Demand, Supply and Markets Practice Quiz (14 questions)

Question 1

1. A buyer is willing to purchase a good at prices below a particular cutoff. What does that cutoff represent?

The buyer’s gain from trade

The buyer’s valuation

The seller’s cost

The purchase price

Explanation

A buyer’s valuation is the cutoff below which she wants to trade. The seller’s cost is the seller’s cutoff, the purchase price is the transaction amount, and the buyer’s gain is valuation minus price.

Answer

The buyer’s valuation

Question 2

2. A seller has a cost cutoff of $18 and is offered $23 for a unit. Based on the cutoff rule, what does the seller prefer to do?

Decline, because the price equals cost

Sell, because the price is below cost

Decline, because the price is above cost

Sell, because the price is above cost

Explanation

A seller wants to trade at prices above the seller’s cost, and $23 exceeds the $18 cost cutoff. Declining above cost reverses the rule, while the buyer’s rule concerns prices below valuation.

Answer

Sell, because the price is above cost

Question 3

3. A buyer values a unit at $50, a seller’s cost is $30, and they trade at $40. What are the buyer’s gain, seller’s gain, and total gain, respectively?

$10, $10, and $10

$20, $10, and $20

$10, $10, and $20

$10, $20, and $30

Explanation

The buyer gains $V-P=50-40=10$ , the seller gains $P-C=40-30=10$ , and total gain is $V-C=50-30=20$ . Using price for total gains or reversing the seller’s subtraction gives an incorrect result.

Answer

$10, $10, and $20

Question 4

4. In a market diagram, which direction should the demand and supply curves slope as quantity increases?

Both downward

Both upward

Demand downward; supply upward

Demand upward; supply downward

Explanation

The demand curve slopes downward and the supply curve slopes upward. Reversing either curve’s direction, or assigning both the same slope, conflicts with these relationships.

Answer

Demand downward; supply upward

Question 5

5. A market analyst wants to represent the total valuation of the first $Q$ buyers on a valuation graph. Which region should the analyst measure?

The area above the valuation graph up to

Q

The area under the valuation graph up to

Q

The area under the cost graph up to

Q

The area under demand and above the price line

Explanation

Total valuation for the first $Q$ buyers is represented by the area under the valuation graph up to $Q$ . The area under the cost graph represents total cost, while areas involving the price line concern surplus.

Answer

The area under the valuation graph up to $$Q$$

Question 6

6. At a price of $12, buyers want to purchase 80 units while sellers offer 80 units. What does this price represent?

A price unrelated to the equality of demand and supply

The market equilibrium price

A price at which quantity supplied exceeds quantity demanded

A price at which quantity demanded exceeds quantity supplied

Explanation

Market equilibrium occurs at the price where quantity supplied equals quantity demanded, which is true at $12 in this situation. A shortage or surplus would mean the quantities differ.

Answer

The market equilibrium price

Question 7

7. A market is operating at its equilibrium, and a policy change moves it to an allocation with lower total surplus. How does the equilibrium allocation compare in efficiency?

It is more efficient because it raises government revenue

It is less efficient because it produces a higher price

It is more efficient because it maximizes total surplus

It is less efficient because buyers receive all the surplus

Explanation

The equilibrium maximizes total surplus, so an allocation with lower total surplus is less efficient by this criterion. A higher price or the division of surplus does not by itself determine whether total surplus is maximized.

Answer

It is more efficient because it maximizes total surplus

Question 8

8. At a given market price, a buyer purchases several units whose valuations exceed that price. Which region represents this buyer’s consumer surplus?

The area under demand and below the price line

The area above supply and below the price line

The area below demand and above the price line

The area above supply and above the price line

Explanation

Consumer surplus is the area under the demand curve and above the price line, representing buyers’ valuation net of what they pay. The area above supply and below price describes producer surplus; total valuation without subtracting expenditure is not consumer surplus.

