Homework: Supply and Demand and Equilibrium Price

Fall 2013
ECO 2306 – Principles of Microeconomics
Homework 4 Answer Key
Part I: True/False and Multiple Choice
1. In equilibrium in the strawberry market, strawberries sell for $1.50 a quart. If the government institutes a price floor of $1 per quart of strawberries, the result will be a surplus of strawberries.
a. The preceding statement is TRUE.
b. The preceding statement is FALSE.
2. A price ceiling will lead to deadweight loss as a result of overproduction of the good at the higher ceiling price.
a. The preceding statement is TRUE.
b. The preceding statement is FALSE.
Use the figure below to answer questions 3-4.

3. If the price is P3, then producer surplus is given by area _____.
a. E+F+G
b. B+C+E+F+G
c. B+E
d. B+E+G
4. If the price is P3, then the deadweight loss is given by the area _____.
a. B+C+E+F
b. C
c. F
d. C+F
5. An increase in the minimum wage leads to
a. decreased unemployment levels if the new wage is the same as the equilibrium wage that would occur without government intervention.
b. no change in unemployment levels if the new wage is less than the equilibrium wage that would occur without government intervention.
c. increased unemployment levels if the new wage is greater than the equilibrium wage that would occur without government intervention.
d. Both (b) and (c) are correct.

Fall 2013
ECO 2306 – Principles of Microeconomics
Homework 4 Answer Key
Use the demand and supply schedules in the table below to answer questions 6 and 7.
Demand Schedule
Supply Schedule
Price Quantity
Price
Quantity
Demanded
Supplied
3
55
3
10
4
50
4
20
5
45
5
30
6
40
6
40
7
35
7
50
8
30
8
60
6. A price ceiling of $4 would result in
a. 50 units being traded.
b. a shortage of 30 units.
c. a surplus of 30 units.
d. Both (a) and (b).
7. A price floor of $5 will result in
a. a total of 40 units being traded.
b. a surplus of 15 units of the good.
c. a shortage of 15 units of the good.
d. a