Economics 103

Dr. Emma Hutchinson

Sample Midterm 1 Questions

Unless told otherwise, assume throughout that demand curves slope downwards and
supply curves slope upwards.

1. Which of the following statements about opportunity cost is TRUE?

I. Opportunity cost is equal to implicit costs plus explicit costs.

II. Opportunity cost only measures direct monetary costs.
III. Opportunity cost accounts for alternative uses of resources such as time and
money.

a) I, II and III.
b) I
c) III only.
d) I and III only.

2. Suppose that you deciding between seeing a move and going to a concert on a
particular Saturday evening. You are willing to pay $20 to see the movie and the movie
ticket costs $5. You are willing to pay $80 for the concert and the concert ticket costs $50.
The opportunity cost of going to the movie is:

a) $5.
b) $30.
c) $35.
d) $65.

3. Which of the following statements about opportunity costs is TRUE?

I. The opportunity cost of a given action is equal to the value foregone of all
feasible alternative actions.
II. Opportunity costs only measure direct out of pocket expenditures.
III. To calculate accurately the opportunity cost of an action we need to first identify
the next best alternative to that action.

a) III only.
b) I and III only.
c) II only.
d) None of the statements is true.

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4. According to marginal analysis, optimal decision-making involves:

a) Taking actions whenever the marginal benefit is positive.

b) Taking actions only if the marginal cost is zero.
c) Taking actions whenever the marginal benefit exceeds the marginal cost.
d) All of the above.

5. Theo (a UVic student) has bought a concert ticket, for an event scheduled in Vancouver
during the final exam period. He was willing to pay $220 for the concert ticket at the time
he bought it, but only had to pay $70. In addition to the cost of the ticket, Theo will need
to pay $60 for a return ferry ride to Vancouver, in order to attend the concert, but has not
yet bought the ferry ticket.

When the final exam schedule is published, Theo learns that he has an exam on the
evening of the concert. A friend offers to buy the concert ticket from him from $25.

What do Theo’s SUNK COSTS equal? (Assume that the only relevant costs are those
above.)

a) $25
b) $45
c) $85.
d) $130.

6. Jane’s marginal benefit per day from drinking coke is given in the table below. This
shows that she values the first coke she drinks at $1.20, the second at $1.15, and so on.
If the price of coke is $1.00, the optimal number of cokes that Jane should drink is:

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

7. Which of the following concepts explains why production possibilities frontiers slope
downwards?

a) Increasing marginal opportunity costs.

b) Scarcity.
c) The law of demand.
d) Marginal analysis.

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8. Suppose that you are willing to pay $20 to see a movie on Saturday night. A ticket
costs $10, and the next-best alternative use of your time would be to go to dinner with a
friend. The cost of the dinner is $20 and you value the experience of having dinner with
your friend at $60. The opportunity cost of seeing the movie is equal to:

a) $50.
b) $30.
c) $20.
d) $10.

9. Suppose that you are willing to pay $50 to see a movie on Saturday night. A ticket
costs $15, and the next-best alternative use of your time would be to go to a concert
which costs $80 and you value at $100. The opportunity cost of seeing the movie is equal
to:

a) $15.
b) $20.
c) $35.
d) $70.

10. Suppose you play a round of golf costing $75. The golf takes four hours to play. If
you were not playing golf you could be working and earning $40 per hour. The
opportunity cost of your golf game is:

a) $75.
b) $235.
c) $155.
d) $160.

11. Suppose you have bought and paid for a ticket to see Lady Gaga in concert. You were
willing to pay up to $200 for this ticket, but it only cost you $110. On the day of the
concert, a friend offers you a free ticket to the opera instead. Assuming that it is
impossible to resell the Lady Gaga ticket, what is the minimum value you would have to
place on a night at the opera, in order for you to choose the opera over Lady Gaga?

a) $200.
b) $110.
c) $90.
d) $0.

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12. In January, in an attempt to commit to getting fit, I signed a year-long, binding

contract at a local gym, agreeing to pay $40 per month in membership fees. I also spent
$300 on extremely stylish gym clothes. This morning, I was trying to decide whether or
not to actually go to the gym. Which of the following was relevant to this decision?

a) The $40 that I paid the gym this month.

b) The $300 I spent on gym clothes.
c) The fact that I also had to write a 103 midterm exam today.
d) All of the above were relevant.