Answer

The area below demand and above the price line

Question 9

9. A seller receives the market price for units sold, and the total cost of producing them is represented by the area under the supply curve. Which region represents the seller’s producer surplus?

The area below supply and below the price line

The area above demand and below the price line

The area below demand and above the price line

The area above supply and below the price line

Explanation

Producer surplus is the area above the supply curve and below the price line, equivalent to revenue minus total cost. The area below demand and above price is consumer surplus, while revenue without subtracting costs overstates producer surplus.

Answer

The area above supply and below the price line

Question 10

10. A government imposes a per-unit tax on sellers of a product. In a supply-and-demand graph, which curve shifts and in what direction?

Supply shifts downward by the amount of the tax

Demand shifts downward by the amount of the tax

Supply shifts upward by the amount of the tax

Demand shifts upward by the amount of the tax

Explanation

A per-unit tax on sellers raises the cost of supplying each unit, shifting supply upward by the tax amount. A downward demand shift describes a buyer tax, while shifts in the opposite directions reverse the effect.

Answer

Supply shifts upward by the amount of the tax

Question 11

11. When a per-unit sales tax causes some mutually beneficial trades not to occur, what happens to total welfare?

It falls only by the amount of revenue collected

It falls because the unrealized gains create deadweight loss

It rises because the tax transfers surplus to the government

It stays unchanged because tax revenue replaces the lost surplus

Explanation

The tax prevents some gains-from-trade transactions from occurring, reducing total welfare through deadweight loss. Tax revenue is a transfer to the government, not a replacement for surplus from trades that no longer happen; treating the tax as trade-expanding reverses its effect.

Answer

It falls because the unrealized gains create deadweight loss

Question 12

12. A per-unit tax is charged to buyers in a market. Which curve shifts as a result, and by how much?

Demand shifts upward by the tax amount

Demand shifts downward by the tax amount

Supply shifts downward by the tax amount

Supply shifts upward by the tax amount

Explanation

A per-unit tax on buyers reduces their willingness to pay sellers by the tax amount, shifting demand downward. The upward supply shift applies to a seller tax, while the other choices place the shift on the wrong curve or in the wrong direction.

Answer

Demand shifts downward by the tax amount

Question 13

13. In a market with $Q_d=50-P$ and $Q_s=0.5P-10$ , a price floor of $42 is imposed. What are quantity demanded, quantity supplied, and the resulting surplus?

11 demanded, 8 supplied, surplus of 3

8 demanded, 11 supplied, shortage of 3

8 demanded, 11 supplied, surplus of 3

8 demanded, 21 supplied, surplus of 13

Explanation

At price $42, demand is $50-42=8$ and supply is $0.5(42)-10=11$ , so the surplus is $11-8=3$ . The ceiling calculation uses a different price, a shortage reverses the excess-supply calculation, and the larger supply value results from an incorrect operation.

Answer

8 demanded, 11 supplied, surplus of 3

Question 14

14. A generic soft-drink producer faces both a tariff on imported raw sugar, a production input, and aggressive advertising by Coca-Cola and Pepsi that promotes their products over generic drinks. What combined pressure on the generic drink's equilibrium price and quantity follows from these changes?

Price rises and quantity rises

Price falls and quantity rises

Price falls and quantity falls

Price rises and quantity falls

Explanation

The sugar tariff raises the generic producer's input costs, shifting supply left, while rival advertising reduces demand for generic drinks, shifting demand left. Both changes reduce equilibrium quantity; the cost increase puts upward pressure on price, unlike treating advertising as stronger generic demand or shifting demand for the tariff.

Answer

Price rises and quantity falls

Demand, Supply and Markets Practice Quiz (14 questions)

All questions and answers

1. A buyer is willing to purchase a good at prices below a particular cutoff. What does that cutoff represent?

2. A seller has a cost cutoff of $18 and is offered $23 for a unit. Based on the cutoff rule, what does the seller prefer to do?

