Microeconomics Quiz: Market Disequilibrium And Changes In Equilibrium
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Market Disequilibrium And Changes In EquilibriumQuestion 1 of 20

The market for taxi rides in a city is regulated by a binding quota on the number of taxi medallions, which keeps the price above the free-market equilibrium. The city then improves its public transit system, making it a more attractive substitute for taxis. What is the likely effect on the market price of a taxi ride and the rental price of a medallion (quota rent)?

The ride price will fall, and the quota rent will decrease.
The ride price will fall, but the quota rent will increase.
The ride price will remain fixed, but the quota rent will decrease.
Both the ride price and the quota rent will remain unchanged.
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Microeconomics Quiz

Microeconomics Quiz: Market Disequilibrium And Changes In Equilibrium

Practice Market Disequilibrium And Changes In Equilibrium in Microeconomics with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Market Disequilibrium And Changes In Equilibrium, giving you a quick way to practice the rules, question types, and explanations that matter most for Microeconomics.

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Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

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Question 1

The market for taxi rides in a city is regulated by a binding quota on the number of taxi medallions, which keeps the price above the free-market equilibrium. The city then improves its public transit system, making it a more attractive substitute for taxis. What is the likely effect on the market price of a taxi ride and the rental price of a medallion (quota rent)?

  1. The ride price will fall, and the quota rent will decrease. (correct answer)
  2. The ride price will fall, but the quota rent will increase.
  3. The ride price will remain fixed, but the quota rent will decrease.
  4. Both the ride price and the quota rent will remain unchanged.
Explanation: Improved public transit, a substitute, will decrease the demand for taxi rides, shifting the demand curve to the left. The quantity of taxi rides is fixed by the binding quota. With a leftward shift in demand, the price that consumers are willing to pay for this fixed quantity decreases. Therefore, the market price of a ride will fall. The quota rent is the difference between the price consumers pay (demand price) and the price at which suppliers are willing to provide that quantity (supply price). Since the demand price falls and the supply price for the fixed quota quantity is unchanged, the quota rent must decrease.

Question 2

A competitive market has reached long-run equilibrium when an unexpected permanent increase in input costs shifts the industry supply curve upward. During the adjustment to the new long-run equilibrium, which sequence of events is most likely to occur?

  1. Gradual price increase → short-run economic profits → firm entry → price stabilization → restoration of normal profits at original price and higher quantity
  2. Immediate price increase → short-run economic losses → firm exit → further price increases → restoration of normal profits at higher price and lower quantity (correct answer)
  3. Immediate price increase → short-run economic profits → increased production → price decrease → restoration of normal profits at original price and quantity
  4. Delayed price increase → short-run economic losses → reduced production → inventory depletion → price stabilization → restoration of normal profits through efficiency gains
Explanation: When analyzing how competitive markets adjust to permanent cost increases, focus on the sequence: immediate market response → firm-level impacts → entry/exit decisions → new equilibrium. A permanent increase in input costs immediately shifts the supply curve upward, causing market price to rise right away. At this higher price, existing firms face a squeeze: they're selling at a higher price but their costs have increased even more, resulting in short-run economic losses (profits below normal). These losses trigger firm exit as some producers can no longer cover their costs profitably. As firms leave the industry, supply decreases further, pushing prices even higher until the remaining firms can once again earn normal profits at the new cost structure. Answer A is incorrect because firms experience losses, not profits, when input costs rise - the cost increase exceeds the initial price increase. It also wrongly suggests firm entry and a return to original pricing. Answer C incorrectly assumes firms earn short-run profits and increase production, which contradicts the reality of higher input costs. The scenario also won't return to original price and quantity levels when costs have permanently increased. Answer D is wrong about delayed price increases (markets respond immediately) and suggests efficiency gains can restore profits at stable prices, ignoring that permanent cost increases require permanent price adjustments. Remember this pattern: permanent cost increases always lead to higher long-run equilibrium prices and reduced industry output through firm exit, not entry or efficiency improvements.

Question 3

In a competitive market with initial equilibrium at $12 and 800 units, the government imposes a price floor of $15. This creates excess supply of 300 units. If the government then decides to purchase the excess supply to support the price floor, what is the net change in total economic surplus compared to the original competitive equilibrium?

