Deck 16: A: Equilibrium

Question 1

The demand curve,which is a downward-sloping straight line,crosses the supply curve,which is an upward-sloping straight line.If a tax is introduced where sellers must pay a tax of $2 per unit sold,then the equilibrium price paid by demanders will rise by more than $1 if the absolute value of the slope of the demand curve is greater than the absolute value of the slope of the supply curve.

Answer 1

True

Question 2

Xaquane and Yullare are obscure but talented eighteenth-century painters.The world's stock of Xaquanes is 100 and the world's stock of Yullares is 70.The demand for each painter's work depends on its own price and the price of the other painter's work.If P_x is the price of Xaquanes and P_y is the price of Yullares,the demand function for Xaquanes is 101 -3P_x + 2P_y and the demand function for Yullares is 72 + P_x - P_y.What is the equilibrium price for Yullare's paintings?

A) $5
B) $11
C) $12
D) $7
E) None of the above.

Answer 2

$7

Question 3

If the supply curve is vertical,then the amount supplied is independent of price.

Answer 3

True

Question 4

The inverse demand function for lemons is defined by the equation p =120 -11q,where q is the number of crates that are sold.The inverse supply function is defined by p= 8 + 3q.In the past there was no tax on lemons but now a tax of $84 per crate has been imposed.What are the quantities produced before and after the tax was imposed?

A) 4 crates before and 3 crates after
B) 8 crates before and 2 crates after
C) 16 crates before and 5 crates after
D) None of the above.

Question 5

If the supply is perfectly elastic,then an upward shift of the demand curve will lead to a higher price and a higher quantity in equilibrium.

Question 6

The supply curve slopes up and to the right.If the demand curve shifts upward to a new curve which is everywhere higher than the old curve (but possibly of different slope)and if the supply curve does not shift,then the equilibrium price and quantity must necessarily increase.

Question 7

The amount of a good supplied is independent of the price.If a sales tax is imposed on the good,then the price paid by consumers will not change at all.

Question 8

The demand function for fresh strawberries is q = 200 - 5p and the supply function is q =60 + 2p.What is the equilibrium price?

A) $10
B) $20
C) $40
D) $50
E) None of the above.

Question 9

The demand for pickles is given by p = 167 -3q and the supply is given by p = 5+6q.What is the equilibrium quantity?

A) 15
B) 23
C) 113
D) 18
E) None of the above.

Question 10

Supply and demand theory shows us that the burden of a sales tax is shared equally by suppliers and demanders whether the tax is collected from the sellers or collected from the buyers.

Question 11

The inverse demand function for cases of whiskey defined by p =186 -6q,and the inverse supply function is defined by p = 90+2q.Originally there was no tax on whiskey.Then the government began to tax suppliers of whiskey $32 for every case they sold.How much did the price paid by consumers rise when the new equilibrium was reached?

A) It rose by $32.
B) It rose by $24.
C) It rose by $22.
D) It rose by $34.
E) None of the above.

Question 12

The demand for pickles is given by p =131 -2q and the supply is given by p =5 + 7q.What is the equilibrium quantity?

A) 11
B) 14
C) 19
D) 103
E) None of the above.

Question 13

In a certain kingdom,the demand function for rye bread was q = 381- 3p and the supply function was q = 5 + 7p,where p is the price in zlotys and q is loaves of bread.The king made it illegal to sell rye bread for a price above 32 zlotys per loaf.To avoid shortages,he agreed to pay bakers enough of a subsidy for each loaf of bread so as to make supply equal demand.How much would the subsidy per loaf have to be?

A) 21 zlotys
B) 14 zlotys
C) 8 zlotys
D) 20 zlotys
E) None of the above.

Question 14

The inverse demand function for cigars is defined by p =240- 2q,and the inverse supply function is defined by p = 3 + q.Cigars are taxed at $4 per box.

A) The after-tax price paid by consumers rises by more than $2,and the after-tax price received by suppliers falls by less than $2.
B) The after-tax price paid by consumers goes up by less than $2,and the after-tax price received by suppliers rises.
C) Consumers and suppliers share the cost of the tax equally.
D) The after-tax price paid by consumers rises by $4,and the after-tax price received by suppliers stays constant.
E) The after-tax price paid by consumers rises by less than $2,and the after-tax price received by suppliers stays constant.

Question 15

The inverse demand function for mangos is defined by the equation p = 91- 5q,where q is the number of crates that are sold.The inverse supply function is defined by p = 3+ 6q.In the past there was no tax on mangos but now a tax of $44 per crate has been imposed.What are the quantities produced before and after the tax was imposed?

