Demand, supply, market equilibrium

1. The demand curve for airline tickets shows the:

a) number of tickets the airline is willing to sell at each price;
b) number of people who need to travel by air;
c) quality of service that passengers demand when they buy a ticket;
d) number of tickets that will be purchased at each price.

2. In economic terms, an increase in the demand for a product means that:

a) the demand curve has shifted to the left;
b) the product's price has fallen and, as a result, consumers are buying more of the product;
c) the product has become scarce for some reason;
d) consumers are now willing to purchase more of the product at each possible price.

3. Which of the following will NOT, all else equal, cause demand for coffee to change?
a) a change in the price of coffee.
b) a change in the price of milk, a complement;
c) a change in the price of tea, a substitute;
d) an increase in average income.

4. A fall in the price of raw milk, used in the production of ice cream, will:
a)decrease the supply of ice cream, causing the supply curve of ice cream to shift to the left;
b) increase the supply of ice cream, causing the supply curve of ice cream to shift to the right;
c)have no effect on the supply curve of ice cream, but will cause a downward movement along the supply curve of ice
cream;
d) none of the above

5. An increase in the price of cheese, all else equal, is likely to have all of the following effects except a:
a) decrease in the quantity demanded of cheese;
b) decrease in the supply of pizza;
c) increase in demand for peanut butter (a substitute good);
d) decrease in the demand for apple pie (a complimentary good);
e) decrease in the supply of cheese.

6. If it is observed that, in a particular market, price has risen and quantity exchanged has increased, it is likely that:
a) supply has increased;
b) supply has decreased;
c) demand has increased;
d) demand has decreased.

7. Excess supply (a surplus) for a commodity is ordinarily eliminated through market forces by:
a) price rising, demand decreasing, and supply increasing;
b) price rising, quantity demanded decreasing, and quantity supplied increasing;
c) price rising, demand increasing, and supply decreasing;
d) price falling, quantity demanded increasing, and quantity supplied decreasing.

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8. Which of the following best explains why the equilibrium price of coffee would increase at the same time the
equilibrium quantity would fall:
a) consumers but not producers of coffee expect a higher future price;
b) producers but not consumers of coffee expect a lower future price;
c) abnormally cold weather wreaks havoc with the coffee crop;
d) it is proved that drinking coffee is unhealthy.

9. An increase in the price of beef increases the demand for pork. Restoration of equilibrium in the pork market will
require:
a) a leftward shift of the supply curve;
b) a rightward shift of the supply curve;
c) a movement up along the supply curve;
d) a movement down along the supply curve.

10. Assuming that wheat and corn can both be grown on the same type of land, a decrease in the price of corn, other
things being equal, will cause:
a) a rightward shift of the supply curve for corn;
b) an upward movement along the supply curve for wheat;
c) a decrease in the opportunity cost associated with growing wheat;
d) a leftward shift in the supply curve for wheat.

11. The table bellow shows quantity demanded and quantity supplied of widgets at each price.

P Qd Qs
€1.00 500 50
1.50 450 150
2.00 400 250
2.50 300 300
3.00 150 325

a) Sketch the supply curve and the demand curve.

b) Suppose that a reduction in the price of an important input used to produce widgets leads to an increase in supply
of widgets by 300 units at every price level. Assuming that demand does not change, the new equilibrium price
will be .....

12. Use the supply and demand curves to explain what would happen in the market for corn as a result of each of the
following:
a) bad weather wreaks havoc with the corn crop;
b) the government imposes a €5 price ceiling on corn;
c) the price of widgets ( a substitute) rises dramatically;
d) the government imposes higher tariffs on corn imports.

13. Evaluate the following statements:

a) “If consumers begin to expect that the price of a good will be lower in the future than it is now, the price of the
good falls now.”
b) “The law of demand states that the quantity demanded varies inversely with price. However, everyone knows that
a rise in demand leads to a rise in price, other things equal.”

14. Demand and supply on the sweet Twix in some school shop is presented in the table below:
 
Price per piece in $ The daily quantity The daily quantity Price elasticity Total revenue
purchased offered

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 1,00 30 12
1,20 28 16
1,40 26 20
1,60 24 24
1,80 22 28
2,00 20 32
2,20 18 36
2,40 16 40
 
a. Draw a demand and supply curve.
b. Write analytical form both curves.
c. Give the market equilibrium price and quantity.
d. At what price the children do not wish to buy Twix ?
e. Below which price owner doesn’t want to sell Twix?
f. What situation we have on this market, if the owner of the shop will determine the price of 1, 99 $?
g. What situation we have on this market, if the owner of the shop will determine the price of 2,99$?
h. Calculate price elasticity of demand and type to table
i. Calculate total revenue and write them to tables.
j. Suppose that price of Mars decreased by 20%. What is the impact of the new situation will have on the demand
for Twix if mixed elasticity is + 0.5?
k. Parents began to give children about 10% more money than ever before which resulted in a sales increase of 20%
Twix. What kind of good is Twix?