  1. Decreases by approximately $450, representing deadweight loss from overproduction and resource misallocation (correct answer)
  2. Decreases by approximately $750, representing combined consumer surplus loss and fiscal intervention costs
  3. Decreases by approximately $900, representing deadweight loss plus opportunity cost of government spending
  4. Increases by approximately $300, representing additional producer surplus minus intervention costs
Explanation: The price floor creates a deadweight loss triangle from the 300 excess units: 0.5 × 300 × ($15 - $12) = $450. When government purchases the excess, it prevents some consumer harm but doesn't eliminate the fundamental inefficiency—resources are still being used to produce goods valued less than their production cost. The deadweight loss of $450 represents the net decrease in economic surplus from overproduction and misallocation of resources.

Question 4

Two substitute goods, coffee and tea, are in separate competitive markets. Initially, both markets are in equilibrium. A frost destroys 30% of the coffee crop, while simultaneously, a health study increases the demand for tea by 25%. Considering cross-price elasticities, what happens during the adjustment period before both markets reach new equilibria?

  1. Coffee price rises immediately while tea price rises gradually, creating temporary arbitrage opportunities that accelerate tea market adjustment
  2. Both prices rise simultaneously, but coffee experiences shortages while tea experiences surpluses due to different supply responsiveness
  3. Coffee price rises causing further increases in tea demand, while tea price increases cause some consumers to return to coffee despite higher prices (correct answer)
  4. Tea price rises faster than coffee price initially, but coffee price eventually rises higher as supply constraints prove more binding than demand shifts
Explanation: The frost immediately increases coffee prices, which increases demand for tea (substitute effect) beyond the original 25% health study increase. Meanwhile, as tea prices rise due to increased demand, some consumers substitute back toward coffee despite its higher price. This creates a feedback loop where each market's price changes affect the other market's demand, leading to iterative adjustments until both markets reach new equilibria.

Question 5

A competitive market experiences a demand increase that shifts the demand curve rightward by 30% at every price level. Before the market reaches its new long-run equilibrium, a supply disruption temporarily reduces supply by 40%. During this transition period, if the short-run price elasticity of demand is -0.5 and the short-run price elasticity of supply is 0.3, what happens to market efficiency?

  1. Market efficiency cannot be determined due to different short-run versus long-run elasticity values
  2. Market efficiency temporarily increases because higher prices signal scarcity and improve resource allocation
  3. Market efficiency remains constant as opposing shifts create offsetting welfare effects maintaining total surplus
  4. Market efficiency temporarily decreases due to supply disruption, partially offset by higher consumer valuations (correct answer)
Explanation: When analyzing market efficiency during simultaneous demand and supply shifts, you need to consider how these changes affect consumer and producer surplus in the short run before equilibrium is restored. The demand increase of 30% means consumers value the good more highly at every quantity level, which would normally improve market efficiency by increasing consumer surplus. However, the 40% supply disruption creates a shortage that forces prices up significantly. With inelastic demand (elasticity = -0.5) and relatively inelastic supply (elasticity = 0.3), quantity adjustments are small while price changes are large. The supply disruption creates a deadweight loss because willing buyers and sellers cannot complete mutually beneficial trades. While consumers do value the good more highly than before, the supply constraint prevents the market from reaching the efficient quantity where marginal benefit equals marginal cost. The result is temporarily reduced market efficiency, though the demand increase does partially offset this loss by raising consumer valuations. Choice A is wrong because market efficiency can be determined by comparing total surplus before and after the shifts, regardless of elasticity differences. Choice B incorrectly assumes higher prices automatically improve efficiency—price signals only improve allocation when markets can respond, but the supply disruption prevents this. Choice C is wrong because the effects don't offset; supply disruptions create deadweight losses that demand increases cannot fully eliminate in the short run. Remember: Market efficiency depends on the ability to achieve mutually beneficial trades. Supply disruptions always reduce efficiency temporarily, even when demand simultaneously increases.

Question 6

A perfectly competitive market is initially in equilibrium. Due to a technological breakthrough, production costs decrease by 20%, while simultaneously, a health study causes consumer preferences to shift such that demand decreases by 15%. If the price elasticity of supply is 1.5 and the price elasticity of demand is -0.8, which of the following best describes the adjustment process to the new equilibrium?