A) 5 crates before and 5 crates after
B) 16 crates before and 9 crates after
C) 14 crates before and 7 crates after
D) 8 crates before and 4 crates after
E) None of the above.

Question 16

The inverse demand function for eggs is p=125 - 6q,where q is the number of cases of eggs.The inverse supply is p = 5 + 6q.In the past,eggs were not taxed,but now a tax of 72 dollars per case has been introduced.What is the effect of the tax on the quantity of eggs supplied?

A) Quantity drops by 7 cases.
B) Quantity drops by 5 cases.
C) Quantity drops by 6 cases.
D) Quantity drops by 12 cases.
E) None of the above.

Question 17

If a quantity tax is collected from competitive suppliers of a good,placing a tax on the good causes the price paid by consumers to increase more than if the tax had been collected directly from the buyers.

Question 18

The inverse demand function for eggs is p = 84 - 9q,where q is the number of cases of eggs.The inverse supply is p = 7 + 2q.In the past,eggs were not taxed,but now a tax of 33 dollars per case has been introduced.What is the effect of the tax on the quantity of eggs supplied?

A) Quantity drops by 2 cases.
B) Quantity drops by 3 cases.
C) Quantity drops by 6 cases.
D) Quantity drops by 4 cases.
E) None of the above.

Question 19

The inverse demand function for cases of whiskey defined by p = 160 - 6q,and the inverse supply function is defined by p = 61 + 3q.Originally there was no tax on whiskey.Then the government began to tax suppliers of whiskey $27 for every case they sold.How much did the price paid by consumers rise when the new equilibrium was reached?

A) It rose by $27.
B) It rose by $29.
C) It rose by $18.
D) It rose by $16.
E) None of the above.

Question 20

An economic situation is Pareto optimal only if there is no way to make someone better off.

Question 21

The demand function for orange juice is q =247 - 8p and the supply function is q =19 + 4p,where q is the number of units sold per year and p is the price per unit,expressed in dollars.The government decides to support the price of orange juice at a price floor of $27 per unit by buying orange juice and destroying all that it has purchased.How many units must the government destroy per year?

A) 105
B) 104
C) 40
D) 96
E) 101

Question 22

The demand curve for rutabagas is a straight line with slope 23 and the supply curve is a straight line with slope 2.Suppose that a new tax of $3 per sack of rutabagas is introduced.

A) The total number of rutabagas purchased increases.
B) The price paid by demanders rises by the same amount as the price received by suppliers falls.
C) The price received by suppliers falls by more than the price paid by demanders rises.
D) The price paid by demanders rises by more than the price received by suppliers falls.
E) The price paid by demanders rises by more than $3.

Question 23

Schrecklich and Lamerde are two obscure modernist painters,who are no longer alive but whose paintings are still enjoyed by persons of dubious taste.The demand function for Schrecklichs is 200 - 4P_S -2P_L and the demand function for Lamerdes is 200-3P_L - P_S,where P_S and P_L are respectively the price of Schrecklichs and Lamerdes.If the world supply of Schrecklichs is 110 and the world supply of Lamerdes is 110,then the equilibrium price of Schrecklichs is

A) $9.
B) $22.50.
C) $36.
D) $27.
E) $18.

Question 24

The demand function for corn is q =200 - p and the supply function is q = 50 + .5p.The government sets the price of corn at $150 and agrees to purchase and destroy any excess supply of corn at that price.How much money does it cost the government to buy this corn?

A) $11,250
B) $18,750
C) $7,500
D) $10,750
E) $14,500

Question 25

The price elasticity of demand for a certain agricultural product is constant (over the relevant range of prices)and equal to -2.The supply elasticity for this product is constant and equal to 3.Originally the equilibrium price of this good was $45 per unit.Then it was discovered that consumption of this product was unhealthy.The quantity that would be demanded at any price fell by 100%.The percent change in the long-run equilibrium consumption of this good was

A) -100%.
B) -64%.
C) -20%.
D)-60%.
E) There is not enough information to determine the answer.

Question 26

In a certain kingdom,the demand function for rye bread was q = 181 - 8p and the supply function was q = 13 +6p,where p is the price in zlotys and q is loaves of bread.The king made it illegal to sell rye bread for a price above 6 zlotys per loaf.To avoid shortages,he agreed to pay bakers enough of a subsidy for each loaf of bread so as to make supply equal demand.How much would the subsidy per loaf have to be?

