Question

In a market economy, if the price of a good increases, the quantity demanded by consumers and the quantity supplied by producers will change in which of the following ways?
A. Quantity demanded by consumers will Increase, Quantity supplied by producers will increase
B. Quantity demanded by consumers will increase, Quantity supplied by producers will decrease
C. Quantity demanded by consumers will decrease, Quantity supplied by producers will increase
D. Quantity demanded by consumers will decrease, Quantity supplied by producers will decrease

Which of these describes a characteristic of a monopoly?
A. few barriers of entry
B. rarely affected by government regulations
C. strong control over price
D. face strong competition for customers

Juanita and Sarah made 100 T-shirts with a picture of their school’s basketball team to celebrate winning the division championship. They initially sold the T-shirts for $5 each. The T-shirts began selling quickly. Juanita and Sarah realized that $5 a shirt would not cover their costs, so they raised the price to $8 a shirt. As a result, sales declined and they had 20 unsold T-shirts at the end of the year.Which term BEST describes what happened when Juanita and Sarah raised the price of the T-shirts?
A. law of supply
B. law of demand
C. opportunity cost
D. comparative advantage

Answer 1

1. D. Quantity demanded by consumers will decrease, quantity supplied by producers will decrease.

As the price of a good increases, people will be inclined to buy less of it, which means that the demand for the good will decrease. Once suppliers notice that the product is not as popular anymore, they will produce less, so as not to lose money. This means that the supply will similarly decrease.

2. C. strong control over price.

A monopoly refers to a situation in which only one producer controls the supply of a good or service. Also, the entry of new producers is highly restricted. Monopolists firms have the power to keep prices high and restrict the output.

3. B. law of demand.

In economics, the law of demand states that as the price of a good increases, the quantity demanded decreases. Conversely, as the price of a good decreases, quantity demanded increases. In this example, as the price of the shirt went up, the quantity demanded decreased, following the law of demand.