Economics: Supply & Demand — Answer Key
Part A: Multiple Choice
Circle the best answer for each question.
1. A farmer grows extra tomatoes this summer. What will most likely happen to the price of tomatoes?
A) The price will go up because tomatoes are popular
B) The price will stay the same no matter what
C) The price will go down because supply is high
D) The price will go up because farming is expensive
Higher supply with the same demand → prices fall. More tomatoes available means sellers must lower prices to sell them.
2. A new video game is released and every kid in town wants it, but the store only has ten copies. What is this an example of?
A) Surplus
B) Shortage
C) Equilibrium
D) Competition
Demand > supply = shortage. Not enough supply to meet the high demand.
3. Why does competition between businesses usually help consumers?
A) It forces all businesses to close
B) It makes all products exactly the same
C) It usually leads to lower prices and better products
D) It removes all choices from the market
Competition incentivizes businesses to lower prices, improve quality, and innovate — all benefits for consumers.
4. A lemonade stand sells cups for one dollar and sells out every day. What should the owner consider doing?
A) Close the stand because it is too popular
B) Keep the same price and make fewer cups
C) Raise the price since demand is high
D) Give away the lemonade for free
Selling out suggests demand > supply. Raising the price finds the equilibrium, maximizing profit.
Part B: Fill in the Blank
Write the correct answer on each line.
1. When supply goes up and demand stays the same, prices usually fall.
More supply with the same demand creates competition among sellers → prices decrease.
2. A market has reached equilibrium when supply and demand are balanced.
Market equilibrium is the point where quantity supplied = quantity demanded and the price is stable.
3. High demand and low supply create a shortage in the market.
Shortage = demand > supply. Products are scarce, prices rise, and buyers may not find the item.
4. Businesses compete for customers by offering better products or lower prices.
Competition motivates businesses to attract customers by improving value — lower prices or better quality.
5. When supply is greater than demand, the result is called a surplus.
Surplus = supply > demand. Too many goods are available → sellers lower prices to clear inventory.