MMG College of General Santos City, INC.

Bachelor of Science in Accountancy Department

Economic Development | Econ700
A.Y. 2023-2024 Second Semester
Prelim Examination
March 2, 2024

Demand and Supply Exam

Test I: Multiple Choice Questions

1. What is the law of demand?

a. As price increases, quantity demanded increases.
b. As price increases, quantity demanded decreases.
c. There is no relationship between price and quantity demanded.
Answer: b
2. The supply curve is:
a. Upward-sloping.
b. Downward-sloping.
c. Horizontal.
Answer: a
3. If there is an increase in both demand and supply for a good, what will happen to the
equilibrium price and quantity?
a. Price increases, quantity decreases.
b. Price decreases, quantity increases.
c. Price and quantity both increase.
Answer: c
4. If the government imposes a price ceiling below the equilibrium price, what is likely to
occur?
a. A surplus.
b. A shortage.
c. No impact on the market.
Answer: b
5. Elasticity of demand measures:
a. How much quantity demanded changes in response to price changes.
b. How much quantity supplied changes in response to price changes.
c. How much income changes in response to price changes.
Answer: a
6. What causes a movement along the demand curve?
a. Changes in income.
b. Changes in the price of related goods.
c. Changes in consumer preferences.
Answer: b
7. A technological advancement that reduces production costs will likely result in:
a. An increase in supply.
b. A decrease in supply.
c. No change in supply.
Answer: a
8. If the price of a substitute good increases, what is likely to happen to the demand for
the original good?
 a. Increase.
b. Decrease.
c. Remain unchanged.
Answer: a
Test II: True/False Questions

1. An increase in the price of complementary goods will increase the quantity

demanded.
Answer: False
2. A surplus occurs when the quantity supplied exceeds the quantity demanded.
Answer: True
3. Equilibrium is achieved when demand equals supply in the market.
Answer: True
4. Elasticity measures how responsive quantity demanded or supplied is to a change in
price.
Answer: True
5. If the demand for a good is elastic, a price increase will lead to a proportionally
smaller decrease in quantity demanded.
Answer: True
6. An increase in production costs will shift the supply curve to the left.
Answer: True
7. A price ceiling set above the equilibrium price will create a surplus.
Answer: False
8. A Giffen good violates the law of demand.
Answer: True
9. A subsidy to producers can increase the supply of a good.
Answer: True
10. If the cross-price elasticity of two goods is negative, they are substitutes.
Answer: True
11. An inelastic demand implies that consumers are very responsive to changes in price.
Answer: False
12. A perfectly elastic supply curve is vertical.
Answer: True