13. Suppose that you are willing to pay $350 to see Leonard Cohen play at the Save-On-
Foods Arena. Tickets cost $100, and the next-best alternative use of your time would be
to work in paid employment earning $50 over the evening. The opportunity cost of seeing
Leonard Cohen is equal to:

a) $50.
b) $100.
c) $150.
d) $200.

14. Which of the following statements about sunk costs is FALSE?

I. Sunk costs are those that cannot be recovered, no matter what future action is
taken.
II. Because sunk costs cannot be recovered, they are irrelevant for future decision-
making.
III. The presence of sunk costs can affect future decision-making, if they are large
enough.

a) II and III only.

b) II only.
c) III only.
d) I and III only.

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15. Suppose you have bought and paid for a ticket to see Leonard Cohen in concert. You
were willing to pay up to $350 for this ticket, but it only cost you $100. On the day of the
concert, a friend offers you a free ticket to Lady Gaga instead. You can resell your
Leonard Cohen ticket for $80. What do your sunk costs equal?

a) $0.
b) $20.
c) $80.
d) $100.

16. I am considering loaning my brother $10,000 for one year. He has agreed to pay 10%
interest on the loan. If I don’t loan my brother the $10,000, it will stay in my bank
account for the year, where it will earn 2% interest. What is the opportunity cost to me of
the loan to my brother?

a) $200.
b) $800.
c) $1,000.
d) $1,200.

17. 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).

18. As a member of UVic’s University Club, I pay $30 per month in membership fees. In
a typical month I spend about $50 on beer at the Club. Every month I also have the
option of attending a meeting of the whiskey club (open only to Club members), at a cost
per meeting of $15, payable at the beginning of each meeting. Given this, what do my
monthly SUNK COSTS equal?

a) $15.
b) $30.
c) $45.
d) $95.

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19. A buyer of good X has purchased three units of good X. The marginal benefit of the
fourth unit of X exceeds the marginal cost of the fourth unit of good X. Which of the
following reasons explains why the buyer should purchase the fourth unit?

I. The marginal net benefit of the fourth unit is positive.

II. Buying the fourth unit will increase total benefits by more than total costs.
III. Buying the fourth unit will increase total benefits and decrease total costs.

a) I only
b) I and II only.
c) II only.
d) I, II, and III.

20. A straight-line production possibilities frontier implies:

a) Scarcity.
b) Resources are being used inefficiently.
c) Increasing marginal costs.
d) Constant marginal costs.

21. The following question refers to the table below, which shows the maximum number
of goods X and Y that producers A and B can produce in one day.

X Y
Producer A 20 20
Producer B 15 15

Which of the following statements in TRUE?

a) Producer A has the comparative advantage in producing X.

b) Producer A has the comparative advantage in producing Y.
c) Producer B has the absolute advantage in producing X and Y.
d) No producer has the comparative advantage in producing either X or Y.

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22. The following question refers to the table below, which shows the maximum
kilograms of wheat and numbers of televisions that countries A and B can produce in one
hour.

wheat televisions
Country A 20 10
Country B 10 40

Which of the following statements is TRUE?

a) Country A has the comparative advantage in producing both wheat and

televisions.
b) Country A has the comparative advantage in producing wheat.
c) Country A has the comparative advantage in producing televisions.
d) None of the above statements is true.

23. Consider the PPF diagram drawn below, for two countries that are free to trade with
one another.

y
A
PPF1
B
C

PPF2
D E
x
Which of the following production combinations is/are INEFFICIENT?

I. Country 1 produces at point C and country 2 produces at point D.

II. Country 1 produces at point E and country 2 produces point at B.
III. Country 1 produces at point E and country 2 produces at point A.

a) II only.
b) I only.
c) I and II only.
d) I, II and III.

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24. Consider the PPF diagram below.

Given the PPF illustrated, what is the opportunity cost of moving from B to A?

a) 5 coconuts.
b) 10 fish.
c) 5/10 fish
d) 10/5 coconuts.

25. Which of the following does NOT result in a shift of an economy’s production
possibility frontier (PPF)?

a) Changes in agricultural productivity as a result of climate change.

b) Technological change that increases worker productivity.
c) Increased trade with another country.
d) All of the above will result in a shift of the economy’s PPF.

26. Which of the following does NOT result in a shift of an economy’s production
possibility frontier (PPF)?

a) Changes in agricultural productivity as a result of climate change.

b) Technological change that increases worker productivity.
c) Increased immigration of skilled labour.
d) All of the above will result in a shift of the economy’s PPF.

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The following TWO questions refer the diagram below, which illustrates the PPF for a
producer of two goods, x and y.

