Consider a market where demand is D: P = 30 – Q and supply is S: P = 0.5Q.

1. Equilibrium quantity Qe is

a. $17

b. $18

c. $19

d. $20

2. Equilibrium is price Pe

a. 10

b. 11

c. 12

d. 13

3. Consumer surplus CS is

a. $199

b. $200

c. $201

d. $202

4. Producer surplus PS is

a. $98

b. $99

c. $100

d. $101

5. Total surplus TS is

a. $220

b. $300

c. $323

d. $444

6. When the government imposes a price floor = $20, disequilibrium between quantity demanded and quantity supplied results in

a. Deficit = 10

b. Surplus = 10

c. Deficit = 30

d. Surplus = 30

7. Total surplus TS’ with the price floor is

a. $220

b. $225

c. $230

d. $235

PART B – Questions 8 – 28

Consider a market where demand is D: P = 40 – Q and supply is S: P = Q.

8. Equilibrium quantity Qe is

a. 16

b. 18

c. 20

d. 22

9. Equilibrium price Pe is

a. $18

b. $20

c. $22

d. $24

10. Consumer surplus CS is

a. $198

b. $199

c. $200

d. $201

11. Producer surplus PS is

a. $198

b. $199

c. $200

d. $201

12. Total surplus TS is

a. $390

b. $394

c. $396

d. $400

Impose a specific tax T = $4 on each unit sold in the above market.

13. Post-tax quantity Q’ is

a. 16

b. 18

c. 20

d. 22

14. Post-tax price P’ is

a. $18

b. $20

c. $22

d. $24

15. Consumer surplus CS’ is

a. $156

b. $158

c. $160

d. $162

16. Producer surplus PS’ is

a. $156

b. $158

c. $160

d. $162

17. Tax revenue TR of the government is

a. $68

b. $70

c. $72

d. $74

18. Total surplus TS’ is

a. $390

b. $394

c. $396

d. $400

Consider a market where demand is: P = 70 – Q and supply is S: P = Q.

19. Equilibrium quantity Qe is

a. 35

b. 36

c. 45

d. 56

20. Equilibrium price Pe is

a. $34

b. $35

c. $36

d. $37

21. Consumer surplus CS is

a. $610

b. $612.5

c. $615

d. $648

22. Producer surplus PS is

a. $610

b. $612.5

c. $615

d. $648

23. Total surplus TS is

a. $1,222

b. $1,223

c. $1,224

d. $1,225

Construct a budget neutral subsidy in the above market.

24. Post-subsidy quantity Q’ is

a. 35

b. 36

c. 45

d. 56

25. Post-subsidy price P’ is

a. $34

b. $35

c. $36

d. $37

26. Consumer surplus CS’ is

a. $610

b. $612.5

c. $615

d. $648

27. Producer surplus PS’ is

a. $610

b. $612.5

c. $615

d. $648

28. Total surplus TS is (do not forget to account for the subsidy expenditure SE)

a. $1,222

b. $1,223

c. $1,224

d. $1,225

29. The basic characteristic of the long run is that:

A. barriers to entry prevent new firms from entering the industry.

B. the firm has sufficient time to change the size of its plant.

C. the firm does not have sufficient time to cut its rate of output to zero.

D. a firm does not have sufficient time to change the amounts of any of the resources it employs.

30. The law of diminishing returns indicates that:

A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

B. because of economies and diseconomies of scale a competitive firm’s long-run average total cost curve will be U-shaped.

C. the demand for goods produced by purely competitive industries is downsloping.

D. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.

31. Variable cost is:

A. the cost of producing one more unit of capital, say, machinery.

B. any cost which does not change when the firm changes its output.

C. average total cost multiplied by the firm’s output.

D. any cost that rises with output in the short run.

32. In the above figure, curves 1, 2, 3, and 4 represent the:

A. ATC, MC, AFC, and AVC curves respectively.

B. MC, AFC, AVC, and ATC curves respectively.

C. MC, ATC, AVC, and AFC curves respectively.

D. ATC, AVC, AFC, and MC curves respectively.

33. Refer to the above data. If product price is $60, the firm will:

A. shut down.

B. produce 4 units and realize a $120 economic profit.

C. produce 6 units and realize a $100 economic profit.

D. produce 3 units and incur a $40 loss.

34. Refer to the above diagram for a pure monopolist. Monopoly price will be:

A.*e*.

B.*c*.

C.*b*.

D.*a*.

35. Refer to the above diagram for a pure monopolist. Monopoly output will be:

A. between*f*and*g*.

B.*h*.

C.*g*.

D.*f*.