A) 21 zlotys
B) 20 zlotys
C) 14 zlotys
D) None of the above.

Question 27

Suppose that King Kanuta,whom you met in your workbook,demands that each of his subjects give him 1 coconut for every coconut that they consume.The king puts all of the coconuts that he collects in a large pile and burns them.The supply of coconuts is given by S(p_s)=100p_s,where p_s is the price received by suppliers.The demand for coconuts by the king's subjects is given by D(p_d)= 1,500 - 100p_d,where p_d is the price paid by consumers.In equilibrium,the price received by suppliers will be

A) $6.
B) $9.
C) $7.50.
D) $15.
E) None of the above.

Question 28

The quantity q of apricots demanded at price p is given by q = 36 - 4p and the supply schedule by q= 2p.The government imposes a quantity tax at some rate t,which it collects from buyers.What is the smallest tax rate that will result in no apricots being bought or sold?

A) 6.67%
B) 9%
C) 6%
D) 10.50%
E) 12%

Question 29

The demand function for rental apartments is q = 960 -7p and the supply function is q =160 +3p.The government makes it illegal to charge a rent higher than $35.How much excess demand will there be?

A) 149
B) 450
C) 364
D) 726
E) 245

Question 30

The inverse demand function for video games is p =240 - 2q and the inverse supply function is p = 3 +q.When the government imposes a $6 tax on each video game purchased,

A) consumer's surplus falls by more than producer's surplus.
B) producer's surplus falls by more than consumer's surplus.
C) consumer's surplus and producer's surplus fall by the same amount.
D) consumer's surplus falls and producer's surplus increases.
E) producer's surplus falls and consumer's surplus increases.

Question 31

Suppose that King Kanuta,whom you met in your workbook,demands that each of his subjects give him 2 coconuts for every coconut that they consume.The king puts all of the coconuts that he collects in a large pile and burns them.The supply of coconuts is given by S(p_s)=100p_s,where p_s is the price received by suppliers.The demand for coconuts by the king's subjects is given by D(p_d)=6,000 -100p_d,where p_d is the price paid by consumers.In equilibrium,the price received by suppliers will be

A) $30.
B) $18.
C) $90.
D) $27.
E) None of the above

Question 32

The demand curve for rutabagas is a straight line with slope 26 and the supply curve is a straight line with slope 2.Suppose that a new tax of $3 per sack of rutabagas is introduced.

A) The price received by suppliers falls by more than the price paid by demanders rises.
B) The total number of rutabagas purchased increases.
C) The price paid by demanders rises by the same amount as the price received by suppliers falls.
D) The price paid by demanders rises by more than the price received by suppliers falls.
E) The price paid by demanders rises by more than $3.

Question 33

The demand function for abalone is q = 30 -9p and the supply function is q = 6p.Suddenly the yuppies discover abalone.The quantity demanded at every price doubles.The supply function,however,remains the same as before.What is the effect on the equilibrium price and quantity?

A) The price doubles and the quantity remains constant.
B) The quantity doubles and the price remains constant.
C) Both price and quantity double.
D) Both price and quantity increase but neither doubles.
E) None of the above.

Question 34

The demand function for orange juice is q =269 - 9p and the supply function is q = 9 +4p,where q is the number of units sold per year and p is the price per unit,expressed in dollars.The government decides to support the price of orange juice at a price floor of $24 per unit by buying orange juice and destroying all that it has purchased.How many units must the government destroy per year?

A) 52
B) 56
C) 25
D) 61
E) 57

Question 35

In a crowded city far away,the civic authorities decided that rents were too high.The long-run supply function of two-room rental apartments was given by q = 14 + 5p,and the long-run demand function was given by q =329 - 5p,where p is the rental rate in crowns per week.The authorities made it illegal to rent an apartment for more than 25 crowns per week.To avoid a housing shortage,the authorities agreed to pay landlords enough of a subsidy to make supply equal to demand.How much would the weekly subsidy per apartment have to be to eliminate excess demand at the ceiling price?

A) 6.50 crowns
B) 10 crowns
C) 13 crowns
D) 26 crowns
E) 19.50 crowns

Question 36

The price elasticity of demand for a certain agricultural product is constant (over the relevant range of prices)and equal to -1.50.The supply elasticity for this product is constant and equal to 4.Originally the equilibrium price of this good was $15 per unit.Then it was discovered that consumption of this product was unhealthy.The quantity that would be demanded at any price fell by 11%.The percent change in the long-run equilibrium consumption of this good was

A) -11%.
B) -8%.
C) -2%.
D) -12%.
E) There is not enough information to determine the answer.