27. Which of the following statements is TRUE?

I. The marginal cost of producing x is higher at high levels of x than it is at low

levels of x.
II. The marginal cost of producing y is higher at high levels of y than it is at low
levels of y.
III. The marginal cost of producing both x and y is constant in the level of
production.

a) I only.
b) II only.
c) III only.
d) I and II only.

28. If this economy is operating at point A, which of the following statements is TRUE?

I. The opportunity cost of producing more x is zero.

II. The opportunity cost of producing more y is zero.
III. Point A is inefficient.

a) III only.
b) I and II only.
c) I and III only.
d) I, II, and III.

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29. The diagram below illustrates the PPFs for two countries that produce wine and
cheese. With no trade, country 1 produces at point A on its PPF and country 2 produces at
point B.

Wine Wine
PPF1
B

A
PPF2

Cheese Cheese

Assume that the two countries now begin to trade with one another. Which of the
following will NOT occur (relative to the case with no trade).

a) Country 1 will produce less cheese.

b) Country 2 will export wine.
c) Country 1 will import cheese.
d) Country 2 will produce more cheese.

30. Which of the following statements about production and trade is FALSE?

I. If a country has an absolute advantage in producing a good, then it also has

the comparative advantage in the production of that good.
II. Rich countries will generally have the comparative advantage in the
production of all goods.
III. If a country has the absolute advantage in the production of a good, then this
country will be made better off by specializing in the production of that good.

a) I only.
b) I and II only.
c) I, II and III.
d) III only.

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The following THREE questions refer to the diagram below, which illustrates the PPFs
for two countries who are free to trade.

400 PPF1

200

PPF2

x
100 200

31. What is the marginal opportunity cost (MC) of producing good x in each country?

a) 2 units of good y in country 1 and 4 units of good y in country 2.

b) 1/2 a unit of good y in country 1 and 1/4 of a unit of good y in country 2.
c) 2 units of good y in country 1 and 1/4 of a unit of good y in country 2.
d) 1/2 a unit of good y in country 1 and 4 units of good y in country 2.

32. What is the marginal opportunity cost (MC) of producing good y in each country?

a) 2 units of good x in country 1 and 4 units of good x in country 2.

b) 1/2 a unit of good x in country 1 and 1/4 of a unit of good x in country 2.
c) 2 units of good x in country 1 and 1/4 of a unit of good x in country 2.
d) 1/2 a unit of good x in country 1 and 4 units of good x in country 2.

33. Suppose that aggregate production of x across the two countries is equal to 100 (that
is, country one’s production of x plus country two’s production of x equals 100 units). If
these 100 units of x are being produced efficiently, then aggregate production of y will
equal:

a) 200 units of y.
b) 400 units of y.
c) 600 units of y.
d) 800 units of y..

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The following TWO questions refer to the PPF diagram below.

10

PPF

x
40

34. What is the MARGINAL cost of producing good y?

a) 1/4 of a unit of x.
b) 1/4 of a unit of y.
c) 4 units of x.
d) 4 units of y.

35. What is the cost of producing FOUR units of good y?

a) 16 units of x.
b) 4 units of x.
c) 1/4 of a unit of x.
d) 40 units of x.

36. Consider a PPF drawn with x on the horizontal axis and y on the vertical axis. Which
of the following concepts can be used to explain why this production possibility frontier
could be flat at relatively lows levels of x and steep at relatively high levels of x?

a) Increasing marginal costs.

b) Scarcity.
c) Sunk costs.
d) Trade.

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37. The diagram below illustrates the identical PPFs of two countries.

PPF

Initially, there is no trade allowed between the two countries, and each country produces
at point A. If trade is opened up, which of the following will occur?

I. Country 1 will export coal to country 2.

II. Country 2 will produce more clothing.
III. Country 1 will produce less coal.

a) I and II only.
b) III only.
c) II and III only.
d) None of the above.

38. Which of the following concepts can be used to explain why production possibility
frontiers slope downwards.

a) Scarcity.
b) Sunk costs.
c) Trade.
d) Increasing marginal costs.

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39. The table below shows the maximum amounts of coffee and salmon that Brazil and
British Colombia can produce if they just produce one good.

Coffee Salmon
Brazil 40 20
British Columbia 10 15

Assuming constant marginal costs:

a) Brazil has a comparative advantage in coffee production

b) In Brazil, the marginal cost of salmon production is 2 units of coffee.
c) In BC, the marginal cost of coffee production is 1½ units of salmon.
d) All of the above are correct.