15. Demand and supply in a market are described by the equations

Qd = 66-3P
Qs = -4+2P
a) Solve algebraically to find equilibrium P and Q
b) How would a per unit sales tax t affect this equilibrium and comment on how the tax is shared between
producers and consumers
c) What is the equilibrium P and Q if the per unit tax is t=5

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16. The demand and supply functions of a good are given by
Qd = 110-5P
Qs = 6P
where P, Qd and Qs denote price, quantity demanded and quantity supplied respectively.
a) Find the inverse demand and supply functions
b) Find the equilibrium price and quantity

17. Demand and supply in a market are described by the equations

Qd = 120-8P
Qs = -6+4P
a. Solve algebraically to find equilibrium P and Q

b. How would a per unit sales tax t affect this equilibrium and comment on how the tax is shared between
producers and consumers
c. What is the equilibrium P and Q if the per unit tax is 4.5

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18. At a price of €15, and an average income of €40, the demand for CDs was 36. When the price increased to €20, with
income remaining unchanged at €40, the demand for CDs fell to 21. When income rose to €60, at the original price
€15, demand rose to 40.
a)Find the linear function which describes this demand behavior

b) Given the supply function Qs = -7+2P find the equations which describe fully the comparative statics of the
model.

c)What would equilibrium price and quantity be if income was €50?

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19. Suppose price elasticity is equl -0.8. If price falls by five percent we can conclude that
a. quantity demanded will decrease by six percent.
b. consumer expenditure will decrease by one percent
c. quantity demanded will increase by four percent.
d. demand for the good is elastic at the current price.
e. (b) and (c) are correct

20. A 2 percent fall in price increases total revenue by one-half percent. We can conclude that
a. the elasticity of demand is -1.25.
b. the quantity demanded increases by five percent
c. consumer expenditure increases three percent.
d. demand is inelastic at the current price.
e. All of the above are correct.

21. Hawaii Air charges P0 = $100 per round-trip between Lihue and Honolulu. At this price, Q0 = 400 trips are
demanded . If the elasticity of demand = - ½ ∈D and Hawaii Air raises it ticket price to Pn = $150, how many round
trips will be demanded?
a. 425.
b. 415.
c. 390.
d. 327.
e. 297

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22. Jim’s demand for asparagus is given by QD = 40 – 2P. Jim buys Q = 20 units of asparagus and spends CE = $200 for
it. One of the following is incorrect. At this quantity,
a. The price elasticity of demand is ∈ = − .1 D
b. The price (per unit) of asparagus is P = $10 .
c. If price rises Jim will spend less then $200 for asparagus.
d. If price falls Jim will spend less than $200 for asparagus.
e. If price falls by $1, Jim will buy one additional unit of asparagus.

23. Jennifer’s demand for grapples is QJ = 100 – 5P and Danielle’s is QD = 200 –10P. One of the following is incorrect.
a.. At any price between $10 and $19, Jennifer will spend less on grapples than Danielle.
b. For every one dollar drop in price, Danielle will purchase twice as many additional units of grapples as Jennifer.
c. At any price Jennifer’s elasticity of demand is one-half than of Danielle’s.
d. If the market price is P = $10, Jennifer will spend $500 on grapples, exactly one-half as much as Danielle’s would
spend at this price.

24. A one percent decrease in price increases consumer expenditure on a commodity by one percent. We can conclude
that the price elasticity of demand is ∈D = - ____:
a. -2.0.
b. -1.5.
c. -1.0.
d. -.0.5.
e. none of the above.

25. Mark buys Q0 = 10 units of a good when its price is P0 = $20. If the elasticity is −=∈ ,1 D we can conclude that he
will buy QN = ____ units if the price rises to PN = $25,
a. 4.
b. 8.
c. 6.
d. 10.
e. none of the above.

26. A beer vendor faces a demand curve given by QD = 60,000 – 200P where P is the price of beer in cents and Q is the
number of beer purchased.
If the vendor is selling QS = 20,000 beers, his total revenue is ______ thousand
a. $25.
b. $30.
c. $35.
d. $40.
e. $45.
The point elasticity of demand when P = $2 is _____
a. -3.00.
b. -2.00.

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c. -1.50.
d. -1.25.
To maximize revenue from beer sales the vendor should set price at $ _____. At this price the vendor’s total revenue is
TR = $ ______