  1. Price falls immediately to the new equilibrium level, with quantity adjusting gradually through market exit
  2. An initial shortage develops as supply shift dominates, followed by price increases and eventual excess supply
  3. An initial surplus develops as cost reduction dominates, followed by price decreases eliminating excess supply (correct answer)
  4. Price oscillates around equilibrium as suppliers and consumers respond with different adjustment speeds
Explanation: The 20% cost reduction shifts supply rightward more significantly than the 15% demand decrease shifts demand leftward. At the original price, this creates excess supply. The market adjusts through falling prices, which reduces quantity supplied (due to elastic supply, Es=1.5) and increases quantity demanded (though demand is relatively inelastic, Ed=-0.8). The adjustment process involves eliminating surplus through price reduction until a new equilibrium is reached.

Question 7

The market for a specific brand of graphing calculator has a demand function of QD=2,000−10PQ_D = 2,000 - 10P and a supply function of QS=500+5PQ_S = 500 + 5P. The manufacturer establishes a promotional price of $90. What is the state of the market at this price?

  1. A shortage of 150 units. (correct answer)
  2. A surplus of 150 units.
  3. A shortage of 950 units.
  4. The market is in equilibrium.
Explanation: First, determine the quantity demanded and supplied at the price of $90. Quantity Demanded: QD=2,000−10(90)=2,000−900=1,100Q_D = 2,000 - 10(90) = 2,000 - 900 = 1,100. Quantity Supplied: QS=500+5(90)=500+450=950Q_S = 500 + 5(90) = 500 + 450 = 950. Since the quantity demanded (1,100) is greater than the quantity supplied (950), there is a shortage. The size of the shortage is 1,100−950=1501,100 - 950 = 150 units. The equilibrium price would be $100, where QD=QS=1,000Q_D = Q_S = 1,000.

Question 8

In the market for premium bicycles, economists observe that over the past year, the equilibrium price has decreased while the equilibrium quantity has increased. Which of the following events, occurring in isolation, could explain this outcome?

  1. A successful marketing campaign highlighting the health benefits of cycling.
  2. A decrease in the price of carbon fiber, a key material used in making the bicycles. (correct answer)
  3. An increase in average consumer income, assuming premium bicycles are a normal good.
  4. The exit of a major bicycle manufacturer from the market.
Explanation: The observed outcome is a lower price and a higher quantity. This combination can only be caused by an increase in supply (a rightward shift of the supply curve). A decrease in the price of a key input like carbon fiber reduces production costs, which causes the supply curve to shift to the right. An increase in demand (choices A and C) would cause both price and quantity to rise. A decrease in supply (choice D) would cause price to rise and quantity to fall.

Question 9

The market for electric vehicles (EVs) is initially in equilibrium. In a single year, two events occur: (1) a significant increase in consumer preference for environmentally friendly transportation, and (2) a global microchip shortage that raises the cost of producing EVs. The increase in demand from the first event is proportionally larger than the decrease in supply from the second. What is the net effect on the equilibrium price and quantity of EVs?

  1. The equilibrium price will increase, and the equilibrium quantity will decrease.
  2. The equilibrium price will increase, and the equilibrium quantity will increase. (correct answer)
  3. The equilibrium price will increase, but the effect on equilibrium quantity will be indeterminate.
  4. The effect on equilibrium price will be indeterminate, but the equilibrium quantity will increase.
Explanation: An increase in consumer preference shifts the demand curve to the right. A microchip shortage raises input costs, shifting the supply curve to the left. A rightward shift in demand causes both price and quantity to rise. A leftward shift in supply causes price to rise and quantity to fall. Since both events cause the price to rise, the equilibrium price will definitely increase. The effect on quantity is generally indeterminate, as one effect increases it and the other decreases it. However, the problem states that the demand shift is larger than the supply shift, meaning the positive pressure on quantity from the demand increase outweighs the negative pressure from the supply decrease. Therefore, the equilibrium quantity will also increase.