3. A buyer values a unit at $50, a seller’s cost is $30, and they trade at $40. What are the buyer’s gain, seller’s gain, and total gain, respectively?

4. In a market diagram, which direction should the demand and supply curves slope as quantity increases?

5. A market analyst wants to represent the total valuation of the first $Q$ buyers on a valuation graph. Which region should the analyst measure?

6. At a price of $12, buyers want to purchase 80 units while sellers offer 80 units. What does this price represent?

7. A market is operating at its equilibrium, and a policy change moves it to an allocation with lower total surplus. How does the equilibrium allocation compare in efficiency?

8. At a given market price, a buyer purchases several units whose valuations exceed that price. Which region represents this buyer’s consumer surplus?

9. A seller receives the market price for units sold, and the total cost of producing them is represented by the area under the supply curve. Which region represents the seller’s producer surplus?

10. A government imposes a per-unit tax on sellers of a product. In a supply-and-demand graph, which curve shifts and in what direction?

11. When a per-unit sales tax causes some mutually beneficial trades not to occur, what happens to total welfare?

12. A per-unit tax is charged to buyers in a market. Which curve shifts as a result, and by how much?

13. In a market with $Q_d=50-P$ and $Q_s=0.5P-10$ , a price floor of $42 is imposed. What are quantity demanded, quantity supplied, and the resulting surplus?

Study with flashcards

Read the study guide

Related classes

African Economic Reform and Investment

Introduction to Accounting

Consumer Behavior for Transition

Marketing Value and Customer Relationships

Human Resource Development

Business Finance and Accounting

Make your own practice quizzes

Demand, Supply and Markets Practice Quiz (14 questions)

All questions and answers

1. A buyer is willing to purchase a good at prices below a particular cutoff. What does that cutoff represent?

2. A seller has a cost cutoff of $18 and is offered $23 for a unit. Based on the cutoff rule, what does the seller prefer to do?

3. A buyer values a unit at $50, a seller’s cost is $30, and they trade at $40. What are the buyer’s gain, seller’s gain, and total gain, respectively?

4. In a market diagram, which direction should the demand and supply curves slope as quantity increases?

5. A market analyst wants to represent the total valuation of the first QQQ buyers on a valuation graph. Which region should the analyst measure?

6. At a price of $12, buyers want to purchase 80 units while sellers offer 80 units. What does this price represent?

7. A market is operating at its equilibrium, and a policy change moves it to an allocation with lower total surplus. How does the equilibrium allocation compare in efficiency?

8. At a given market price, a buyer purchases several units whose valuations exceed that price. Which region represents this buyer’s consumer surplus?

9. A seller receives the market price for units sold, and the total cost of producing them is represented by the area under the supply curve. Which region represents the seller’s producer surplus?

10. A government imposes a per-unit tax on sellers of a product. In a supply-and-demand graph, which curve shifts and in what direction?

11. When a per-unit sales tax causes some mutually beneficial trades not to occur, what happens to total welfare?

12. A per-unit tax is charged to buyers in a market. Which curve shifts as a result, and by how much?

13. In a market with Qd=50−PQ_d=50-PQd​=50−P and Qs=0.5P−10Q_s=0.5P-10Qs​=0.5P−10, a price floor of $42 is imposed. What are quantity demanded, quantity supplied, and the resulting surplus?

Study with flashcards

Read the study guide

Related classes

African Economic Reform and Investment

Introduction to Accounting

Consumer Behavior for Transition

Marketing Value and Customer Relationships

Human Resource Development

Business Finance and Accounting

Make your own practice quizzes

5. A market analyst wants to represent the total valuation of the first $Q$ buyers on a valuation graph. Which region should the analyst measure?

13. In a market with $Q_d=50-P$ and $Q_s=0.5P-10$ , a price floor of $42 is imposed. What are quantity demanded, quantity supplied, and the resulting surplus?