Microeconomics Quiz: Demand
20 questions · exam conditions
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DemandQuestion 1 of 20

The estimated demand function for product X is Qdx=1,500−3Px+0.05I−2.5Py+4PzQ_{dx} = 1,500 - 3P_x + 0.05I - 2.5P_y + 4P_z, where PxP_x is the price of X, II is consumer income, PyP_y is the price of good Y, and PzP_z is the price of good Z. Based on this function, which of the following statements is correct?

Good X is an inferior good, and goods X and Y are substitutes.
Good X is a normal good, and goods X and Z are complements.
Good Y is a complement to good X, and good Z is a substitute for good X.
Good Y is a substitute for good X, and good Z is a complement to good X.
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Microeconomics Quiz

Microeconomics Quiz: Demand

Practice Demand in Microeconomics with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Demand, giving you a quick way to practice the rules, question types, and explanations that matter most for Microeconomics.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

The estimated demand function for product X is Qdx=1,500−3Px+0.05I−2.5Py+4PzQ_{dx} = 1,500 - 3P_x + 0.05I - 2.5P_y + 4P_z, where PxP_x is the price of X, II is consumer income, PyP_y is the price of good Y, and PzP_z is the price of good Z. Based on this function, which of the following statements is correct?

  1. Good X is an inferior good, and goods X and Y are substitutes.
  2. Good X is a normal good, and goods X and Z are complements.
  3. Good Y is a complement to good X, and good Z is a substitute for good X. (correct answer)
  4. Good Y is a substitute for good X, and good Z is a complement to good X.
Explanation: We analyze the signs of the coefficients. The coefficient on income (I) is +0.05, which is positive, indicating that as income increases, the quantity demanded of X increases. Therefore, X is a normal good. The coefficient on the price of good Y (PyP_y) is -2.5, which is negative. This means that as the price of Y increases, the quantity demanded of X decreases. This relationship defines complementary goods. The coefficient on the price of good Z (PzP_z) is +4, which is positive. This means that as the price of Z increases, the quantity demanded of X increases. This relationship defines substitute goods. Therefore, Y is a complement and Z is a substitute.

Question 2

The price of wheat, a key input in the production of bread, falls significantly. At the same time, a popular new diet that discourages carbohydrate consumption becomes a national trend. What are the combined effects on the market demand for bread?

  1. The demand for bread will decrease due to the new diet trend. (correct answer)
  2. The demand for bread will increase due to the lower input price.
  3. The demand for bread will decrease, and the supply will also decrease.
  4. The effect on the demand for bread is ambiguous.
Explanation: This question requires distinguishing between factors that shift demand and factors that shift supply. The change in the price of wheat, an input, affects the supply of bread (it would shift supply to the right), not the demand. The new diet trend directly affects consumers' tastes and preferences, which is a primary determinant of demand. Since the diet discourages bread consumption, it will cause a decrease in the demand for bread, shifting the demand curve to the left. The change in wheat price is irrelevant to the demand curve itself.

Question 3

A grocery store manager observes that when the price of peanut butter is lowered, the total sales of jelly increase, and the total sales of almond butter decrease. This suggests that in this market:

  1. jelly is a substitute for peanut butter, and almond butter is a complement.
  2. jelly is a complement to peanut butter, and almond butter is a substitute. (correct answer)
  3. peanut butter is an inferior good, and jelly is a normal good.
  4. both jelly and almond butter are complements to peanut butter.
Explanation: Cross-price effects determine whether goods are substitutes or complements. When the price of peanut butter falls, quantity demanded for it rises. If jelly sales increase as a result, it means people are consuming more peanut butter and jelly together; they are complements. If almond butter sales decrease when the price of peanut butter falls, it means consumers are switching from almond butter to the now-cheaper peanut butter; they are substitutes. Therefore, jelly is a complement and almond butter is a substitute.