40. The diagram below illustrates the PPFs for two countries that produce two goods. The
two countries are free to trade with one another.

y
A

B
C

PPF2 PPF1
D
x

Which of the following production combinations are efficient?

a) Country 1 is at point D; country 2 is at point C.

b) Country 1 is at point A; country 2 is at point B.
c) Country 1 is at point C; country 2 is at point A.
d) All of the above are efficient.

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The following TWO questions refer to the diagram below, which illustrates the PPFs for
two countries that can produce and freely trade two goods – yo-yos and bicycles.

Yo-yos

PPFB PPFA

Bicycles
41. Which of the following statements are TRUE?

I. Country A has the absolute advantage in producing yo-yos.

II. Country B has the comparative advantage in producing yo-yos.
III. For efficient production, country B should only produce yo-yos.

a) I only.
b) I and II only.
c) I, II and III.
d) I and III only.

42. Which of the following statements are FALSE?

I. Country A has the absolute advantage in producing bicycles.

II. Country A has the comparative advantage in producing bicycles.
III. It can never be efficient for both countries to produce bicycles.

a) III only.
b) II and III only.
c) I, II and III.
d) I and III only.

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The following TWO questions refer to the table below, which shows the maximum
number of multiple choice questions and labs questions that Emma and Nick can prepare
in 1 hour.

Multiple choice questions Lab questions

Emma 10 2
Nick 15 5

43. Which of the following statements in TRUE?

a) Emma has the absolute and comparative advantage in preparing multiple choice
questions.
b) Nick has the absolute and comparative advantage in preparing multiple choice
questions.
c) Emma has the absolute and comparative advantage in preparing lab questions.
d) Nick has the absolute and comparative advantage in preparing lab questions.

44. Suppose Emma and Nick agree to work together for THREE hours. They only need
to prepare a total of 30 multiple choice questions in these three hours. If they prepare
those 30 multiple choice questions efficiently, how many lab questions will they also be
able to prepare?

a) 4.
b) 9.
c) 10.
d) 15.

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The following two questions refer to the PPF diagram below.

400 PPF

A
200

x
100 200

45. What is the marginal opportunity cost of producing x?

a) 2y.
b) ½y.
c) 2x.
d) ½x.

46. If the producer is operating at point A on the PPF, then, in order to produce 20 more
units of good y, this producer must produce _____ fewer units of good x.

a) 40.
b) 30.
c) 20.
d) 10.

47. Which of the following statements about efficiency is/are FALSE?

I. If, given some current situation, we are able to implement a change that makes
everyone better off, then the current situation is efficient.
II. A situation is inefficient, if we are unable to make one person better off without
making anyone else worse off.
III. A situation is efficient only if everyone has equal amounts of all goods.

a) I only.
b) III only.
c) I and II only.
d) I, II and III.

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48. The diagram below illustrates the PPFs of two countries, that can produce coal and
clothing.

Coal Coal

PPF1

A
PPF2

Clothing Clothing

Initially, there is no trade allowed between the two countries, and, country 1 produces at
point A and country 2 produces at point B. If trade is opened up between these two
countries, which of the following will occur?

I. Country 1 will export coal to country 2.

II. Country 2 will produce more clothing.
III. Country 1 will produce less coal.

a) I and II only.
b) III only.
c) II and III only.
d) I, II, and III.

49. 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.

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The following TWO questions refer to the diagram below, which illustrates the PPF for
two countries.

50. What does the marginal (opportunity) cost of good x equal, for each country?

a) Two units of y for country 1 and one unit of y for country 2.

b) One half unit of y for country 1 and one unit of y for country 2.
c) Two units of x for country 1 and one unit of x for country 2.
d) One half unit of x for country 1 and one unit of x for country 2.

51. Suppose that - without trade - country 1 produces at point A and country 2 produces at
point B. If the countries are then permitted to trade:

a) Country 1 will produce less x and country 2 will produce more y.

b) Country 1 will produce more x and country 2 will produce less y.
c) Country 1 will produce less x and country 2 will produce less y.
d) Country 1 will produce more x and country 2 will produce more y.

52. 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.

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The following TWO questions refer to an individual’s demand curve diagram, illustrated
below.

$
4

1
D

Q
5 10 15 20

53. If the price of this good is $1 per unit, what will be the quantity demanded?

a) 5.
b) 10.
c) 15.
d) 20.

