1. What effect will each of the following have on the demand for product B?

a. B becomes more fashionable

b. The price of C (substitute) falls
c. A decline in incomes if B is inferior good
d. Consumers anticipate the price of B will be lower in the near future
e. The price of D (complementary) falls
f. Foreign tariff barriers on B are eliminated
2. What effect will each of the following have on the supply of product B?
a. A technological advance in the methods of producing B
b. A decline in the number of firms in the industry
c. An increase in the price of resources required in the production of B
d. The expectation that the equilibrium price of B will be lower in the future than it is currently
e. A decline in the price of A, a good whose production requires substantially the same techniques
and resources as does the production of B
f. The levying of a specific sales tax on B
g. The granting of a 50%/unit subsidy for each unit of B produced.
3. Explain what happens to the demand curve for a good when the following changes occur, ceteris
paribus.
a) A rise in the price of a substitute good
b) A rise in the price of a complementary good
c) A fall in the price of the good
4. The demand equations for two consumers are q1 = 100 – 4p and q2 = 50 – 2p. The market demand
equation is:
a. q = 50 – 2p; b. q = 100 – 2p; c. q = 150 – 6p; d. q = 150 – 8p; e. q = 5000 – 8p
5. Qd=5000-120p; Qs=1000+80p. If demand increases by 10%, how much will the price change?
6.
P 10 9 8 7 6
Qs 160 140 120 100 80
Qd 40 60 80 100 120
Write the equations of the functions for demand and supply.
7. Sam is willing to sell his car for no less than €5000. Bob wants to pay as much as €8000 for it.
They agree on €7000. How much is Bob’s consumer surplus?
8. A sweet manufacturer is willing to sell 100 chocolate bars for €3 each. The sweets are so
popular that the actual market price is €5 per bar. What is the total producer surplus?
9. Suppose that the demand for lawn fertilizer can be expressed as QD = 5000 – 120P and that the
supply of lawn fertilizer can be expressed as QS = 1000 + 80P where Q is measured in tons per
year and P is measured in dollars per ton. What is the effect of a government-imposed price
ceiling of $10 per ton of fertilizer?
a. A surplus of 2,000 tons; b. A shortage of 1,200 tons; c. A surplus of 1,200 tons; d. A shortage
of 2,000 tons.
10. Qd=150-4p, Qs=50+2p. If there is a surplus of 20 units on the market, compute the price.
11. In some industries (ex: the oil industry) producers justify their reluctance to lower prices by arguing
that demand for their products is inelastic. Explain.
12. In May 1990 Vincent van Gogh’s painting “Portrait of Dr. Gachet” sold at auction for $82.5 million.
Represent this sale in a demand and supply diagram and comment on the elasticity of supply.
13. What effect would a rule stating that university students must live in university dormitories
have on the price elasticity of supply for dorm space? What impact might this in turn have on
room rates?
14. If the price increases from 100 m.u. to 200 m.u. and the quantity supplied increases from 400
to 600, the price elasticity of supply is:
a. >1; b. <1; c. 1; d. Cannot determine; e. 0
15. The income elasticities of demand for movies, dental services and clothing have been estimated to
be +3.4, +1.0, +0.5 respectively. Interpret these coefficients. What does it mean if the income
elasticity coefficient is negative?
16. A 5% increase in income leads to a 12% increase in the quantity demanded of mobile phones,
ceteris paribus, the value of the income elasticity of demand for mobile phones is:
 a. 2.4 and mobile phones are a normal good; b. 0.42 and mobile phones are a normal good; c. 2.4
and mobile phones are an inferior good; d. 0.42 and mobile phones are an inferior good
17. Demand for a good is likely to be more elastic:
a. the smaller the fraction of consumer income absorbed by the good
b. in the short run than in the long run
c. the greater the number of available substitutes for the good
18. Suppose the monthly demand for a can of 3 tennis balls at a nearby tennis club can be expressed as
Q = 150 – 30P. What is the price elasticity of demand at a price (P) of $3 per can?