Question 4

For a particular social media platform, its value to an individual user increases significantly as the total number of users on the platform grows. If a large number of new users are expected to join the platform next month, how will this expectation affect the demand curve for access to the platform today?

  1. It will cause a movement down along today's demand curve, increasing quantity demanded.
  2. It will shift today's demand curve to the right, as the anticipated future value is capitalized into current demand. (correct answer)
  3. It will have no effect on today's demand curve, as the new users have not yet joined.
  4. It will shift today's demand curve to the left, as potential users wait for the network to grow before joining.
Explanation: This scenario describes a network effect, where the value of a product depends on the number of users. The expectation of future growth increases the platform's anticipated value. Rational consumers will factor this expected increase in value into their decision to join today. This increased willingness to pay at every quantity level shifts the entire demand curve to the right. This is a form of the 'expectations' determinant of demand.

Question 5

A firm notices that when they reduce the price of their premium coffee from $6 to $5, sales increase from 100 to 140 cups per day. Simultaneously, sales of their regular coffee (priced at $3) decrease from 200 to 180 cups per day. What is the cross-price elasticity of demand between regular coffee and premium coffee?

  1. -0.6
  2. -1.2
  3. +0.6 (correct answer)
  4. +1.2
Explanation: Cross-price elasticity = (% change in quantity of regular coffee) / (% change in price of premium coffee). Regular coffee quantity changes from 200 to 180, a decrease of 10%. Premium coffee price changes from $6 to $5, a decrease of 16.67%. Cross-price elasticity = (-10%) / (-16.67%) = +0.6. The positive sign indicates these are substitute goods. Choice A has the wrong sign. Choice B incorrectly calculates the percentage changes. Choice D uses an incorrect denominator calculation.

Question 6

A consumer allocates their budget between two goods: books and movies. When the price of books increases by 15%, the consumer's expenditure on books increases by 8%, while their expenditure on movies decreases by 12%. What can be concluded about the consumer's demand behavior?

  1. Books have inelastic demand with elasticity -0.53, and books and movies are complements
  2. Books have inelastic demand with elasticity -0.47, and books and movies are substitutes (correct answer)
  3. Books have elastic demand with elasticity -1.87, and books and movies are complements
  4. Books have elastic demand with elasticity -2.13, and books and movies are substitutes
Explanation: When expenditure on books increases by 8% despite a 15% price increase, quantity must have decreased. Using expenditure = price × quantity: if expenditure rose 8% and price rose 15%, then quantity fell by approximately 6.1% [(1.08/1.15) - 1 = -0.061]. Price elasticity = -6.1%/15% ≈ -0.47, which is inelastic. The decrease in movie expenditure when book prices rise suggests substitution between the goods. Choice A uses incorrect elasticity calculation. Choices C and D incorrectly conclude demand is elastic.

Question 7

A consumer's demand for luxury watches is described by the function Q=I1.5P0.8Q = \frac{I^{1.5}}{P^{0.8}} where I is income and P is price. If the consumer's income increases by 20% while price remains constant, what type of good is this and what is the income elasticity of demand?

  1. Normal good with income elasticity of 1.2, indicating moderate luxury responsiveness
  2. Normal good with income elasticity of 0.8, indicating it is a necessity
  3. Inferior good with income elasticity of -1.5, indicating consumption falls with income
  4. Normal good with income elasticity of 1.5, indicating it is a luxury good (correct answer)
Explanation: When you encounter a demand function with income and price variables, you're being tested on income elasticity of demand—a measure of how responsive quantity demanded is to changes in income. The key is to identify the exponent on income (I) in the demand function. In the given function Q=I1.5P0.8Q = \frac{I^{1.5}}{P^{0.8}}, the exponent on income is 1.5, which directly gives you the income elasticity of demand. When income increases by any percentage, quantity demanded will increase by 1.5 times that percentage. Since the elasticity is positive, this confirms it's a normal good (demand increases with income). Moreover, since the elasticity exceeds 1.0, it's specifically a luxury good—consumers will disproportionately increase their consumption as their income rises. Choice A incorrectly states the income elasticity as 1.2, possibly confusing the 20% income increase with the elasticity coefficient. Choice B uses 0.8, which is actually the price elasticity (the exponent on P), not the income elasticity—this represents a common trap of mixing up the exponents. Choice C incorrectly identifies this as an inferior good with negative elasticity; inferior goods would have negative exponents on income, but here the exponent is clearly positive. Remember this pattern: in multiplicative demand functions like this one, the exponent on income IS the income elasticity of demand. Positive values indicate normal goods, with values above 1.0 representing luxuries and values below 1.0 representing necessities.

