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Quiz: Demand and Consumer Behavior

Test your understanding of how consumers make purchasing decisions with these review questions.

1. According to the Law of Demand, what happens when the price of a good increases, all else being equal?

  1. Quantity demanded decreases
  2. Quantity demanded increases
  3. Supply increases
  4. Demand shifts to the right
Show Answer

The correct answer is A. The Law of Demand states that as the price of a good rises, the quantity demanded falls, and vice versa. This inverse relationship occurs because of the substitution effect (buyers seek alternatives), the income effect (purchasing power decreases), and fewer new buyers entering at higher prices.

Concept Tested: Law of Demand

2. Which of the following would cause the demand curve for coffee to shift to the right?

  1. A decrease in the price of coffee
  2. A decrease in the price of tea, a substitute for coffee
  3. A viral social media trend promoting coffee drinking
  4. An increase in the price of coffee mugs
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The correct answer is C. A change in tastes and preferences (one of the TRIBE determinants of demand) shifts the entire demand curve. A viral trend making coffee popular increases demand at every price. Option A would cause movement along the curve, not a shift. A cheaper substitute (B) would decrease coffee demand. More expensive complements (D) would also decrease demand.

Concept Tested: Determinants of Demand

3. What is the term for the additional satisfaction a consumer gets from consuming one more unit of a good?

  1. Total utility
  2. Budget constraint
  3. Marginal utility
  4. Consumer surplus
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The correct answer is C. Marginal utility is the additional satisfaction gained from consuming one more unit. It differs from total utility, which measures all satisfaction accumulated. The concept of diminishing marginal utility explains why each additional unit typically provides less satisfaction than the previous one, which is why demand curves slope downward.

Concept Tested: Marginal Utility

4. When your income increases and you switch from buying store-brand cereal to name-brand cereal, the store-brand cereal is classified as what type of good?

  1. A substitute good
  2. A complementary good
  3. A normal good
  4. An inferior good
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The correct answer is D. An inferior good is one where demand decreases when income increases, because consumers switch to preferred alternatives they can now afford. Store-brand products are classic examples: when people earn more money, they tend to buy name-brand products instead. Normal goods, by contrast, see demand increase when income rises.

Concept Tested: Inferior Goods

5. If the price of peanut butter rises significantly, what would you expect to happen to the demand for jelly?

  1. Demand for jelly increases
  2. Demand for jelly decreases
  3. Demand for jelly stays the same
  4. The supply of jelly increases
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The correct answer is B. Peanut butter and jelly are complementary goods, meaning they are typically consumed together. When the price of one complement rises, demand for the other decreases. Fewer people buying peanut butter means fewer people need jelly. This contrasts with substitute goods, where a price increase in one leads to greater demand for the other.

Concept Tested: Complementary Goods

6. A product has a price elasticity of demand of -0.3. This means demand for this product is considered what?

  1. Elastic
  2. Unit elastic
  3. Perfectly elastic
  4. Inelastic
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The correct answer is D. When the absolute value of price elasticity of demand is less than 1, demand is inelastic. A PED of -0.3 means a 10% price increase causes only a 3% decrease in quantity demanded. Consumers are not very responsive to price changes. Necessities, addictive goods, and products with few substitutes tend to have inelastic demand.

Concept Tested: Inelastic Demand

7. Which factor does the "R" in the TRIBE memory trick for demand determinants represent?

  1. Revenue changes
  2. Related goods
  3. Regulation
  4. Rational behavior
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The correct answer is B. TRIBE stands for Tastes and preferences, Related goods (substitutes and complements), Income, Buyer expectations, and Extra buyers (number of consumers). Related goods include both substitutes (products that can replace each other) and complements (products used together). Changes in prices of related goods shift the demand curve.

Concept Tested: Determinants of Demand

8. A company raises its prices by 10% and its total revenue decreases. What can you conclude about the elasticity of demand for this product?

  1. Demand is elastic
  2. Demand is inelastic
  3. Demand is unit elastic
  4. Elasticity cannot be determined from this information
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The correct answer is A. When demand is elastic (PED > 1), a price increase leads to a proportionally larger decrease in quantity demanded, causing total revenue to fall. The company lost more in sales volume than it gained in per-unit price. This is why businesses selling products with many substitutes must be careful about raising prices.

Concept Tested: Elastic Demand

9. A budget constraint shows all the combinations of goods a consumer can afford. What causes the budget constraint line to pivot inward on one axis?

  1. An increase in the consumer's income
  2. A decrease in the price of the good on that axis
  3. An increase in the price of the good on that axis
  4. A change in the consumer's preferences
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The correct answer is C. When the price of a good increases, the consumer can buy fewer units of it with the same budget, causing the budget line to pivot inward on that axis. An income increase would shift the entire line outward. A price decrease would pivot the line outward. Preferences affect which point on the line a consumer chooses, not the line itself.

Concept Tested: Budget Constraint

10. Why does the principle of diminishing marginal utility help explain the downward slope of the demand curve?

  1. Producers are willing to sell more at lower prices
  2. Consumers always prefer cheaper goods regardless of quality
  3. Each additional unit provides less satisfaction, so consumers will only buy more at lower prices
  4. Government regulations force prices down as quantity increases
Show Answer

The correct answer is C. Diminishing marginal utility means each additional unit of a good provides less satisfaction than the one before. Since the marginal benefit of each unit decreases, consumers are only willing to pay lower prices for additional units. This creates the inverse relationship between price and quantity demanded that the downward-sloping demand curve represents.

Concept Tested: Diminishing Marginal Utility