BK013 Principles of Economics 1

Tutorial 3 – Semester 1 – 2019

Multiple Choice Questions

1. Which of the following statements is TRUE about the equilibrium price?

A. There are forces that will increase the price.
B. There are forces that will decrease the price.
C. There is no pressure on price to either increase or decrease.
D. Quantity supplied may exceed quantity demanded and vice-versa.

2. Assumes that cars and petrol are complements. When the price of petrol goes up, which
of the following will happen to the market for cars?
A. The equilibrium price of cars will increase.
B. The equilibrium quantity of cars will decrease.
C. The supply curve for cars will shift to the left.
D. The supply curve for cars will shift to the right.

3. The following are the characteristics of a market in equilibrium, EXCEPT _________.

A. there is no excess
B. there is no surplus
C. there is a tendency for price to change
D. quantity demanded is equal to quantity supplied

4. The diagram below shows the demand and supply curves for a commodity.
Price (RM)

P Supply

X Y

Demand
Quantity (unit)
Given that the market is in equilibrium, the shaded area PXY represents ___________.
A. consumerss’ surplus
B. producers surplus
C. economic rent
D. None of the above.

5. If there is a shortage of a product, we can conclude that its price _____________.

A. is below the equilibrium level
B. is above the equilibrium level
C. will fall in the near future
D. is in equilibrium

PREPARED BY: GEYATHIRI GOPI

BK013 Principles of Economics 1
Tutorial 3 – Semester 1 – 2019

6. The following diagram indicates the market for chicken.

Price of chickens

E1
P1
E0
P0

D1
D0
Quantity of chickens
Q0 Q1
The change from E0 to E1 illustrated in the diagram is consistent with
_________________.
A. a rise in the factor costs involved in producing chickens
B. a fall in disposable incomes
C. a rise in the price of beef
D. None of the above.

7. If the following diagram, SS is the original supply curve and DD is the original demand
curve.
Price (RM)

P
SS1
SS
V
P1
P0 .
R
T

D
Quantity (unit)
Q1 Q0
If the supply now shifts from SS to SS1, which area represents the change in consumer
surplus?
A. Q0TVQ1
B. P0TVP1
C. P0TP
D. P0RVP1

PREPARED BY: GEYATHIRI GOPI

BK013 Principles of Economics 1
Tutorial 3 – Semester 1 – 2019

8. A ceiling price placed on a product is a ________________ that will normally result in

______________.
A. maximum price; shortage
B. minimum price; shortage
C. maximum price; surplus
D. minimum price; surplus

9. Subsidies given to farmers will result in a ______________________.

A. shift in the supply curve of vegetables
B. shift in the demand curve for vegetables
C. movement along the supply curve of vegetables
D. movement along the demand curve of vegetabels

10. “Black markets” are associated with ________________.

A. floor prices and resulting product surpluses
B. floor prices and resulting product shortages
C. ceiling prices and resulting product shortages
D. ceiling prices and resulting product surplus

11. If a product is in shortage, we can conclude that its price __________________.

A. is below the equilibrium level
B. is above the equilibrium level
C. will fall in the near future
D. is in equilibrium

12. If price is initially above the equilibrium level ________________.

A. the supply curve will shift rightward
B. the supply curve will shift leftward
C. excess supply exists
D. all firms can sell as much as they want

13. Consumer surplus is defined as _____________.

A. the difference between what the consumer is willing to pay and what he/she can
afford to pay
B. the difference between what the consumer is willing to pay and what he/she actually
pays
C. the sum of what the consumer pays and what he/she is willing to pay
D. the amount a consumer is willing to pay divided by what he actually pays

PREPARED BY: GEYATHIRI GOPI

BK013 Principles of Economics 1
Tutorial 3 – Semester 1 – 2019

14. A fall in the price of raw milk which is used in the production of ice-cream will
____________.
A. decrease in supply of ice-cream, causing the supply curve of ice-cream to shift to
the left
B. increase the supply of ice-cream, causing the supply curve of ice-cream to shift to
the right
C. have no effect on the supply curve of ice-cream
D. have no effect on the supply curve of ice-cream but cause a downward movement
along the supply curve of ice-cream

Answer question 15 and 17 based on the figure below.

Price (RM)
S

P3

P1

P2

Quantity (unit)
Q2 Q1 Q3
15. The market will be in equilibrium when the price is at _______ and the quantity
demanded is ________.
A. P1; Q1
B. P2; Q2
C. P3; Q3
D. None of the above.

16. The price at which there would be shortage of this good is _____________.
A. P1
B. P2
C. P3
D. both P1 and P3

17. If the price is fixed at P2 in this market, there would be ______________.

A. an excess supply of Q3 – Q2
B. an equilibrium in the market
C. an excess demand of Q3 – Q2
D. an excess demand in the market, but the quantity is difficult to determine

PREPARED BY: GEYATHIRI GOPI

BK013 Principles of Economics 1
Tutorial 3 – Semester 1 – 2019

Structured Question

1. The following table shows the demand and supply for a product.

Table 1: Demand of Individual Consumers

Table 2: Supply from Individual Producers

Table 1 Table 2
Price (RM)
Consumer A Consumer B Producer X Producer Y
10 40 60 20 20
20 35 50 25 30
30 30 40 30 40
40 25 30 35 50
50 20 20 40 60
60 15 10 45 70
70 10 0 50 80
80 0 0 55 90

a) Calculate the market demand and market supply.

b) Using a diagram, plot the market demand and market supply curves, then determine the
market equilibrium price and quantity.

c) At equilibrium price, how many is the quantity demanded by Consumer A and quantity
supplied by producer Y?

d) At the price of RM40, state whether there is a surplus or shortage. How much is the
surplus or shortage?

e) Calculate the consumer and producer surplus.

f) How much is the total surplus will society receive.

PREPARED BY: GEYATHIRI GOPI

BK013 Principles of Economics 1
Tutorial 3 – Semester 1 – 2019

2. Using these demand and supply functions below, answer the following questions.

Linear Demand Function:

Linear Supply Function:

a) Calculate the quantities demanded and supplied for prices from RM3 to RM15.

b) In one diagram, plot the demand and supply curves for the product.

c) Calculate the equilibrium price and output by using the simultaneous equations.

3. The following schedules show the demand and supply for Good Nonsense.

Price (RM/
Quantity Demanded Quantity Supplied
dozen)
(dozens) (dozens)
12 8 21
11 12 19
10 16 16
9 20 13
8 24 10
7 28 7
6 32 4
5 36 0

a) Define the market equilibrium.

b) Using a diagram, draw the market demand and supply curves for the Good Nonsense.

c) What are the equilibrium price and equilibrium quantity of the Good Nonsense.

d) If the price of the Good Nonsense is RM8, there will be a ____________ of

________________ tons.

e) If the price of the Good Nonsense is RM12, there will be a _____________ of

_______________ tons.

PREPARED BY: GEYATHIRI GOPI