Practice Questions for Experiments 1 & 2
THE NEXT TWO QUESTIONS ARE BASED ON THE FOLLOWING SITUATION: Consider a market
with 15 suppliers, each of whom will sell at most one unit of the good. The
distribution of seller costs (or reservation prices) for these suppliers is as
follows:
Seller Cost Number of Sellers
$10 2
$20 3
$30 1
$40 7
$50 2
1. If the price for this good is $38 per unit, how many units of the good will
be supplied?
a) 5
b) 6
c) 9
d) 13
e) 15
2. If the price for this good is $22 per unit, and the quantity sold at this
price is the quantity implied by the supply curve, what is producer surplus (or
suppliers’ profits)?
a) $20
b) $24
c) $30
d) $47
e) $70
THE NEXT TWO QUESTIONS ARE BASED ON THE FOLLOWING SITUATION: Consider a market
with 10 consumers, each of whom will buy at most one unit of the good. The
distribution of buyer values (or reservation prices) for these consumers is as
follows:
Buyer Value Number of Buyers
$10 3
$20 1
$30 2
$40 4
3. If the price for this good is $15 per unit, how many units of the good will
be demanded?
a) 3
b) 4
c) 6
d) 7
e) 10
4. If the price for this good is $25 per unit, and the quantity purchased at
this price is the quantity implied by the demand curve, what is consumer surplus
(or buyers’ profits)?
a) $60
b) $70
c) $80
d) $90
e) $100
THE NEXT THREE QUESTIONS ARE BASED ON THE FOLLOWING SITUATION: A small tropical
island has a banana market with 35 banana growers and 45 banana consumers. Each
banana grower can sell at most one sack of bananas. Each banana consumer can
buy at most one sack of bananas. There are 10 low-cost banana producers, each
of whom can produce bananas at a cost of $15 per sack, and there are 25 high-
cost banana producers, each of whom can produce bananas at a cost of $30 per
sack. There are 30 consumers who are willing to pay up to $40 a sack and 15
consumers who are willing to pay up to $20 a sack for bananas.
5. What is the competitive equilibrium price of bananas on this island?
a) $20
b) $30
c) $15
d) $35
e) $40
6. What is the competitive equilibrium number of sacks of bananas sold on this
island?
a) 10
b) 25
c) 30
d) 15
e) 50
7. In competitive equilibrium, the total amount of profit made by banana
growers on this island will be:
a) $285
b) $100
c) $250
d) $200
e) $150
THE NEXT THREE QUESTIONS ARE BASED ON THE FOLLOWING SITUATION: Every day at the
local fish market, there are 100 demanders who are willing to pay up to $30 for
a fish, 100 demanders who are willing to pay up to $20 for a fish, and 100
demanders who are willing to pay up to $10 for a fish. No demander wants to buy
more than one fish. There are 20 fishermen who sell fish in this market. Each
day, the fishermen arrive at the market with that day's catch. Each fisherman
has spent $100 on fuel for his boat the night before, but they have no other
costs. Any fish not sold on the same day they are caught will rot and become
worthless. Every day the fish market reaches a competitive equilibrium price
for the day's fish. On Monday, each fisherman caught 3 fish; on Tuesday, each
fisherman caught 4 fish; on Wednesday, each fisherman caught 8 fish; on
Thursday, each fisherman caught 12 fish; and on Friday, each fisherman caught 16
fish.
8. What was the price of fish on Thursday?
a) $35
b) $30
c) $20
d) $15
e) $10
9. On which day did the fishermen earn the greatest profit?
a) Monday
b) Tuesday
c) Wednesday
d) Thursday
e) Friday
10. Suppose that the cost of fuel for a day's fishing rises from $100 to $150.
Assuming that the fishermen all continue to fish, what would be the effect of
this increase in fuel costs on the price of fish on those days when each
fisherman catches 12 fish?
a) There would be no effect on price.
b) The price per fish would rise by about $12.50 per fish.
c) The price of fish would rise by about $6 per fish.
d) The price of fish would fall.
e) The price of fish would rise by about $3 per fish.
11. Consider a market in which the demand curve is given by a straight line
with the equation P=100-Q (over the range of quantities from 0 to 100) and the
supply curve is given by a straight line with the equation P=10+Q/2. In this
situation, what is the competitive equilbrium price?
a) $60
b) $10
c) $30
d) $20
e) $40
For those who want extra practice, here is another version of the banana market
question, with different numbers.
THE NEXT THREE QUESTIONS ARE BASED ON THE FOLLOWING SITUATION: A small tropical
island has a banana market with 60 banana growers and 40 banana consumers. Each
banana grower can sell at most one sack of bananas. Each banana consumer can
buy at most one sack of bananas. There are 35 low-cost banana producers, each
of whom can produce bananas at a cost of $15 per sack, and there are 25 high-
cost banana producers, each of whom can produce bananas at a cost of $30 per
sack. There are 20 consumers who are willing to pay up to $40 a sack and 20
consumers who are willing to pay up to $20 a sack for bananas.
12. What is the competitive equilibrium price of bananas on this island?
a) $20
b) $30
c) $15
d) $35
e) $40
13. What is the competitive equilibrium number of sacks of bananas sold on this
island?
a) 35
b) 25
c) 20
d) 15
e) 50
14. In competitive equilibrium, the total amount of profit made by banana
growers on this island will be:
a) $335
b) $125
c) $275
d) $225
e) $175
Correct Answers:
1. b
2. c
3. d
4. b
5. b
6. c
7. e
8. e
9. c
10. a
11. e
12. a
13. a
14. e