Exam #1, Winter 2026

Principles, demand, supply, equilibrium, & elasticity

1. Opportunity costs reflect

   1. What you give up or lose when you do one thing instead of another

   2. What you get to do or new expenses you pay when you make your selection

   3. Unrecoverable lost costs

   4. Potential gains available if you take the opportunity

2. If my willingness to pay is $10 and the price of coffee I plan to buy is $3, then

   1. I am willing to spend no more than $7 to buy the coffee

   2. I am indifferent between buying coffee and finding $7 on the ground

   3. If I find $5 on the ground and am so happy I forget all about the coffee, I know my willingness to pay was higher than $15.

   4. None of these.

3. Which of the following is an application of the marginal principle?

   1. You consider the total cost and benefit of buying meals for the week

   2. You compare your willingness to pay for pizza to the price of one additional slice

   3. You consider the lost ability to buy a burger when you purchase pizza instead.

   4. You consider whether to purchase one additional pizza slice

4. A person should always buy more pizza as long as

   1. The total benefit from buying pizza is equal to the total cost of buying pizza.

   2. The marginal benefit is at least as big as the marginal cost

   3. The opportunity cost of buying pizza is increasing

   4. There are no serious sunk costs to worry about

5. When the Xbox X was released at $499 and sold out immediately on the Microsoft website, while simultaneously being listed for sale at $1200 on eBay and Wal-Mart’s Marketplace, we conclude

   1. The $499 is a below equilibrium price

   2. The Xbox X is an elastic good

   3. The $499 is an equilibrium price

   4. The $499 is an above equilibrium price

   5. A typical buyer has a willingness to pay of $499

6. What is the total expenditure if you purchase 3 sliced of pizza for $5 each?

   1. $5

   2. $10

   3. $15

   4. $20

   5. None of these are correct

7. If demand is given by P=10 - Q and currently the price is $2, find the Quantity demanded

   1. 8

   2. 7

   3. 6

   4. 5

   5. 10

   6. None of these

8. Suppose demand is given by P=10-Q and supply by P=2+Q, but then there’s an increase in the number of buyers. After this happens we know:

   1. The new equilibrium price is some P* < 6

   2. The new equilibrium price is some P* > 6

   3. The new equilibrium price is P* = 5

   4. Demand is elastic

9. If Caramel and apples are complements but people also use apples to make pies, we expect

   1. The cross price elasticity of the quantity demanded of Apples to the price of caramel is less in absolute value than the cross price elasticity of the quantity of caramel to the price of apples.

   2. The cross price elasticity of the quantity demanded of Apples to the price of caramel is greater in absolute value than the cross price elasticity of the quantity of caramel to the price of apples.

   3. The cross price elasticity of the quantity demanded of Apples to the price of caramel is equal in absolute value to the cross price elasticity of the quantity of caramel to the price of apples.

   4. Demand for apples is elastic

10. If demand for Detroit Lions tickets increased by 40% over the last year and supply increased by 10% due to Ford Field renovations, we can conclude

    1. Equilibrium price rises, and equilibrium quantity rises

    2. Equilibrium price could rise or fall, but equilibrium quantity rises

    3. Equilibrium price falls, but equilibrium quantity could rise or fall

    4. Demand is inelastic

    5. Supply is elastic

11. If the price of Red Wings tickets increases by 15% and the team sells 5% fewer tickets we know that

    1. Equilibrium price rises, equilibrium quantity falls

    2. Equilibrium price falls, equilibrium quantity rises

    3. E = 1/3 in absolute value

    4. E = 3 in absolute value

    5. E = 15%

12. If income falls by 10% and quantity demanded rises by 20% for some good, we know that good

    1. Is inferior

    2. Is normal

    3. Is a complement

    4. Has elastic demand

    5. None of these.

13. Taco King charges the same price of everything on the menu: $5 for a taco, burrito, or nachos. You buy the burrito and think if you had not purchased the burrito you could have purchased the taco. The opportunity cost of the burrito is:

    1. $5

    2. Your forgone enjoyment of the taco

    3. $5 and your forgone enjoyment of the taco

    4. $5 and your forgone enjoyment of the taco and nachos

    5. None of these.

14. Researchers find a new strain of olives that is resistant to pesticides and drought while yielding more olive oil. Holding all else constant this will:

    1. Shift the supply curve for olive oil leftward

    2. Increase the quantity supplied of olive oil

    3. Decrease the quantity supplied of olive oil

    4. Shift the supply curve for olive oil rightward

15. Following the rational rule, maximum economic surplus occurs when

    1. Total benefits equal total costs

    2. Total benefits exceed total costs

    3. Marginal benefits equal marginal costs

    4. Marginal benefits exceed marginal costs

16. If income rises by 20% and the quantity demanded of the item rises by 10%, the income elasticity of demand for the good is:

    1. 2

    2. -2

    3. 1/2

    4. -1/2

17. If two goods are complements their cross price elasticity is:

    1. Positive

    2. Positive but almost equal to zero

    3. Equal to zero

    4. Negative

18. The price elasticity of demand measures how responsive:

    1. Buyers are to quantity changes

    2. Buyers are to price changes

    3. Buyers are to income changes

    4. Sellers are to quantity changes

    5. Two of the above

19. Kevin goes to a local coffee shop and orders a medium latte. He is willing to pay $6 and the price is actually $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does the coffee shop receive when Kevin buys the latte?