54. What are the TOTAL benefits to this individual if she consumes 10 units of the good?

a) $5.
b) $10.
c) $20.
d) $30.

55. 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.

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56. 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.

57. 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?

$
a) b) $
24
D2 22

20 20 D2

D1 D1
cups cups
10 12 10
$ $
c) d)
22 D2
20 20
D2
D1 D1
cups cups
10 12 10 11

58. The demand curve for a good is derived from the:

a) Marginal cost of the good.

b) Marginal benefit of the good.
c) Marginal benefits of the good minus marginal costs of the good.
d) Supply curve for that good.

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

I. The “Law of Demand” holds if a consumer’s marginal benefit is lower at

higher quantities consumed than it is at lower quantities consumed.
II. If the consumer’s marginal benefit is the same no matter what quantity is
consumed, then her demand curve will be vertical.
III. All else equal, the marginal benefit of consuming a normal good will be higher
for richer consumers than for poorer consumers.

a) III only.
b) I and II only.
c) I and III only.
d) I only.

60. 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.

61. 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.

62. An individual producer’s supply curve for a good is derived from:

a) The preferences of consumers of that good.

b) The income of consumers of that good.
c) The marginal cost of producing that good.
d) All of the above.

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The following TWO questions refer to the supply curve diagram below.
$

8 S

10 20 30 40

63. If price is $8 per unit, quantity supplied will equal:

a) 10.
b) 20.
c) 30.
d) 40.

64. If quantity supplied increases from 10 to 20 units, the producer’s total costs will
increase by:

a) $20.
b) $30.
c) $40.
d) $80.

65. 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.

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66. Which of the following statements about supply curves is TRUE?

a) The “law of supply” states that as price rises, quantity supplied also rises.
b) If the marginal cost of producing a good is higher at high levels of output than at
low levels of output, then the supply curve for that good is upward sloping.
c) Both a) and b) are true.
d) Neither a) nor b) are true.

The following TWO questions refer to the supply and demand curve diagram below.

10 S
D
9
8
7
6
5
4
3
2
1

10 20 30 40 50 60 70
Q

67. 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.

68. 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.

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The following TWO questions refer to the diagram below, which illustrates a consumer’s
demand curve for a good.

69. If the price of this good is $30, what quantity will be demanded?

a) 5 units.
b) 10 units.
c) 15 units.
d) 20 units.

70. If the price of this good falls from $30 to $20, but the consumer is prohibited from
buying more than 5 units of the good, by how much will consumer surplus increase?

a) $100.
b) $75.
c) $50
d) $25.

71. 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.

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72. 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.

The following TWO questions refer to the diagram below, which illustrates a consumer’s
demand curve for a good.

73. If the price of this good is $20, what quantity will be demanded?

a) 5 units.
b) 10 units.
c) 15 units.
d) 20 units.

74. If the price of this good is $20, what will consumer surplus equal?

a) $100.
b) $200.
c) $300
d) $400.

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75. 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.

76. The demand curve for a good is derived from the:

a) Marginal cost of the good.

b) Marginal benefit of the good.
c) Marginal benefits of the good minus marginal costs of the good.
d) Production possibilities frontier.

77. Consider the supply and demand curve diagram below.

$
S

10

6
4 D

60 90 150 230 270

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.

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 Economics 103
Dr. Emma Hutchinson

78. 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.

79. Refer to the supply and demand diagram below.

S
a

4
b
3 D
c
f
d
Q
50 75

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.

80. 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.

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 Economics 103
Dr. Emma Hutchinson

81. 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.

82. 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.

83. 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.

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 Economics 103
Dr. Emma Hutchinson

84. 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 diagram below.

$
80

60

40

20
D

Q
10 20 30 40

85. If the price of this good is $20, what will be the quantity demanded?

a) 10.
b) 20.
c) 30.
d) 40.

86. If the price of this good is $60, what will consumer surplus equal?

a) $50.
b) $100.
c) $150.
d) $200.

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 Economics 103
Dr. Emma Hutchinson

The following TWO questions refer to the supply and demand diagram below.
$

S1

S2
a
d
e
b
f
c D

Q1 Q2 Q

87. 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).

88. 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.

89. When deciding how much of a particular good to produce, a producer should:

a) Keep producing more units until the total benefits equal the total costs.
b) Always produce an additional unit if price is greater than marginal cost.
c) Never produce an additional unit if its marginal cost is higher than the marginal
cost of previously produced units.
d) Always produce at additional unit if price is greater than zero.

