Professional Documents
Culture Documents
Exercises 32
Exercises 32
1. A buyer has purchased three units of good X. The marginal benefit of the fourth unit
of X exceeds the marginal cost of the fourth unit of good X. Which of the following
reasons explains why the buyer should purchase the fourth unit?
I.The marginal net benefit of the fourth unit is positive.
II. Buying the fourth unit will increase total benefits by more than total costs.
III. Buying the fourth unit will increase total benefits and decrease total costs.
a) I only
b) I and II only
c) II only
d) I, II, III
The following TWO questions refer to an individual’s demand curve diagram, illustrated
below.
3. If the price of this good is $1 per unit, what will be the quantity demanded?
a) 5.
b) 10.
c) 15.
d) 20.
4. What are the TOTAL benefits to this individual if she consumes 10 units of the good?
a) $5.
b) $10.
c) $20.
d) $30.
The following FOUR questions refer to the diagram below, which illustrates a
consumer’s demand curve for a good.
3. Which of the following will result in a DECREASE in demand (i.e., a leftward shift of
the demand curve)?
a) An increase in income, if the good is normal.
b) A decrease in the price of a complement to the good.
c) An increase in the price of a substitute for the good.
d) None of the above.
4. Suppose that my daily marginal benefit from drinking coffee increases by $2 per cup.
Which of the following represents the effect of this on my coffee demand curve?
11. The diagram below illustrates 3 possible demand curves for coconuts.
Suppose that coconuts and pineapples are substitutes. If the price of pineapples
increases, which of the following movements will represent the effect of this in the
market for coconuts?
a) A to C.
b) A to B.
c) B to A.
d) B to E.
12. If the price of this good is $20, what will be the quantity demanded?
a) 10.
b) 20.
c) 30.
d) 40.
13. If the price of this good is $60, what will consumer surplus equal?
a) $50.
b) $100.
c) $150.
d) $200.
14. The following question refers to the diagram below, which illustrates an individual’s
demand curve for a good.
If the price of this good falls from P1 to P2, then consumer surplus will _____ by areas
_____.
a) increase; B+D.
b) decrease; B+D.
c) increase; A+B+D.
d) decrease; A.
16. Which of the following CANNOT result in a shift of the demand curve for a good?
a) A change in consumers’ incomes.
b) A change in the price of the good.
c) A change in the price of a complement to the good.
d) All of the above will shift the demand curve.
17. Suppose the price of good X increases. If X and Y are substitutes, then, in the market
for good Y, we would expect:
a) An increase in both the equilibrium price and quantity.
b) A decrease in the equilibrium price and an increase in the equilibrium quantity.
c) An increase in the equilibrium price and a decrease in the equilibrium quantity.
d) A decrease in both the equilibrium price and quantity.
18. If coffee and milk are complements, then which of the following will occur if the
price of coffee increases?
a) The quantity of coffee demanded will increase.
b) The quantity of coffee supplied will decrease.
c) The demand for milk will increase.
d) The demand for milk will decrease.
20. The diagram below illustrates 3 possible demand curves for coconuts.
Suppose that (i) coconuts are an inferior good and (ii) consumer incomes decrease.
Which of the following movements could represent the effect of this in the market for
coconuts?
a) A to C.
b) B to A.
c) C to A.
d) B to E.
Exercises 3.4
The following TWO questions refer to the supply curve diagram below.
3. If quantity supplied increases from 10 to 20 units, the producer’s total costs will
increase by:
a) $20.
b) $30.
c) $40.
d) $80.
The following TWO questions refer to the diagram below, which illustrates a supply
curve.
6. In order for quantity supplied to equal 6 units, the price per unit must be:
a) $1.
b) $2.
c) $3.
d) $4.
7. If the price of this good is $4 per unit, then what does producer surplus equal?
a) $32.
b) $24.
c) $16.
d) $12.
8. The diagram below illustrates a supply curve.
If the price of this good is $2 per unit, then what will be the quantity supplied?
a) 0.
b) 1.
c) 2.
d) 3.