Question 8

A consumer's demand for good X increases by 20% when their income rises from $40,000 to $50,000, while the price of good X remains constant at $10 per unit. If the consumer's demand function can be approximated as linear in income over this range, what is the income elasticity of demand for good X?

  1. 0.8 (correct answer)
  2. 1.0
  3. 1.25
  4. 2.0
Explanation: Income elasticity of demand = (% change in quantity demanded) / (% change in income). The quantity demanded increases by 20%, and income increases from $40,000 to 50,000,whichisa2550,000, which is a 25% increase [(50,000 - 40,000)/40,000)/40,000 = 0.25]. Therefore, income elasticity = 20%/25% = 0.8. Choice B incorrectly uses 20% as both numerator and denominator. Choice C incorrectly inverts the calculation (25%/20%). Choice D incorrectly calculates the income change as 50% instead of 25%.

Question 9

An economist observes that when gasoline prices rose 25% last year, a consumer's gasoline purchases fell 15%, while their public transit usage increased 40%. The consumer's income remained constant. What is the cross-price elasticity of demand between gasoline and public transit?

  1. -0.625, indicating these are complementary goods with moderate responsiveness
  2. +0.625, indicating these are substitute goods with moderate responsiveness
  3. -1.6, indicating these are complementary goods with strong responsiveness
  4. +1.6, indicating these are substitute goods with strong responsiveness (correct answer)
Explanation: Cross-price elasticity of demand measures how responsive the quantity demanded of one good is to a change in the price of another good. When you see a question involving two related products and a price change in one affecting demand for the other, you're dealing with this concept. To calculate cross-price elasticity, use the formula: % change in quantity demanded of good X% change in price of good Y\frac{\% \text{ change in quantity demanded of good X}}{\% \text{ change in price of good Y}} Here, gasoline price rose 25% and public transit usage increased 40%, so: +40%+25%=+1.6\frac{+40\%}{+25\%} = +1.6 The positive sign tells you these are substitute goods—when gasoline becomes more expensive, people switch to public transit. The magnitude of 1.6 indicates strong responsiveness since it's greater than 1. Option A is wrong because it uses -0.625, which would indicate complementary goods (negative sign) and incorrectly suggests people use less public transit when gas prices rise. Option B has the wrong magnitude—it appears someone incorrectly used gasoline's quantity change (-15%) in the numerator instead of public transit's change (+40%). Option C uses -1.6, which has the correct magnitude but wrong sign, again incorrectly suggesting these are complements rather than substitutes. Remember: positive cross-price elasticity means substitutes (price of one up, demand for other up), while negative means complements. Values greater than 1 in absolute terms indicate strong responsiveness, while values less than 1 indicate weak responsiveness.

Question 10

A monopolist faces the demand function P=24−2QP = 24 - 2Q and currently charges $16. If they want to increase total revenue, and they know that demand follows the law of demand, what pricing strategy should they pursue and why?

