Exercises 1

1. Which of the following statements about demand curves is TRUE?

a) If price falls and quantity demanded increases, this is represented by a movement along a
given demand curve.
b) If price falls and quantity demanded increases, this is represented by a shift of the demand
curve.
c) If price falls and quantity demanded increases, this can be represented by either a movement
along a given demand curve, or a shift of the demand curve.
d) None of the above are true.

2. Which of the following is NOT a determinant of the demand for good X?

a) The income of consumers who buy good X.

b) The cost of labor used to produce good X.
c) The price of good Y, a complement to X.
d) The number of buyers of good X.

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?
5. Which of the following is NOT a determinant of the demand for good X?

a) The cost of labor used to produce good X.

b) The price of good X.
c) The income of consumers who buy good X.
d) The price of good Y, which is a substitute for good X.

6. Which of the following IS a determinant of the demand for good X?

a) The income of consumers who buy good X.

b) The cost of labor used to produce good X.
c) The supply of good X.
d) The number of sellers of good X.

7. A decrease in quantity demanded is, graphically, represented by:

a) A leftward shift in the demand curve.

b) A rightward shift in the demand curve.
c) A movement up and to the left along a demand curve.
d) A movement down and to the right along a demand curve.

8. Suppose goods X and Y are substitutes. Which of the following is TRUE?

a) An increase in the price of X will result in a decrease in the equilibrium price of Y.

b) An decrease in the price of X will result in an increase in the equilibrium quantity of Y.
c) An increase in the price of X will result in an increase in the equilibrium quantity of Y.
d) More than one of the above is true.

9. If cookies are a normal good and incomes increase, we would expect:

a) An increase in equilibrium price and a decrease in equilibrium quantity.

b) A decrease in equilibrium price and an increase in equilibrium quantity.
c) A decrease in equilibrium price and equilibrium quantity.
d) An increase in equilibrium price and equilibrium quantity.

10. A decrease in demand is, graphically, represented by:

a) A leftward shift in the demand curve.

b) A rightward shift in the demand curve.
c) A movement up and to the left along a demand curve.
d) A movement down and to the right along a 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.

The following TWO questions refer to the diagram below.

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.

15. Consider the diagram below.

At the equilibrium in this market, which area represents CONSUMER surplus?

a) There is no consumer surplus.

b) Area w.
c) Area x + y.
d) Area w + y.

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.

19. Consumer surplus is equal to:

a) Revenue received for a good minus that good’s cost of production.

b) The amount of money a consumer is willing to pay for a good.
c) The opportunity cost of a good.
d) None of the above.

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 2

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.

2. Which of the following is NOT a determinant of the supply of good X?

a) The cost of inputs used to produce good X.

b) The technology used to produce X.
c) The number of sellers of good X.
d) All of the above are determinants of the supply of good X.

The following TWO questions refer to the diagram below.

3. At what price will quantity supplied equal 3 units?

a) $1.
b) $2.
c) $3.
d) $4.

4. At what price will producer surplus equal $2?

a) $1.
b) $2.
c) $3.
d) $4.
5. A decrease in supply is, graphically, represented by:

a) A leftward shift in the supply curve.

b) A rightward shift in the supply curve.
c) A movement up and to the right along a supply curve.
d) A movement down and to the left along a supply curve.

6. Which of the following is NOT a determinant of the supply of good X?

a) The cost of labor used to produce good X.

b) The price of good X.
c) The income of consumers who buy good X.
d) The number of sellers of good X.

7. Which of the following is NOT a determinant of the supply of good X?

a) The cost of labor used to produce good X.

b) Consumer preferences.
c) Technology.
d) All of the above are determinants of the supply 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.

Exercises 3

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.

3. The equilibrium price in this market is equal to:

a) $6 per unit.
b) $5 per unit.
c) $4 per unit.
d) $3 per unit.

4. At a price of $8, there is:

a) Excess demand (a shortage) of 25 units.

b) Excess demand (a shortage) of 15 units.
c) Excess supply (a surplus) of 15 units.
d) Excess supply (a surplus) of 25 units.