9. Sarah is selling her used truck. The minimum amount she needs to be paid for the
truck is $5,000. She advertises the truck on usedvictoria.com for $8,000, and eventually
sells the truck for $6,000. Her producer surplus is equal to _____.
a) $1,000.
b) $2,000.
c) $3,000.
d) $6,000.
Exercises 3.5
1. Which of the following will NOT shift the market supply curve of good X?
a) A change in the cost of inputs used to produce good X.
b) A change in the technology used to produce X.
c) A change number of sellers of good X.
d) A change in the price of good X.
8. Martin is selling his viola. The minimum amount he needs to be paid for the viola is
$15,500. He find a buyer for who is willing to pay $22,400, but this buyer insists that
Martin pays for delivery of the viola. The cost of delivery is $700. Martin’s producer
surplus from selling his viola is equal to _____.
a) $14,800.
b) $7,600.
c) $6,900.
d) $6,200.
1. Suppose that – at a given level of some economic activity – marginal benefit is greater
than marginal cost. The economic agent in question (the decision-maker) can increase
net benefits by increasing the level of the activity, for which of the following reasons?
a) Total costs will fall by more than total benefits.
b) Total benefits will rise by more than total costs.
c) Neither a) nor b).
d) Either a) or b).
2. Which of the following statements is TRUE?
a) Consumer surplus is the difference between the minimum amount a consumer is
willing to pay, and what he or she actually pays.
b) Producer surplus is the difference between the amount of money a seller is paid, and
the maximum amount that he or she needs to be paid.
c) Market surplus is equal to the sum of consumer surplus and producer surplus.
d) All of the above are true.
The following TWO questions refer to the supply and demand curve diagram below.
5. Which of the following statements about consumer surplus and producer surplus is
TRUE?
a) Consumer surplus is equal to the area under the demand curve.
b) Producer surplus is equal to the area under the supply curve.
c) Both producer and consumer surplus are equal to price multiplied by quantity.
d) None of the above statements is true.
At the equilibrium price in this market, consumer surplus is equal to area ___ and
producer surplus is equal to area ____
a) a + b; c.
b) a; b + c.
c) a + b; b + c.
d) a + b + c; d + f.
9. Which of the following statements about consumer and producer surplus is TRUE?
a) Consumer surplus is equal to the maximum amount a consumer is willing to pay for a
good, minus what the consumer has to pay for the good.
b) Producer surplus is equal to the amount received from selling a good, minus the
minimum amount the seller needed to receive, in order to be willing to sell the good.
c) Both a) and b) are true.
d) Neither a) nor b) are true.
The following TWO questions refer to the supply and demand diagram below.
10. Which of the following COULD explain the shift in supply from S1 to S2.
a) An increase in the cost of producing the good.
b) A decrease in the number of sellers in the market.
c) Both a) and b).
d) Neither a) nor b).
13. Suppose the equilibrium price of good X is $10 and the equilibrium quantity is 60
units. If the price of good X is $4:
a) The quantity demanded will be less than 60 units.
b) The quantity supplied will be more than 60 units.
c) There will be an excess demand for good X.
d) There will be an excess supply of good X.
14. All else equal, a decrease in the marginal cost of producing a good will result in:
a) A lower equilibrium quantity and a higher equilibrium price.
b) A lower equilibrium quantity and a lower equilibrium price.
c) A higher equilibrium quantity and a higher equilibrium price.
d) A higher equilibrium quantity and a lower equilibrium price.
16. If the marginal cost of producing this good rises by $3 at every output level, then the
new equilibrium price will be _____.
a) There is insufficient information to calculate the new equilibrium price
b) $3.
c) $8.
d) $10.