  1. Increase price because demand is inelastic in the current price range, so higher prices increase revenue
  2. Decrease price because demand is elastic in the current price range, so lower prices increase revenue (correct answer)
  3. Maintain current price because they are already at the revenue-maximizing point where elasticity equals -1
  4. Decrease price because they are currently above the midpoint of demand where marginal revenue is negative
Explanation: At P = $16: Q = (24-16)/2 = 4. Current revenue = $64. The midpoint of the linear demand curve occurs at P = $12, Q = 6, where elasticity = -1. Since the firm is currently charging above the midpoint price, demand is elastic (|E| > 1). With elastic demand, reducing price increases total revenue. Choice A incorrectly identifies demand as inelastic. Choice C incorrectly states they're at the revenue maximum. Choice D correctly suggests decreasing price but gives an incorrect reason about marginal revenue.

Question 11

Economists observe that during economic recessions, when average household income falls, the demand for instant noodles increases, while the demand for restaurant meals decreases. This observation implies that:

  1. Instant noodles are a normal good and restaurant meals are an inferior good.
  2. Instant noodles are an inferior good and restaurant meals are a normal good. (correct answer)
  3. Both instant noodles and restaurant meals are normal goods, but with different income elasticities.
  4. Instant noodles and restaurant meals are substitute goods for all consumers.
Explanation: An inferior good is a good for which demand increases as consumer income decreases. A normal good is a good for which demand decreases as consumer income decreases. The stem states that when income falls, demand for instant noodles increases, making them an inferior good. Conversely, demand for restaurant meals decreases as income falls, making them a normal good. While they are substitutes, this is not the primary implication related to the income change.

Question 12

A severe potato famine in a poor country leads to a sharp increase in the price of potatoes, which are the main source of calories for the population. An economist observes that despite the price increase, the consumption of potatoes by low-income households has actually risen. This paradoxical situation suggests that for these households, potatoes are:

  1. A Veblen good.
  2. A Giffen good. (correct answer)
  3. A normal good with inelastic demand.
  4. A perfect substitute for other foods.
Explanation: This scenario describes a Giffen good, which is a rare type of inferior good that violates the law of demand. When the price of a Giffen good rises, the quantity demanded also rises. This occurs because the good is a dietary staple for a very poor population. The price increase has a large negative income effect, making consumers so much poorer that they cut back on more expensive 'luxury' foods (like meat) and buy more of the staple good (potatoes) to get enough calories to survive. The strong income effect outweighs the substitution effect.

Question 13

A new government policy provides a significant per-unit subsidy to consumers who purchase electric vehicles (EVs). Assuming that home charging stations are a strong complement to EVs, what is the most likely initial effect of the subsidy on the demand for home charging stations?

  1. The demand curve for home charging stations will shift to the right. (correct answer)
  2. The demand curve for home charging stations will shift to the left.
  3. There will be a movement down along the demand curve for home charging stations.
  4. There will be no change in the demand for home charging stations, only for EVs.
Explanation: The subsidy effectively lowers the price that consumers pay for EVs. According to the law of demand, a lower price for EVs will lead to an increase in the quantity of EVs demanded. Since home charging stations are a complement to EVs, an increase in the consumption of EVs will lead to an increase in the demand for the complementary good. This is represented by a rightward shift of the demand curve for home charging stations.

Question 14

A technological innovation significantly lowers the production cost of smartphones, leading to a fall in their market price. Which of the following statements best describes the resulting change in consumer surplus in the smartphone market?

  1. Consumer surplus will decrease because the willingness to pay for smartphones will fall.
  2. Consumer surplus is unchanged, but producer surplus increases.
  3. Consumer surplus will increase due to a lower price for existing buyers and the entry of new buyers. (correct answer)
  4. The effect on consumer surplus is ambiguous without knowing the elasticity of demand.
Explanation: Consumer surplus is the area between the demand curve and the price line. When the market price falls, this area increases for two reasons. First, existing consumers who would have bought the product at the higher price now get more surplus on each unit because they pay less. Second, the lower price induces new consumers (who were not willing to buy at the old, higher price) to enter the market, and they receive some consumer surplus on their purchases. Both effects lead to an unambiguous increase in total consumer surplus.

