Equilibrium Price And Quantity Quiz Questions
A state of equilibrium is where opposing market forces are the same. The equilibrium price for a good is the price at which the demand and supply curve meet meaning that there is no surplus and every good produced is sold. Test yourself on equilibrium price and quantity by taking the quiz below.
- 1.
Qd = 560 - 7P and Qs = -100 + 8P, where Qd = quantity demanded, P = price, and Qs = quantity supplied. What is the equilibrium price and quantity exchanged in this market?
- A.
Price = 44; Quantity = 352
- B.
No equilibrium. Demand less than 0.
- C.
Price = 30.67; Quantity = 145.36
- D.
Price = 44; Quantity = 252
Correct Answer
D. Price = 44; Quantity = 252 -
- 2.
Qd = 560 - 7P and Qs = -100 + 8P, where Qd = quantity demanded, P = price, and Qs = quantity supplied. Now, assume that an event occurred such that Qd = 630 - 7P. which statement best characterizes this change?
- A.
The income of consumers rose in this market, which is a normal good.
- B.
The income of consumers rose in this market, which is an inferior good.
- C.
A shortage would occur before the market found a new equilibrium
- D.
An increase in the quantity demanded would occur in order to alleviate the shortage
- E.
A, C, and D are correct
- F.
B, C, and D are correct
- G.
A and C are corrct
- H.
B and C are correct
Correct Answer
G. A and C are corrctExplanation
The given change in the equation Qd = 630 - 7P suggests that the quantity demanded has increased. This can be interpreted as an increase in the income of consumers in this market, which indicates that it is a normal good. Additionally, since the quantity demanded has increased, there would be a shortage in the market before it finds a new equilibrium. Therefore, options A and C are correct.Rate this question:
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- 3.
Qd = 560 - 7P and Qs = -100 + 8P, where Qd = quantity demanded, P = price, and Qs = quantity supplied. At Q = 240, the price elasticity of demand for this good is greater than -1.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The price elasticity of demand is calculated by the percentage change in quantity demanded divided by the percentage change in price. In this case, the formula for price elasticity of demand is (-7/Q)*(P/Q), where Q is the quantity demanded and P is the price. At Q = 240, the price elasticity of demand can be calculated as (-7/240)*(P/240). Since the price elasticity of demand is negative, it means that as price increases, quantity demanded decreases. Therefore, the price elasticity of demand for this good is always less than -1, not greater than -1. Hence, the answer is False.Rate this question:
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- 4.
Mayor McCheese decides he has had enough of the externalities produced by this good. He enacts a $5/unit excise tax (paid by producers to the government). Using the supply and demand function from question 1, which party bears the brunt (pays more than $2.50 of this tax)? (Qd = 560 - 7P and Qs = -100 + 8P, where Qd = quantity demanded, P = price, and Qs = quantity supplied.)
- A.
Suppliers do because the elasticity of supply is larger in magnitude than consumers' elasticity of demand.
- B.
Suppliers do because the elasticity of supply is smaller in magnitude than consumers elasticity of demand.
- C.
Consumers do because the elasticity of demand is larger in magnitude than suppliers elasticity of supply.
- D.
Consumers do because the elasticity of demand is smaller in magnitude than suppliers elasticity of supply.
Correct Answer
D. Consumers do because the elasticity of demand is smaller in magnitude than suppliers elasticity of supply.Explanation
Suppliers bear the brunt of the excise tax because the elasticity of supply is larger in magnitude than consumers' elasticity of demand. This means that suppliers are less responsive to changes in price compared to consumers. As a result, when the tax is imposed, suppliers are less able to shift the burden of the tax onto consumers by increasing prices. Therefore, they end up paying more than $2.50 of the tax.Rate this question:
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- 5.
Maddie is always willing to give up 2 units of x for a unit of y. which of the following statements is true regarding Maddies preferences for consuming these goods?
- A.
Maddie considers these goods to be perfect substitutes with one another.
- B.
Maddie considers these goods to be perfect compliments to one another.
- C.
The marginal rate of substitution between these goods is -1/2x per y.
- D.