19. Consider the market for oranges. Suppose that both of the following occur
simultaneously: (i) the price of apples (a substitute for oranges) decreases; and (ii)
world-wide droughts reduce the harvest of oranges by 30%. Then, in the market for
oranges we would expect:
a) The equilibrium price of oranges could either increase or decrease, but equilibrium
quantity will definitely decrease.
b) The equilibrium quantity of oranges could either increase or decrease, but equilibrium
price will definitely decrease.
c) The equilibrium price of oranges could either increase or decrease, but equilibrium
quantity will definitely increase.
d) The equilibrium quantity of oranges could either increase or decrease, but equilibrium
price will definitely increase.
20. Suppose that, following a decrease in the supply of good X, we observe that the price
of good Y decreases. If no other curves have shifted, which of the following can we
infer?
a) Good X is an inferior good.
b) Goods X and Y are complements.
c) Goods X and Y are substitutes.
d) None of the above.
21. In recent years there have been a couple of high profile cases of contamination of
baby formula produced in China. As a result, many Chinese parents buy baby formula
that is produced outside China. Which of the following accurately describes the likely
effect of this on baby formula prices?
a) An increase in the price of baby formula produced in China and a decrease in the price
of baby formula produced outside China.
b) A decrease in the price of baby formula produced in China and an increase in the price
of baby formula produced outside China.
c) A decrease in the price of both baby formula produced in China and baby formula
produced outside China.
d) An increase in the price of both baby formula produced in China and baby formula
produced outside China.
23. Suppose that in the market for good X (a normal good), the following occur
simultaneously: (i) consumer incomes increase and (ii) the price of oil (an input to the
production of X) increases. Which of the following statements is TRUE?
a) The equilibrium price of X could either increase or decrease, but equilibrium quantity
will definitely decrease.
b) The equilibrium quantity of X could either increase or decrease, but equilibrium price
will definitely decrease.
c) The equilibrium price of X could either increase or decrease, but equilibrium quantity
will definitely increase.
d) The equilibrium quantity of X could either increase or decrease, but equilibrium price
will definitely increase.
24. Consider the supply and demand diagram below.
If supply decreases from S1 to S2, which area represents the change in PRODUCER
surplus?
a) b + c – f.
b) a + b + c.
c) b – f – e.
d) c + f + g + e.
25. A recent news story reported that OPEC is expected to decrease the supply of oil
next summer. Summer is traditionally a time of increased demand for oil because of the
many families driving and flying to vacation sites. What would be the combined effect
of these two activities on the summer market for gasoline?
a) An increase in the equilibrium price and the quantity.
b) An increase in the equilibrium price and an unpredictable change in the equilibrium
quantity.
c) An unpredictable change in both the equilibrium price and the quantity.
d) An unpredictable change in the equilibrium price and a decrease in the equilibrium
quantity.
29. Which of the following CANNOT result in a decrease in the equilibrium quantity
sold of an inferior good?
a) An increase in the price of a substitute for the good.
b) An increase in consumer incomes.
c) An increase in wages paid to workers who produce the good.
d) An increase in the price of a complement for the good.
31. A recent Health Canada report argued that there is a strong link between the
consumption of steak and heart disease. At the same time, Canadian consumers’ incomes
rose. If steak is a normal good, what are the combined effects in the market for steak?
a) An increase in the equilibrium price and the quantity.
b) An increase in the equilibrium price and an unpredictable change in the equilibrium
quantity.
c) An unpredictable change in both the equilibrium price and the quantity.
d) An unpredictable change in the equilibrium price and a decrease in the equilibrium
quantity.
32. Given the equilibrium quantity of 300 units, which areas represent MARKET
SURPLUS?
a) a+b+c+d.
b) a+b+c.
c) a+c.
d) a+b.
33. Given the equilibrium quantity of 300 units, which areas represent PRODUCER
SURPLUS?
a) c+d.
b) a+b.
c) a+c.
d) b+d.
34. Given the equilibrium quantity of 300 units, which areas represent CONSUMER
SURPLUS?
a) c+d.
b) a+b.
c) a+c.
d) b+d.
Previous: Solutions: Case Study – The Housing Market