1.

When a market is in equilibrium:

 no shortages exist.
 quantity demanded equals quantity supplied.
 a price is established that clears the market.
 no surpluses exist.
 All the above.

2. All of the following are determinants of the level of demand except:

 the costs of producing the good.
 tastes and preferences of consumers.
 consumers' income.
 the price of substitute and complementary goods.

3. If goods J and K are substitutes, an increase in the price of J causes:

 quantity demanded of J to fall and the demand curve for K to shift toward the origin.
 a decrease in quantity demanded for J and an outward shift of K's demand curve.
 quantity demanded of J remains constant, but the demand for K decreases.
 the demand curve for both J and K shift.

4. Two goods are complements if:

 a decrease in the price of one causes more of the other to be consumed.
 they are consumed together.
 an increase in the price of one causes less of the other to be consumed.
 when the quantity demanded of one increases, the demand curve of the other shifts
toward the origin.
 All the above.

5. All the following will cause the demand curve to shift to the left except:
 a reduction in income if the good is normal.
 an increase in the price of a complementary good.
 an increase in the price of a substitute good.
 an increase in income if the good is inferior.
 consumer tastes change, so they no longer want the good.

6. At a quantity of 120 units, the highest price consumers are willing to pay is:
 £0.20 per unit.
 £0.40 per unit.
 £0.30 per unit.
 £0.5 per unit.

7. In Figure 3.3, excess demand is represented by the distance:

 AB
 FG
 FA
 BG

8. What happens if tougher safety legislation makes it more expensive to make chocolate
bars in mechanized factories?
 The supply curve shifts left.
 The equilibrium price rises.
 The supply of chocolate is reduced.
 All the above.

9. During an economic expansion, the consumption of inferior goods decline.

 True
 False

10. QD=10-P+2I. The good is then a normal good.

 True
 False

11. Suppose the price of petrol for cars increases. Then:

 the price of cars decreases.
 the supply of cars shifts downward.
 the demand of cars shifts upward.
 the equilibrium in market for cars does not change.

12. A price increase for one good:

 raises the demand of for complements to the good
 raises the demand for substitutes for this good.
 reduces the demand for complements to the good.
 Both B and C.
13. Suppose the demand curve is QD=10-2P and the supply curve is QS=3P. Then:
 the consumers' surplus is equal to 6.
 the producers' surplus is equal to 9.
 both the consumers' and the producers' surplus are equal to 15.
 None of the above.

14. Suppose the demand function is QD=10-P+2I. Then:

 a 10% increase in P implies a 10% increase in Q.
 if income increases, at any given price, demand increases.
 the demand function refers to a normal good.
 Both B and C.

15. Which of the following is not an example of price control?

 A minimum hourly wage rate
 Rent ceiling
 Minimum price on imports
 Price ceiling above market equilibrium

16. Suppose the demand function is QD=100-P and the supply function is QS=P. Then, in
equilibrium:
 the consumers' surplus is zero.
 the producers' surplus is greater than the consumers' surplus.
 the consumers' surplus is equal to 50.
 the consumers' surplus is equal to the producers' surplus.

17. The consumer's reservation price is:

 the maximum price consumers are willing to pay for a given amount of x.
 the minimum price producers are willing to accept for a given amount of x.
 the consumers' surplus.
 Both A and C.

18. Consider two goods, x and y, that are substitutes. Let px and py be their prices. Which of
the following demand functions for good x is correct?
 QD=a-bpx+cpy
 QD=a-bpx-cpy
 QD=a+bpx+cpy
 QD=a-bpx-cpy

19. Which of the following is an example of linear demand curve?

 QD=10-P
 QD=10+2P
 QD=5-P2
 QD=QS

20. Which of the following statements is false?

 When there is excess demand, price will increase.
 In equilibrium, excess supply is equal to excess demand.
 In equilibrium, excess demand is zero.
 Excess supply means that the quantity supplied is greater than the quantity demanded,
at any price.

21. Given that bread and toasters are complements, what happens to the demand curve for
toasters if the price of bread rises? Show the new demand curve on the graph.

22. Given the following market demand: Qd = 120 -2p , find the consumer surplus when P =
£20. Also, show the consumer surplus on the graph provided below. What is the
consumer surplus when P = £15?

23. Suppose the demand and supply for the market of per kg wheat is given by the following
equations: (quantities are in thousands)

QD = 30 – 4P
QS = –6 + 8P

a) What is the market equilibrium price of wheat per kg and market equilibrium quantitiy
of wheat per kg. show in a diagram.

b) If the government enforces a price floor of Rs 3.25, will there be a surplus or a

shortage? How many units will actually be traded in the market?

c) How would the welfare change due to such a policy? (find the gain/loss in consumer
and producer surplus and the deadweight loss)

d) If the government wishes to increase the market equilibrium price to Rs 3.25, what
would be the new supply curve?