A utility function for for Maddie is U=2x+y
Correct Answer
A. Maddie considers these goods to be perfect substitutes with one another.Explanation
The correct answer is Maddie considers these goods to be perfect substitutes with one another. This means that Maddie is willing to exchange 2 units of x for 1 unit of y, indicating that she values x and y equally. In other words, she sees no difference in utility between consuming 2 units of x versus 1 unit of y. This suggests that she can easily substitute one good for the other without any change in satisfaction or preference.Rate this question:
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- 6.
Someone who wants a unit of milk with every three units of coffee might have a utility of u=min(1/3c, m)
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The given statement is true because it states that someone who wants a unit of milk with every three units of coffee might have a utility function represented by u=min(1/3c, m). This utility function implies that the person's utility depends on the minimum value between 1/3 of the coffee units and the milk units. This suggests that the person values having a balanced ratio of milk to coffee, where the amount of milk is at least one-third of the amount of coffee.Rate this question:
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- 7.
Buck faces prices for x of 12/unit and prices for y of 10/unit. He has 60 to spend on the two goods every week. Which of the following best describes Buck's budget?
- A.
Buck can consume at most 5 x or 6 y per week.
- B.
It is possible for Buck to consume 3 x and 2.4 y every week.
- C.
The marginal rate of transformation between these two goods is -6/5 x per y.
- D.
A and B are correct
- E.
B and C are correct
- F.
None are correct
Correct Answer
D. A and B are correctExplanation
The correct answer is A and B are correct. This means that both statements A and B accurately describe Buck's budget. Statement A states that Buck can consume at most 5 x or 6 y per week, which means that he can either purchase 5 units of x or 6 units of y with his budget of 60. Statement B states that it is possible for Buck to consume 3 x and 2.4 y every week, which means that he can allocate his budget to purchase 3 units of x and 2.4 units of y. Both of these statements provide accurate descriptions of Buck's budget.Rate this question:
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- 8.
Randy likes to consume cola (c) and peanuts (p). The utility he gets from consuming these goods can be measured on the Cobb-Douglas utility function, U=(cp)^1/2. Based on this information, which of the following is true regarding Randy's consumption of these goods?
- A.
When Randy has 10c and 2.5p, his utility is 5.
- B.
The marginal rate of substitution for these goods is -p/c.
- C.
If the marginal rate of transformation of these goods is -2p per c, he would consume more cola than peanuts in order to maximize his utility.
- D.
All the above are true
- E.
A and B are correct
- F.
B and C are correct
- G.
None of the above are correct
Correct Answer
E. A and B are correctExplanation
The given answer states that both A and B are correct. In option A, it is mentioned that when Randy has 10c and 2.5p, his utility is 5. This can be calculated by substituting the given values into the Cobb-Douglas utility function, U=(cp)^1/2. Option B states that the marginal rate of substitution for these goods is -p/c. This means that for every unit of cola Randy gives up, he gains -p/c units of peanuts in order to maintain the same level of utility. Both of these statements are supported by the information given in the question.Rate this question:
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- 9.
Alice likes to consume cheeseburgers and salads, and she views the goods as imperfect substitutes. She asks for your consultation in determining how many cheeseburgers and salads she should have in order to maximize the utility she obtains from consuming these goods. Her utility function is such that the marginal rate of substitution between the two goods is -3/2(s/c). which of the following selections is correct, based on this information?
- A.
If marginal rate of transformation is -1, then she would want to consume 1.5 salads for each cheeseburger she consumes.
- B.
If the marginal rate of transformation is -1 and the utility she obtains from the last dollar she spends on cheeseburgers is smaller than the utility she obtains from spending her last dollar on salads, she should decrease her consumption of cheeseburgers.
- C.
If the marginal rate of transformation is -3/2, she should consume an equal number of cheeseburgers and salads to maximize utility.
- D.
All the above are correct
- E.
A and B are correct
- F.
A and C are correct
- G.
