likely to cause a decrease in the 4. Which of the following is likely to cause a decrease in the
supply of a product? supply of a product?
a. Increase in production costs a. Increase in production costs
b. Decrease in taxes b. Decrease in taxes
c. Expansion of the industry c. Expansion of the industry
d. Increase in technology d. Increase in technology
5. If the price of a good is below the equilibrium price, what is 5. If the price of a good is below the equilibrium price, what is
likely to happen? likely to happen?
a. Surplus of the good a. Surplus of the good
b. Shortage of the good b. Shortage of the good
c. No effect on supply c. No effect on supply
d. No effect on demand d. No effect on demand
6. In a market with perfectly elastic demand, the price 6. In a market with perfectly elastic demand, the price
elasticity of demand is: elasticity of demand is:
a. Greater than 1 a. Greater than 1
b. Equal to 1 b. Equal to 1
c. Less than 1 c. Less than 1
d. Zero d. Zero
7. The point at which quantity demanded equals quantity 7. The point at which quantity demanded equals quantity
supplied is known as: supplied is known as:
a. Equilibrium price a. Equilibrium price
b. Surplus point b. Surplus point
c. Price floor c. Price floor
d. Price ceiling d. Price ceiling
8. Which of the following is NOT a determinant of supply? 8. Which of the following is NOT a determinant of supply?
a. Technology a. Technology
b. Number of producers b. Number of producers
c. Consumer preferences c. Consumer preferences
d. Cost of production d. Cost of production
9. If the demand for a product is inelastic, a decrease in price 9. If the demand for a product is inelastic, a decrease in price
will result in: will result in:
a. A smaller quantity demanded a. A smaller quantity demanded
b. A larger quantity demanded b. A larger quantity demanded
c. No change in quantity demanded c. No change in quantity demanded
d. A change in supply d. A change in supply
10. When both demand and supply increase, what happens to 10. When both demand and supply increase, what happens to
the equilibrium price and quantity? the equilibrium price and quantity?
a. Price increases, quantity decreases a. Price increases, quantity decreases
b. Price decreases, quantity decreases b. Price decreases, quantity decreases
c. Price increases, quantity increases c. Price increases, quantity increases
d. Price decreases, quantity increases d. Price decreases, quantity increases