Question 37

The quantity q of grapefruits demanded at price p is given by q = 30 - 3p and the supply schedule by q =6p.The government imposes a quantity tax at some rate t,which it collects from buyers.What is the smallest tax rate that will result in no grapefruits being bought or sold?

A) 10%
B) 3.33%
C) 3.67%
D) 11.50%
E) 13%

Question 38

The demand function for x is D(p)= 65 -2p and the supply function is S(p)=20+p.The price that should be set to restrict the quantity supplied to 30 units is closest to

A) $5.
B) $10.
C) $15.
D) $50.
E) $55.

Question 39

The market for tennis shoes has a horizontal supply curve and a linear,downward-sloping demand curve.Currently the government imposes a tax of t on every pair of tennis shoes sold and does not tax other goods.The government is considering a plan to double the tax on tennis shoes,while leaving other goods untaxed.If the tax is doubled,then

A) the total deadweight loss caused by the doubled tax will be exactly twice the original deadweight loss.
B) the total deadweight loss caused by the doubled tax will be more than twice the original deadweight loss.
C) the total deadweight loss caused by the doubled tax will be less than twice the original deadweight loss.
D) to know if doubling the tax would more than double the deadweight loss,we would have to know the slope of the demand curve.
E) None of the above.

Question 40

In a crowded city far away,the civic authorities decided that rents were too high.The long-run supply function of two-room rental apartments was given by q=5+2p,and the long-run demand function was given by q =225- 4p,where p is the rental rate in crowns per week.The authorities made it illegal to rent an apartment for more than 30 crowns per week.To avoid a housing shortage,the authorities agreed to pay landlords enough of a subsidy to make supply equal to demand.How much would the weekly subsidy per apartment have to be to eliminate excess demand at the ceiling price?

A) 10 crowns
B) 17 crowns
C) 20 crowns
D) 40 crowns
E) 30 crowns

Question 41

Long ago,a kindly prince noticed the misery of his subjects.His subjects all had the same preferences and the same low incomes.The demand function of each subject for bread was q = 26 - p,where p is the price of bread and q is the number of loaves per week.The supply of bread per capita per week was given by the function q= .3p.The king declared since his subjects did not even get a loaf of bread per day,he would help them by making it illegal to sell bread for more than 10 groschens per loaf.Unhappily,a bread shortage arose and people waited in long lines to get bread.
a.Draw a graph to show why.Put numerical labels on the important points on your graph.
b.If the citizens could earn 4 groschens per hour at work that was exactly as unpleasant as waiting in line,what would be the equilibrium waiting time for a loaf of bread?

Question 42

Schrecklich and Lamerde are two obscure modernist painters,who are no longer alive but whose paintings are still enjoyed by persons of dubious taste.The demand function for Schrecklichs is 200 - 4P_S - 2P_L and the demand function for Lamerdes is 200-3P_L -P_S,where P_S and P_L are respectively the price of Schrecklichs and Lamerdes.If the world supply of Schrecklichs is 100 and the world supply of Lamerdes is 70,then the equilibrium price of Schrecklichs is

A) $46.
B) $4.
C) $25.
D) $42.
E) $8.

Question 43

Use supply and demand analysis to examine the following statement: "The practice of giving food stamps is self-defeating.Food stamps effectively lower the price of food.When food becomes available at lower prices,demand will increase thereby forcing the price up to its initial level." Is this reasoning correct? Draw supply and demand curves to illustrate your answer.

Question 44

Daily demand for gasoline at Billy-Bob's Mobile Station is described by Q =776 -200p,where Q are gallons of gasoline sold and p is the price in dollars.Billy-Bob's supply is Q = 2890 + 1,500p.Suppose the state government places a tax of 20 cents on every gallon of gasoline sold.What is the deadweight loss resulting from this tax?

A) 3.53 dollars
B) 3.11 dollars
C) 0.42 dollars
D) 96.12 dollars
E) 34.59 dollars

Question 45

Daily demand for gasoline at Billy-Bob's Mobile Station is described by Q = 980 -300p,where Q are gallons of gasoline sold and p is the price in dollars.Billy-Bob's supply is Q=22,980 + 3,000p.Suppose the state government places a tax of 18 cents on every gallon of gasoline sold.What is the deadweight loss resulting from this tax?

A) 4.02 dollars
B) 0.40 dollars
C) 4.42 dollars
D) 93.42 dollars
E) 58.91 dollars