None of the above are correct
Correct Answer
D. All the above are correctExplanation
The given answer is correct because all of the statements mentioned are true based on the information provided. The first statement states that if the marginal rate of transformation is -1, Alice would want to consume 1.5 salads for each cheeseburger she consumes. The second statement states that if the marginal rate of transformation is -1 and the utility she obtains from the last dollar spent on cheeseburgers is smaller than the utility from spending the last dollar on salads, she should decrease her consumption of cheeseburgers. The third statement states that if the marginal rate of transformation is -3/2, she should consume an equal number of cheeseburgers and salads to maximize utility. Therefore, all the statements are correct.Rate this question:
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- 10.
Helena earns 50/week to spend on x and y. The price of x is 5 and the price of y is 10. Her preferences are such that she views the marginal rate of substitution between the two goods as being -y/x. Given this information, which of the following statements is correct regarding Helena's utility maximizing decision?
- A.
At the utility maximizing combination of x and y, she will consume more units of y than x.
- B.
If she consumes 2x and 4y, she would find that the marginal rate of substitution at this bundle to be too small relative the marginal rate of transformation she faces.
- C.
Helena will always spend half her income on x and half on y
- D.
All the above are correct
- E.
A and b are correct
- F.
B and c are correct
- G.
A and c are correct
- H.
None of the above are correct
Correct Answer
F. B and c are correctExplanation
The correct answer is b and c are correct. This is because the marginal rate of substitution (-y/x) indicates that Helena is willing to give up y in order to consume more x. Therefore, at the utility maximizing combination, she will consume more units of y than x. Additionally, since Helena earns $50 per week and the price of x is $5 and the price of y is $10, she will not always spend half her income on x and half on y.Rate this question:
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- 11.
Ben likes to consume milk (m) and cookies (c). He views the two goods as being imperfect substitutes to one another. The price of milk is 3/unit and the price of cookies is 3/unit. Based on this information, which of the following answers is most correct.
- A.
If Ben's utility function is U=(mc)^1/2, then he would consume equal amounts of cookies and milk at his utility maximizing bundle.
- B.
Every time Ben buys a unit of cookies he loses a unit of milk
- C.
If Ben chooses a bundle of cookies and milk such that the marginal rate of substitution of milk is more than the marginal rate of transformation of milk, he should readjust and buy more cookies.
- D.
All the above are correct
- E.
A and b are correct
- F.
B and c are correct
- G.
A and c are correct
- H.
None of the above are correct
Correct Answer
D. All the above are correctExplanation
The given answer is correct because all of the statements mentioned are true based on the information provided. According to Ben's utility function, where U=(mc)^1/2, he would consume equal amounts of cookies and milk at his utility maximizing bundle. Additionally, since Ben views milk and cookies as imperfect substitutes, every time he buys a unit of cookies, he loses a unit of milk. Lastly, if Ben chooses a bundle of cookies and milk where the marginal rate of substitution of milk is more than the marginal rate of transformation of milk, he should readjust and buy more cookies. Therefore, all the statements mentioned in the answer are correct.Rate this question:
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- 12.
The magnitude of pain a loss averse individual feels from a loss is less than the joy felt from a gain.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
False. Loss aversion refers to the tendency of individuals to experience greater pain or discomfort from losing something compared to the pleasure or satisfaction they feel from gaining something of equal value. Therefore, the magnitude of pain a loss averse individual feels from a loss is actually greater than the joy felt from a gain.Rate this question:
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- 13.
Bill sees the price of gadgets rise. He decreases his consumption of gadgets following the price increase. Which statement is most correct regarding Bill's reaction to this change?
- A.
The size of Bill's substitution effect was larger in magnitude than the size of his income effect.
- B.
The size of Bill's income effect was larger in magnitude than the size of his substitution effect.
- C.
To Bill gadgets are a giffin good.
- D.
A and c are correct
- E.
B and c are correct
Correct Answer
A. The size of Bill's substitution effect was larger in magnitude than the size of his income effect.Explanation
Bill's reaction to the price increase suggests that he decreased his consumption of gadgets. This decrease in consumption indicates that the substitution effect, which occurs when a consumer switches to a cheaper alternative due to a price increase, was larger in magnitude than the income effect. The income effect refers to the change in consumption resulting from a change in purchasing power due to a change in income. Therefore, the correct statement is that the size of Bill's substitution effect was larger than the size of his income effect.Rate this question:
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