a. -1.5; b. -0.6; c. -600; d. -30
19. Suppose that the demand for lawn fertilizer can be expressed as QD = 5000 – 120P and that
the supply of lawn fertilizer can be expressed as QS = 1000 + 80P where Q is measured in
thousands of tons per year and P is measured in dollars per thousand tons. What is the price
elasticity of demand when the market is in equilibrium?
a. -20; b. -1.08; c. -0.92; d. -120
20. Suppose that the market equilibrium price of corn is $1 per dozen ears and 4,000 dozen ears
are sold each week. Assuming a linear demand curve for corn, if the price elasticity of demand
for corn is -1, then the demand curve may be written as
a. Q = 8000 – 4000P; b. Q = 4001 – 1P; c. Q = 5000 –1000P; d. Q = 12000 – 8000P
21. If, when the price of product S rises by 20%, the demand for product W falls by 4% and the demand
for product T rises by 5%, then we can say that
a. W is a substitute for S and T is a substitute to S; b. W is a complement for S and T is a substitute
to S; c. W is a complement for S and T is an inferior good; d. W is a substitute for S and T is a
complement to S
22. The price of Toyota cars falls by 8% and in the following time period, the demand for Nissan cars
declines by 2%. The cross price elasticity of demand for Nissan cars is
a. +0.5; b. -0.25; c. +2.0; d. +0.25
23. A firm sells 80000 packs of washing powder at a price of £3 per pack. The price is increased to
£3.60 and the price elasticity of demand is -0.7. The new quantity demanded will be
a. 75000; b. 67000; c. 70000; d. 68800.
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24. Suppose your local public golf course increases the greens fees for using the course. If the demand
for golf is relatively inelastic, you would expect:
(A) a decrease in total revenue received by the course;
(B) an increase in total revenue received by the course.
(C) no change in total revenue received by the course.
(D) an increase in the amount of golf played on the course.
(E) no change in the amount of golf played on the course.
25. Price elasticity of demand for T-shirts is -0.8 and income elasticity of demand for the same product
is 3. An increase by 1% in the consumers’ income and a decrease by 1% in the price leads to:
a. A demand increase by 2.2%; b. A demand increase by 3.8%; c. A demand increase
by 0.8%; d. A demand decrease by 1%; e. A demand decrease by 2.2
26. A price increase determines the producers’ revenues from sales to fall. Under these conditions:
a. Demand is price elastic; b. Demand is price inelastic; c. Demand increases as price
increases; d. Producers do not maximise their profits; e. Producers do not minimise their
costs
27. Demand for good x is inelastic. If the price of good x decreases by 5% say what happens to the
quantity demanded and the revenues.
28. The market demand function for coffee is given by Qc D = 110 - 20pc +15pt + 10I, where pc is the
price of coffee, pt is the price of tea and I is some measure of consumers’ average income. The
supply of coffee is given by the function Qc S = 10pc. (a). Suppose pt = 10 and I = 10. What are the
equilibrium price and quantity for the coffee market? (b). In equilibrium, how much consumer
surplus does the coffee market generate? (c). What is the cross-price elasticity of demand of coffee
with respect to the tea at the equilibrium price and quantity from part (a)?
29. True, False, Uncertain? The increase in the price of oil has raised the cost of importing goods from
Europe into the United States. The equilibrium price of California wine (produced entirely within
the US) will decrease.
30. True, False, Uncertain? The demand for BMW cars (a type of luxury car) is less elastic compared to
the demand for luxury cars.

31. True, False, Uncertain? The market for Wisconsin cheese is perfectly competitive. Wisconsin
cheese is a normal good. If incomes increase (and nothing else changes), the market expenditures
on Wisconsin cheese will increase.
32. True, False, Uncertain? The market for Wisconsin cheese is perfectly competitive. Because of a
change in technology, the supply curve for Wisconsin cheese shifts outward. The market
expenditures on Wisconsin cheese will increase.