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 Economics 103
Dr. Emma Hutchinson

The following TWO questions refer to the diagram below.

$
S
4

Q
1 2 3

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

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

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

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

92. 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.

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 Economics 103
Dr. Emma Hutchinson

93. The following question refers to the diagram below, which illustrates an individual’s
demand curve for a good.

$
Demand

A
P1
B D
P2
E
C
Q
Q1 Q2
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.

94. 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.

95. 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.

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 Economics 103
Dr. Emma Hutchinson

96. Consider the diagram below.

$
S

w
x
y

z D

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.

97. 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.

98. 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.

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 Economics 103
Dr. Emma Hutchinson

99. Consider the supply and demand diagram drawn below.

$

D2 S
D1
3

Q
20 35 50

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.

100. 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.

101. 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.

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 Economics 103
Dr. Emma Hutchinson

The following TWO questions refer to the diagram below.

12 S
11
10
9
8
7
6
5
4
3
2
1 D
Q
! 10 20 30 40 50 60 70 80 90

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

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

103. 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.

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 Economics 103
Dr. Emma Hutchinson

The following TWO questions refer to the diagram below, which illustrates a supply
curve.

104. In order for quantity supplied to equal 6 units, the price per unit must be:

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

105. If the price of this good is $4 per unit, then what does producer surplus equal?

a) $32.
b) $24.
c) $16.
d) $12.

106. Which of the following statements about inferior goods is/are FALSE?

I. Inferior goods are those that we will never buy, no matter how cheap they are.
II. Inferior goods are those that we buy more of, if we become poorer.
III. Inferior goods are those that we buy more of, if we become richer.

a) I only
b) III only.
c) I and III only.
d) I, II, and III.

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 Economics 103
Dr. Emma Hutchinson

107. The diagram below illustrates a supply curve.

$
S
4

Q
1 2 3
If the price of this good is $2 per unit, then what will be the quantity supplied?

a) 0.
b) 1.
c) 2.
d) 3.

108. Consider the supply and demand diagram drawn below.

$
S

40

30

15 D
8
Q
200 300
What does the equilibrium price equal in this market?

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

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 Economics 103
Dr. Emma Hutchinson

109. 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.

110. 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.

111. 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.

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 Economics 103
Dr. Emma Hutchinson

112. 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.

113. 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.

114. 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.

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 Economics 103
Dr. Emma Hutchinson

115. Refer to the supply and demand diagram below.

S1

S2
a
d
e
b
f
c D

Q1 Q2 Q

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.

116. 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.

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 Economics 103
Dr. Emma Hutchinson

117. Consider the supply and demand diagram below.

$
S2

a
S1
P2 b
c g
P1
f e

D
Q2 Q1 Q

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.

118. 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.

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 Economics 103
Dr. Emma Hutchinson

119. Consider the supply and demand curves drawn below.

S
Y Z
Q

Given the equilibrium quantity, which area represents MARKET SURPLUS?

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

120. 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.

121. 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.

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 Economics 103
Dr. Emma Hutchinson

122. 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.

123. Sarah is selling her used truck. The minimum amount she needs to be paid for the
truck is $5,000. She advertises the truck on usedvictoria.com for $8,000, and eventually
sells the truck for $6,000. Her producer surplus is equal to _____.

a) $1,000.
b) $2,000.
c) $3,000.
d) $6,000.

124. 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.

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 Economics 103
Dr. Emma Hutchinson

125. 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.

126. 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.

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 Economics 103
Dr. Emma Hutchinson

127. Consider the diagram below which illustrates one demand curve and two different
possible supply curves.

$
S2
D

S1

If demand decreases in this market, then:

a) The decrease in equilibrium price will be larger, if supply is S1 than if supply is

S 2.
b) The decrease in equilibrium quantity will be larger, if supply is S1 than if supply is
S 2.
c) The decrease in both equilibrium price and quantity will larger, if supply is S2
than if supply is S1.
d) Both a) and b) are true.

128. 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.

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 Economics 103
Dr. Emma Hutchinson

The next THREE questions refer to the diagram below.

$
S

a
c

d
b
D

Q
200 300

129. 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.

130. Given the equilibrium quantity of 300 units, which areas represent PRODUCER
SURPLUS?

a) c+d.
b) a+b.
c) a+c.
d) b+d.

131. Given the equilibrium quantity of 300 units, which areas represent CONSUMER
SURPLUS?

a) c+d.
b) a+b.
c) a+c.
d) b+d.

!47