Question 15

As the baby boomer generation ages, there is a significant increase in the proportion of the population over 65 years old. Holding all else constant, this demographic shift will most likely lead to which of the following changes in market demand?

  1. An increase in demand for both cruise vacations and nightclub admissions.
  2. A decrease in demand for prescription medications and an increase in demand for skateboards.
  3. A decrease in demand for both financial planning services and hearing aids.
  4. An increase in demand for home healthcare services and a decrease in demand for university textbooks. (correct answer)
Explanation: When analyzing how demographic shifts affect market demand, you need to think about the specific needs, preferences, and spending patterns of different age groups. As baby boomers age into their 65+ years, their consumption patterns will shift toward goods and services that align with this life stage. The correct answer is D because aging populations create predictable demand changes. Older adults increasingly need home healthcare services due to mobility limitations and chronic health conditions that make aging in place preferable to institutional care. Simultaneously, demand for university textbooks decreases as fewer people in this age group pursue higher education compared to younger demographics. Looking at the wrong answers: A is incorrect because while cruise vacations might appeal to retirees with time and disposable income, nightclub admissions typically target much younger consumers - these markets move in opposite directions with an aging population. B gets the relationship backwards - older adults actually increase demand for prescription medications due to age-related health issues, while skateboard demand would decrease as fewer people participate in youth-oriented activities. C is wrong because both financial planning services and hearing aids see increased demand from older populations - retirees need help managing fixed incomes and retirement funds, while age-related hearing loss drives medical device demand. Remember that demographic questions test your understanding of life-cycle consumption patterns. Think about what each age group typically buys more or less of, and avoid answers that mix contradictory trends for the same demographic shift.

Question 16

A city imposes a strict lockdown for public health reasons, requiring most citizens to stay at home. Which of the following pairs of goods will most likely experience a rightward shift in demand for the first good and a leftward shift in demand for the second good?

  1. Gasoline for cars; home internet services
  2. Movie theater tickets; streaming service subscriptions
  3. Restaurant meals; frozen pizzas
  4. Home exercise equipment; commercial gym memberships (correct answer)
Explanation: When analyzing how external shocks affect demand, you need to think about which goods become more or less valuable to consumers given their changed circumstances. A lockdown fundamentally alters where and how people spend their time, making location-based consumption patterns shift dramatically. During a lockdown requiring people to stay home, demand shifts toward goods that provide value at home and away from goods that require leaving home. Home exercise equipment becomes much more valuable when people can't access gyms, restaurants, or outdoor activities, causing a rightward demand shift. Simultaneously, commercial gym memberships lose nearly all their utility since people cannot access the facilities, creating a leftward demand shift. Let's examine why the other options don't work as well. Option A incorrectly suggests gasoline demand would increase - but with people staying home, car travel drops significantly, reducing gasoline demand. Option B has the shifts reversed - movie theater demand would fall (leftward shift) while streaming service demand would rise (rightward shift). Option C also reverses the expected shifts - restaurant meal demand would decrease while frozen pizza demand would increase as people cook more at home. The key pattern here is identifying complementary relationships with the constraint (staying home). Goods that complement home-based activities will see increased demand, while goods requiring mobility or public spaces will see decreased demand. Watch for questions that change fundamental constraints on consumer behavior - these often create the clearest demand shift patterns.

Question 17

A luxury brand of handbag dramatically increases its price. The company observes that for its wealthiest clientele, the quantity demanded does not fall, but actually increases slightly. This behavior is most consistent with the concept of:

  1. A Giffen good, where the income effect outweighs the substitution effect.
  2. Perfectly inelastic demand, where quantity demanded is unresponsive to price changes.
  3. An inferior good, where demand falls as income rises.
  4. A Veblen good, where demand is driven by conspicuous consumption and status. (correct answer)
Explanation: This question tests your understanding of unusual demand patterns that violate the typical law of demand. When you encounter scenarios where higher prices lead to increased demand, you need to identify which economic concept explains this counterintuitive behavior. The correct answer is D because Veblen goods are luxury items where higher prices actually increase demand among wealthy consumers. These goods derive value from their exclusivity and ability to signal status. When the handbag's price increases, it becomes more desirable to wealthy clientele precisely because it's more expensive and exclusive. The higher price enhances the product's status symbol value, making it more attractive for conspicuous consumption. A is incorrect because Giffen goods involve necessities where consumers buy more when prices rise due to income constraints forcing substitution away from other goods. This applies to basic necessities, not luxury handbags for wealthy consumers. B is wrong because perfectly inelastic demand means quantity stays exactly the same regardless of price changes. Here, quantity demanded actually increases with the price rise, indicating responsiveness to price. C is incorrect because inferior goods see decreased demand when consumer income rises. The scenario describes wealthy consumers increasing their purchases, which is the opposite pattern of an inferior good. Study tip: Remember that Veblen goods are luxury items where the high price itself creates value through exclusivity and status signaling. This is distinct from Giffen goods (poor-quality necessities) and applies specifically to conspicuous consumption among wealthy consumers.

Question 18

The market demand for artisanal coffee is affected by two recent events: a widely-reported medical study suggesting that daily coffee consumption significantly improves long-term health, and a simultaneous increase in the price of premium tea, a popular alternative. What is the expected net effect on the demand curve for artisanal coffee?

  1. The demand curve will shift to the right, but the magnitude of the shift is ambiguous. (correct answer)
  2. The demand curve will shift to the left due to the conflicting effects on consumer choice.
  3. The overall effect is ambiguous, as one event causes a rightward shift and the other a leftward shift.
  4. The demand curve will not shift, but there will be a movement up along the curve to a higher price.
Explanation: Both events cause the demand for artisanal coffee to increase. The positive health report increases consumer tastes and preferences for coffee, shifting the demand curve to the right. An increase in the price of a substitute good (premium tea) causes consumers to switch to coffee, also shifting the demand curve for coffee to the right. Since both effects push demand in the same direction, the net effect is a definitive shift to the right. The exact magnitude, however, would depend on the relative strength of these two effects, which is not specified.

Question 19

The demand for lumber is a derived demand. A sharp increase in mortgage interest rates makes it more expensive for individuals to finance home purchases. What is the likely immediate consequence for the demand curve for lumber?

  1. It will shift to the right, as construction firms expect higher future housing prices.
  2. It will not be affected, as interest rates are a financial variable, not a determinant of demand for goods.
  3. It will shift to the left, as the demand for new home construction decreases. (correct answer)
  4. There will be a movement down along the curve, as lumber becomes relatively cheaper.
Explanation: Derived demand means that the demand for a good or factor of production (lumber) depends on the demand for another good or service (new homes). Higher mortgage rates increase the cost of buying a new home, which will decrease the demand for new homes. Since lumber is a key input in home construction, the decrease in demand for new homes will lead to a decrease in the demand for lumber. This is represented by a leftward shift of the demand curve for lumber.

Question 20

A market's demand curve is given by the equation Qd=200−5PQ_d = 200 - 5P. If the price falls from $30 to $20, the resulting increase in the quantity demanded is attributable to:

  1. the substitution effect only.
  2. the income effect only.
  3. both the substitution effect and the income effect. (correct answer)
  4. an outward shift in the demand curve.
Explanation: A change in the price of a good always triggers both an income effect and a substitution effect (unless one is zero, which is rare). The substitution effect is the change in consumption due to the good becoming relatively cheaper than other goods. The income effect is the change in consumption due to the change in the consumer's real purchasing power. For a normal good, both effects work in the same direction for a price decrease, leading to an increase in quantity demanded. The movement along the demand curve from P=30(Q=50)toP=30 (Q=50) to P=20 (Q=100) is the total effect, which is the sum of these two underlying effects. An outward shift would be a change in demand, not quantity demanded.