Question 10

Consider the market for wheat, which is in a perfectly competitive equilibrium. The government imposes a binding price floor to support farmers' incomes. Which of the following statements accurately describes the effect of this policy on total economic surplus (the sum of consumer and producer surplus)?

  1. Total surplus increases because the gain in producer surplus is larger than the loss in consumer surplus.
  2. Total surplus remains unchanged because the surplus lost by consumers is exactly transferred to producers.
  3. Total surplus decreases because the quantity exchanged in the market is reduced below the efficient level. (correct answer)
  4. The effect on total surplus is indeterminate without knowing the price elasticities of supply and demand.
Explanation: A binding price floor is set above the equilibrium price. This increases the price for consumers, causing the quantity demanded to fall. It also increases the quantity producers are willing to supply. Since transactions require both a buyer and a seller, the quantity actually exchanged falls to the quantity demanded. The reduction in quantity from the efficient equilibrium level means that mutually beneficial trades do not occur, resulting in a deadweight loss. This deadweight loss represents a decrease in total economic surplus, regardless of the elasticities of supply and demand (though elasticities affect the size of the loss).

Question 11

The market for gasoline has a relatively inelastic demand and a relatively elastic supply. If the government imposes a $0.50 per gallon excise tax on gasoline suppliers, which of the following outcomes is most likely?

  1. The price paid by consumers will increase by exactly $0.25.
  2. The price paid by consumers will increase by more than $0.25. (correct answer)
  3. The price paid by consumers will increase by less than $0.25.
  4. The price paid by consumers will increase by the full $0.50 of the tax.
Explanation: The burden of an excise tax falls more heavily on the side of the market with lower price elasticity. In this case, demand is relatively inelastic (consumers are not very responsive to price changes), and supply is relatively elastic (producers are more responsive). Therefore, consumers will bear a larger share of the tax burden than producers. This means the price consumers pay will rise by more than half the tax amount (more than $0.25), and the price producers receive (after tax) will fall by less than $0.25.

Question 12

The market for solar panels has a demand curve given by P=1000−QDP = 1000 - Q_D and a supply curve given by P=200+QSP = 200 + Q_S. The government provides a $100 per-unit subsidy to producers. What is the total annual cost of this subsidy program to the government?

  1. $35,000
  2. $40,000
  3. $45,000 (correct answer)
  4. $50,000
Explanation: First, find the initial equilibrium without the subsidy: 1000−Q=200+Q⇒800=2Q⇒Q=4001000 - Q = 200 + Q \Rightarrow 800 = 2Q \Rightarrow Q = 400. A $100 subsidy paid to producers lowers their effective cost, shifting the supply curve down by $100. The new supply equation is P=(200+QS)−100⇒P=100+QSP = (200 + Q_S) - 100 \Rightarrow P = 100 + Q_S. Now find the new equilibrium quantity: 1000−Q=100+Q⇒900=2Q⇒Q=4501000 - Q = 100 + Q \Rightarrow 900 = 2Q \Rightarrow Q = 450. The government pays the subsidy on every unit sold. The total cost is the subsidy per unit multiplied by the new equilibrium quantity: \100 \times 450 = $45,000$.

Question 13

Assume beef and chicken are substitutes. A widespread disease affecting cattle herds causes a sharp, sustained increase in the market price of beef. Holding all else constant, what is the initial effect and subsequent adjustment in the chicken market?

  1. A surplus at the original price, leading to a lower equilibrium price for chicken.
  2. A shortage at the original price, leading to a higher equilibrium price for chicken. (correct answer)
  3. An increase in the supply of chicken, leading to a lower equilibrium price.
  4. A decrease in the quantity supplied of chicken, leading to a higher equilibrium price.
Explanation: Because beef and chicken are substitutes, an increase in the price of beef will cause consumers to switch from beef to chicken. This increases the demand for chicken, shifting the demand curve to the right. At the original equilibrium price for chicken, the quantity demanded now exceeds the quantity supplied, creating a shortage. This shortage puts upward pressure on the price of chicken, causing the market to adjust to a new equilibrium with a higher price and a higher quantity sold.

Question 14

The market for handcrafted wooden furniture is in equilibrium. The price of high-quality lumber, a key input, increases substantially. What is the expected effect on the equilibrium price of the furniture and the producer surplus in the furniture market?