    1. $6

    2. $4

    3. $2

    4. $1

20. Surpluses always occur

    1. At the equilibrium price

    2. At prices below the equilibrium price

    3. At price above the equilibrium price

    4. When the quantity demanded exceeds the quantity supplied

21. Which is most likely to have a vertical supply curve?

    1. Pepper

    2. Olive oil

    3. Prescription drugs

    4. Sculptures by Michelangelo

22. A meat processing plant produces both steak and ground beef. What effect would a rising market price for steak have on the supply for ground beef?

    1. The quantity of ground beef supplied will increase

    2. The supply of ground beef will increase

    3. The supply of ground beef will decrease

    4. The supply of steak will decrease

23. It is certain that the equilibrium quantity will fall when the supply curve:

    1. And the demand curve both shift to the right

    2. Shifts to the right and the demand curve shifts to the left

    3. And the demand curve both shift to the left

    4. Shifts to the left and the demand curve shifts to the right.

24. Butter producers know the price elasticity of demand for butter is 0.2. If they want to increase the amount sold by 4%, the will have to lower price by:

    1. 0.1%

    2. 1%

    3. 4%

    4. 20%

25. The Taco King franchise installs touch-screen kiosks for customers to place orders. This enables the restaurant to employ fewer cashiers to take orders but it must hire a skilled technician to maintain the new kiosks. These changes suggest:

    1. Cashiers and kiosks are substitutes, and skilled technicians and kiosks are complements

    2. Cashiers and kiosks are complements, and skilled technicians and kiosk are substitutes

    3. Skilled workers, such as technicians, are cheaper than unskilled workers such as cashiers

    4. Kiosks are a substitute for both skilled and unskilled workers

26. Shelby consumes 100% more pencils when the price of pens rises by 50%. For Shelby, pencils and pens are (blank) and the cross price elasticity of demand is (blank)

    1. Complements, 0.5

    2. Substitutes, -0.5

    3. Complements, 2

    4. Substitutes, 2

27. The marginal benefit from an additional workers is

    1. The additional benefit from hiring one more worker

    2. The total benefit from all workers hired

    3. Always equal to the benefit from the first worker hired

    4. Always equal to the cost of hiring the additional worker

28. An increase in the price of shoes would probably result in (blank) in the demand for shoe laces

    1. A decrease

    2. An increase

    3. No change

    4. Random fluctuation

29. In the early 1990’s Canadian fashion model Linda Evangelista famously said, ``We don’t wake up for less than $10,000 a day’’ and later Vince Vaughn in Mr & Mrs. Smith (2005) says ``I don’t get out of bed for less than half a million dollars.’’ Both phrases best exemplify:

    1. Sunk costs

    2. The cost benefit principle

    3. The marginal principle

    4. The interdependence principle

    5. The opportunity cost principle

30. Last year, the equilibrium price for a movie ticket was $12 and the equilibrium quantity sold was 5,000 tickets per week. This year, the equilibrium price remained $12, however the equilibrium quantity fell to 4,000 tickets per week. Which of the following could correctly explain this phenomenon? Assume that movie tickets are a normal good, streaming subscriptions are a substitute for movie tickets, popcorn is a complement to movie tickets, and labor is an input into movie-theater operations.

    1. Consumer incomes decreased, and theater wages decreased.

    2. The price of streaming subscriptions increased, and the supply of movie tickets is perfectly elastic.

    3. Theater wages increased, and demand for movie tickets is perfectly inelastic.

    4. A news report highlighted health concerns about crowded theaters, and there was a decrease in the number of movie theaters.

    5. The price of popcorn increased, and the supply of movie tickets is perfectly inelastic.

31. Suppose that the supply of Wolverine/Winged Helmet-edition sneakers is perfectly elastic. If these sneakers suddenly become extremely fashionable so that more consumers want to buy them, what happens to their equilibrium price and quantity?

    1. The equilibrium quantity will increase and the impact on equilibrium price is ambiguous.

    2. Both the equilibrium price and the equilibrium quantity increase.

    3. The equilibrium price increases, but the equilibrium quantity is unchanged.

    4. The equilibrium quantity increases, but the equilibrium price is unchanged.

    5. Both the equilibrium price and the equilibrium quantity are unchanged.

32. Which of the following would NOT shift the demand curve for movie theater tickets?

    1. A report by a national health organization warns that prolonged sitting in movie theaters increases the risk of back problems.