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.

6. Consider the supply and demand curve diagram below.

If the price of this good is $6, then:

a) There is an excess demand (a shortage) equal to 210 units.

b) There is an excess demand (a shortage) equal to 140 units.
c) There is an excess supply (a surplus) equal to 210 units.
d) There is an excess supply (a surplus) equal to 140 units.

7. When deciding how much of a particular good to purchase, a consumer should:

a) Keep buying more units until the total benefits equal the total costs.
b) Always buy at additional unit if its marginal net benefit is positive.
c) Keep buying more units if marginal cost is greater than marginal benefit.
d) Always buy at additional unit if its marginal benefit is positive.

8. Refer to the supply and demand diagram below.

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).

11. If supply is S2, which area represents MARKET surplus?

a) a
b) a + b.
c) a + b + e.
d) We need to know price in order to determine market surplus.

12. Consider the supply and demand diagram drawn below.

Suppose that demand is initially D1, but, following a change in consumer preferences, demand
shifts to D2. Note that the two demand curves are parallel. Which of the following statements is
TRUE?
a) Demand increases by 30 units.
b) Quantity demanded increases by 30 units.
c) Equilibrium quantity increases by 30 units.
d) More than one of the above statements is true.

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.

The following TWO questions refer to the diagram below.

15. The equilibrium price is ____ the equilibrium quantity is _____.

a) $5; 30.
b) $7; 30.
c) $7; 40.
d) $8; 40.
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.

17. Consider the supply and demand diagram drawn below.

What does the equilibrium price equal in this market?

a) $8.
b) $15.
c) $30.
d) $45.

18. Refer to the diagram below.

At a price of $10 per unit:

a) There is excess demand (a shortage) equal to 45 units.

b) There is excess supply (a surplus) equal to 45 units.
c) There is excess demand (a shortage) equal to 20 units.
d) There is excess supply (a surplus) equal to 20 units.
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.

22. Refer to the supply and demand diagram below.

If supply is S1, which area represents MARKET surplus?

a) a
b) a + b.
c) a + b + e.
d) We need to know price in order to determine market surplus.

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.

26. Consider the supply and demand curves drawn below.

Given the equilibrium quantity, which area represents MARKET SURPLUS?

a) X + Y + Z.
b) X + Y.
c) X.
d) There is no market surplus.

27. Which of the following CANNOT result in an increase in price in a competitive market for a
normal good?

a) An increase in income.
b) A decrease in the price of a complement to this good.
c) An increase in the price of a substitute for this good.
d) A decrease in the wages paid to workers who produce this good.
28. Consider the supply and demand curves illustrated below.

Which of the following statements is true?

a) At a price of P3, there is excess demand equal to the distance DE.

b) At a price of P3, there is excess demand equal to the distance BE.
c) At a price of P3, there is excess supply equal to the distance BE.
d) At a price of P3, there is excess supply equal to the distance DE.

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.

30. Which of the following statements is FALSE?

a) At the competitive equilibrium, market surplus is maximized.

b) At the competitive equilibrium, the marginal benefit to consumers equals the marginal cost to
producers.
c) At the competitive equilibrium, social surplus is maximized if there are no externalities.
d) At the competitive equilibrium, it is possible to make at least one person better off without
making anyone worse off.

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.
 The next THREE questions refer to the diagram below.

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.

Solutions to Exercises 1

1. A
2. B
3. D
4. D
5. A
6. A
7. C
8. C
9. D
10. A
11. A
12. C
13. B
14. A
15. D
16. B
17. A
18. D
19. D
20. A

Solutions to Exercises 2

1. D
2. D
3. D
4. C
5. A
6. C
7. B
8. D

Solutions to Exercises 3

1. B
2. C
3. A
4. D
5. D
6. B
7. B
8. B
9. C
10. D
11. C
12. A
13. C
14. D
15. C
16. C
17. C
18. B
19. A
20. B
21. B
22. A
23. D
24. C
25. B
26. C
27. D
28. A
29. A
30. D
31. C
32. A
33. D
34. C