  1. Price will increase, and producer surplus will increase.
  2. Price will decrease, and producer surplus will decrease.
  3. Price will increase, and producer surplus will decrease. (correct answer)
  4. Price will increase, and the effect on producer surplus is indeterminate.
Explanation: An increase in the price of a key input like lumber raises the cost of production. This causes the supply curve for wooden furniture to shift to the left (a decrease in supply). A leftward shift in supply leads to a higher equilibrium price and a lower equilibrium quantity. Producer surplus is the area above the supply curve and below the market price. Although the price per unit received by sellers is higher, their costs are also higher (the supply curve has shifted up/left), and they sell fewer units. This combination of higher costs and lower quantity sold results in a decrease in total producer surplus.

Question 15

Intercity bus travel is an inferior good. A broad-based economic expansion leads to a significant increase in average household income nationwide. What is the most likely consequence in the market for intercity bus travel?

  1. A shortage at the original price, as demand increases.
  2. A surplus at the original price, as demand decreases. (correct answer)
  3. A shortage at the original price, as supply decreases.
  4. A surplus at the original price, as supply increases.
Explanation: An inferior good is one for which demand decreases as consumer income rises. As the economic expansion increases household incomes, consumers will switch from bus travel to other forms of transportation they now can afford (like air travel or driving). This causes the demand curve for intercity bus travel to shift to the left. At the original equilibrium price, the quantity supplied now exceeds the new, lower quantity demanded, creating a surplus. This surplus will put downward pressure on the price.

Question 16

The market for new houses and the market for house paint are in equilibrium. Assume house paint is a key input for finishing new houses. A new zoning law is passed that makes it much easier and cheaper for developers to build new houses. Which sequence correctly describes the adjustments in these markets?

  1. The supply of new houses will increase, lowering their price; this will then decrease the demand for house paint.
  2. The demand for new houses will increase, raising their price; this will then increase the demand for house paint.
  3. The supply of new houses will increase, increasing the quantity sold; this will then increase the demand for house paint. (correct answer)
  4. The supply of house paint will increase, lowering its price; this will then increase the supply of new houses.
Explanation: The new zoning law reduces the cost and difficulty of building, which increases the supply of new houses (shifts the supply curve to the right). This leads to a lower equilibrium price and a higher equilibrium quantity of new houses sold. Since house paint is an input (a complement in production) for new houses, the increase in the number of houses being built will increase the demand for house paint. This will shift the demand curve for house paint to the right, leading to a higher price and quantity for paint.

Question 17

Initial market conditions for corn (in millions of bushels) are given by QD=200−10PQ_D = 200 - 10P and QS=50+5PQ_S = 50 + 5P. Two events then occur: (1) a new health report causes demand to fall by 30 million bushels at every price, and (2) favorable weather increases supply by 15 million bushels at every price. What is the new equilibrium price?

  1. $10
  2. $9
  3. $8
  4. $7 (correct answer)
Explanation: First, define the new demand and supply equations. The initial demand is QD=200−10PQ_D = 200 - 10P. A fall of 30 million bushels means the new demand is QD′=(200−30)−10P=170−10PQ_D' = (200 - 30) - 10P = 170 - 10P. The initial supply is QS=50+5PQ_S = 50 + 5P. An increase of 15 million bushels means the new supply is QS′=(50+15)+5P=65+5PQ_S' = (50 + 15) + 5P = 65 + 5P. To find the new equilibrium price, set QD′=QS′Q_D' = Q_S': 170−10P=65+5P170 - 10P = 65 + 5P. Now, solve for P: 170 - 65 = 10P + 5P \Rightarrow 105 = 15P \Rightarrow P = \7$.

Question 18

In the market for avocados, an unexpected frost in a major growing region destroys a significant portion of the crop. Simultaneously, a new diet trend that heavily features avocados becomes extremely popular on social media. What can be definitively concluded about the new equilibrium?

