Questions for Review without Answers
Chapter 12. Supply and Demand Together
I. Equilibrium and the Standard Supply-Demand Graph
1) Draw the standard graph.
2) Which triangle shows surpluses, which shortages?
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3) And which triangle shows the winners, which the losers?
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4) Explain the effects of scarcity and abundance on prices and demand.
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5) What are third-party-payer markets?
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6) What happens to the equilibrium price and equilibrium quantity of vanilla pudding if vanilla pudding is proved to lower the risk of heart attacks?
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7) Why is equilibrium self-restoring?
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8) What does comparative statics analyse?
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II. Total Surplus
9) Write down the formula for
A. consumer surplus
B. producer surplus
C. total surplus
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10) How can producers make a surplus when all of them sell at marginal cost?
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III. The Effects of Government Policies on Equilibrium and Total Surplus
11) Why do taxes and tariffs lower total surplus?
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12) What happens if a price floor is set above equilibrium price?
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13) Who bears the burden of a tax, if the supply curve is a vertical line?
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14) Equilibrium quantity of bananas is 2,000 kilos, equilibrium price is $3. The highest price on the y-axis is $6. What is consumer surplus?
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15) Why do price floors and price ceiling lower total surplus?
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16) Explain why people with inelastic demand/supply are likely to bear most of a tax imposed on a commodity.
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