    2. An increase in wages paid to movie theater employees.

    3. An increase in the price of streaming services, which are substitutes for movie theater attendance.

    4. A decrease in the price of streaming services, which are substitutes for movie theater attendance.

33. Suppose the market for ride-share trips in a city is currently in equilibrium at a price of $18 per trip and a quantity transacted of 2.0 million trips per year. If the following events occurred, what impact would they have on the equilibrium price and quantity in the market for ride-share trips? Assume that ride-share trips and taxi rides are substitutes in consumption.

    I. A city regulation increases licensing fees for taxi companies, raising the cost of providing taxi rides.

    II.A new driver-routing algorithm reduces the per-trip operating cost for ride-share companies

    III. A major employer announces a return-to-office policy, increasing the number of commuters.

    1. Equilibrium price will rise for certain and equilibrium quantity will rise for certain.

    2. Equilibrium price will rise for certain and the impact on equilibrium quantity is unknown.

    3. Equilibrium price will fall for certain and the impact on equilibrium quantity is unknown.

    4. Equilibrium quantity will rise for certain and the impact on equilibrium price is unknown.

    5. Equilibrium quantity will fall for certain and the impact on equilibrium price is unknown.

34. Which of the following will NOT cause the supply curve for video game consoles to shift?

    1. An increase in the current market price of video game consoles.

    2. A decrease in the cost of microchips used in console production.

    3. A decrease in the expected future price of video game consoles.

    4. A technological improvement in manufacturing that allows consoles to be assembled more quickly.

    5. All of the above will cause the supply curve to shift.

35. A decrease in supply means

    1. There is a smaller quantity supplied at any given price

    2. The cost of inputs and other production costs evidently have fallen

    3. The quantity demanded must rise

    4. The market price must fall to reach the new equilibrium

36. Suppose you observe that both the equilibrium price and equilibrium quantity of electric scooters in a city have fallen. Holding all else constant, which of the following could be consistent with this observation? Assume that electric scooters are a normal good, ride-share trips are a substitute for electric scooter rentals, and charging stations are a complement to electric scooters.

    I. Consumers have experienced an increase in income and there is an increase in the number of scooter rental companies.

    II. The price of ride-share trips has risen and the price of charging services has fallen.

    III. New research reports that frequent scooter use significantly increases injury risk.

    IV. The number of scooter rental companies has declined and the price of ride-share trips has declined.

    1. I and III only

    2. III and IV only

    3. I, II, and III only

    4. IV only

    5. I, II, III, and IV

37. In a particular year, a major concert tour experienced a sharp reduction in available tickets due to unexpected venue closures. As ticket availability fell, the price of tickets rose substantially, leading to a lower quantity of tickets sold, reflecting a movement along the demand curve. In the year before the closures, total revenue from ticket sales was $620 million. In the year of the closures, total revenue rose to $700 million. It must be the case, therefore, that demand for concert tickets was elastic over the relevant portion of the demand curve.

    1. True

    2. False

38. Supply curves are upward sloping because:

    I. Eventually output involves diminishing marginal product

    II. Consumers follow the rational rule for buyers

    III. Input costs rise as additional units are produced

    1. I only

    2. II only

    3. III only

    4. I and II only.

    5. I and III only.

39. Suppose that the initial equilibrium price of monthly streaming subscriptions is $12 per month. If the price of cable television subscriptions (considered a substitute by consumers) increases, what happens in the market for streaming subscriptions?

    1. There will now be a shortage of streaming subscriptions at $12 per month. As a result, the price will rise leading to a decrease in quantity demanded and an increase in quantity supplied.

    2. There will now be a shortage of streaming subscriptions at $12 per month. As a result, the price will fall leading to an increase in quantity demanded and a decrease in quantity supplied

    3. There will now be a surplus of streaming subscriptions at $12 per month. As a result, the price will fall leading to an increase in quantity demanded and a decrease in quantity supplied.

    4. There will now be a surplus of streaming subscriptions at $12 per month. As a result, the price will rise leading to a decrease in quantity demanded and an increase in quantity supplied.

    5. More than one of the above are true.

40. If Anna is willing to pay up to $15 for Betty’s Pokemon trading card, but buys it from Betty for $7, the economic surplus to Anna as a buyer is (blank). Then if Anna sells the card to Charlie for $20 Anna’s economic surplus as a seller is (blank). Betty’s economic surplus as a seller is (blank).

    1. $15, $7, and $20

    2. $8, $7, and $5

    3. $8, $7, and $15

    4. $8, $13, and unknown.

    5. $8, $5, and unknown.

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