  1. The equilibrium price will rise, and the equilibrium quantity will rise.
  2. The equilibrium price will fall, and the equilibrium quantity will fall.
  3. The equilibrium quantity will fall, but the change in equilibrium price is indeterminate.
  4. The equilibrium price will rise, but the change in equilibrium quantity is indeterminate. (correct answer)
Explanation: When you encounter questions involving simultaneous shifts in supply and demand, you need to analyze each shift separately, then determine their combined effect on equilibrium price and quantity. The frost destroys crops, which decreases supply—the supply curve shifts left. This alone would increase price and decrease quantity. Meanwhile, the diet trend increases consumer demand—the demand curve shifts right. This alone would increase both price and quantity. When both shifts occur simultaneously, you can definitively predict the direction of price change when both shifts push price the same way. Here, both the supply decrease and demand increase work together to raise equilibrium price. However, the effects on quantity oppose each other: decreased supply reduces quantity while increased demand increases it. The final quantity change depends on which shift is larger in magnitude—information not provided in the question. Looking at the wrong answers: Choice A incorrectly assumes quantity will definitely rise, ignoring that reduced supply could outweigh increased demand. Choice B gets both effects backwards—this would require supply to increase and demand to decrease. Choice C incorrectly concludes quantity will fall, when it could actually rise if the demand increase is larger than the supply decrease, and wrongly states that price change is indeterminate when both shifts clearly push price upward. The correct answer is D: price will definitively rise, but quantity change depends on the relative magnitudes of the shifts. Study tip: In simultaneous shift problems, look for which variable (price or quantity) has both forces pushing the same direction—that's your definitive answer.

Question 19

A city has a binding price ceiling on concert tickets. A new, extremely popular band announces a concert in the city, which significantly increases the overall demand for tickets. The price ceiling remains in place. How does this increase in demand affect the deadweight loss (DWL) in the ticket market?

  1. DWL increases because the gap between marginal benefit and marginal cost widens for the unproduced units. (correct answer)
  2. DWL decreases because the higher demand indicates the market is more valuable, reducing inefficiency.
  3. DWL remains the same because the quantity of tickets sold is fixed by the price ceiling.
  4. DWL is eliminated because the increased demand makes the price ceiling no longer binding.
Explanation: Deadweight loss from a price ceiling arises because the quantity supplied is below the efficient equilibrium quantity. DWL represents the total surplus from trades that do not happen. An increase in demand shifts the demand curve to the right. The quantity sold remains fixed at the quantity supplied at the ceiling price. However, the demand curve (which represents marginal benefit) is now higher. This means the value that consumers place on the unproduced tickets (between the quantity supplied and the new efficient quantity) has increased, while the marginal cost has not changed. The gap between the marginal benefit and marginal cost for these unproduced units widens, increasing the total potential surplus lost, and thus increasing the deadweight loss.

Question 20

The housing market in a city has a binding price ceiling on rents. A large local company announces a major expansion, attracting thousands of new workers to the city. What is the effect of this influx of workers on the quantity of apartments rented and the size of the housing shortage?

  1. The quantity rented will increase, and the shortage will become larger.
  2. Both the quantity rented and the size of the shortage will decrease.
  3. The quantity rented will remain the same, and the shortage will remain the same.
  4. The quantity rented will remain the same, but the shortage will become larger. (correct answer)
Explanation: When you encounter questions about price ceilings, remember that they create a fixed supply constraint at the ceiling price, while demand can still shift independently. A binding price ceiling sets the rent below the market equilibrium, creating a shortage where quantity demanded exceeds quantity supplied. Crucially, the quantity actually rented equals the quantity supplied at the ceiling price—landlords determine how many units are available, not renters. When thousands of new workers move to the city, demand for apartments increases significantly. However, since the price ceiling prevents rents from rising, landlords have no incentive to supply more apartments. The quantity supplied (and therefore the quantity rented) remains fixed at the same level determined by the ceiling price. But now there are even more people competing for the same limited number of apartments, so the shortage—the gap between quantity demanded and quantity supplied—grows larger. Answer A incorrectly assumes quantity rented can increase, but suppliers won't add units when they can't raise prices. Answer B suggests both measures decrease, which contradicts the basic effect of increased demand. Answer C claims the shortage stays the same, ignoring that more workers means greater demand and thus a larger gap between what people want and what's available. Study tip: With price ceilings, always remember that quantity traded is determined by the constrained side of the market (supply), while the shortage depends on how far apart supply and demand are at that controlled price.