Microeconomics Quiz: Supply

20 questions · exam conditions

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SupplyQuestion 1 of 20

The supply of a product is given by $P = 10 + 0.5Q_S$ . If the government provides a $2 per-unit subsidy to producers, what is the new supply equation?

P = 8 + 0.5Q_S

P = 12 + 0.5Q_S

P = 10 + 0.5(Q_S-2)

P = 10 + 2.5Q_S

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Microeconomics Quiz

Microeconomics Quiz: Supply

Practice Supply 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 Supply, giving you a quick way to practice the rules, question types, and explanations that matter most for Microeconomics.

How to use this quiz

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.

All questions

Question 1

The supply of a product is given by $P = 10 + 0.5Q_S$ . If the government provides a $2 per-unit subsidy to producers, what is the new supply equation?

$P = 8 + 0.5Q_S$ (correct answer)
$P = 12 + 0.5Q_S$
$P = 10 + 0.5(Q_S-2)$
$P = 10 + 2.5Q_S$

Explanation: The original supply equation,

P = 10 + 0.5Q_S

, is an inverse supply curve showing the price producers must receive to supply a given quantity. A $2 per-unit subsidy effectively lowers the cost of production by $2 for every unit. This means producers are willing to supply any given quantity at a price that is $2 lower than before. The new inverse supply curve is therefore

P_{new} = P_{old} - 2

, which gives

P = (10 + 0.5Q_S) - 2 = 8 + 0.5Q_S

. This represents a downward vertical shift of the supply curve.

Question 2

A firm's marginal cost function is MC = 4Q + 8, where Q is quantity produced. If the firm's total fixed costs are $50 and it produces 6 units, what is the minimum price at which the firm will continue to produce in the short run?

$32, because this covers the marginal cost of the last unit produced
$20, because this is the average variable cost at 6 units of production (correct answer)
$28.33, because this is the average total cost at 6 units of production
$8, because this is the minimum point of the marginal cost curve

Explanation: In the short run, a firm will continue to produce as long as price covers average variable cost (AVC). Given MC = 4Q + 8, we can find TVC by integrating: TVC = 2Q² + 8Q. At Q = 6, TVC = 2(36) + 8(6) = 72 + 48 = 120. Therefore, AVC = TVC/Q = 120/6 = $20. Choice A gives MC at Q = 6 but this isn't the shutdown condition. Choice C includes fixed costs which are irrelevant for short-run shutdown decisions. Choice D is incorrect as MC has no minimum (it's always increasing).

Question 3

A perfectly competitive firm has a supply curve given by P = 2Q + 10 for Q ≥ 5, and the firm shuts down for any price below $20. If the market price increases from $24 to $30, what is the change in producer surplus for this firm?

$21, calculated as the area of the trapezoid between the two price levels (correct answer)
$33, calculated as the difference between total revenue changes and total cost changes
$42, calculated as the area under the supply curve between the two quantities
$15, calculated as the rectangular area representing the price increase times initial quantity

Explanation: At P = $24: 24 = 2Q + 10, so Q = 7. At P = $30: 30 = 2Q + 10, so Q = 10. The change in producer surplus is the area of the trapezoid with parallel sides of length (24-20) = 4 and (30-20) = 10, and height (10-7) = 3. Area = ½(4+10)(3) = 21. Choice B incorrectly tries to use revenue/cost differences rather than the area under supply curve. Choice C calculates total area under supply curve rather than the change. Choice D uses only the rectangular portion, ignoring the triangular area.

Question 4

The market supply curve for labor is given by w = 2L + 10, where w is the wage rate and L is the quantity of labor in thousands of hours. If the government imposes a minimum wage of $18 per hour, and the demand for labor at this wage is 2,000 hours, what is the deadweight loss from this policy?

$6,000, representing the total reduction in economic surplus
$2,000, representing the lost consumer surplus from the wage floor
$4,000, calculated as the triangular area between supply and demand curves (correct answer)
$8,000, calculated as the area of surplus reduction for both workers and employers

Explanation: When the government sets a minimum wage above the market equilibrium, it creates a price floor that generates deadweight loss—the reduction in total economic surplus due to market inefficiency. To find the deadweight loss, you need to identify three key points. First, find the equilibrium without the minimum wage by setting supply equal to demand. Since we're not given the demand curve directly, we can work with what we have. The supply curve is

w = 2L + 10

. At the minimum wage of $18, the quantity supplied is found by solving: $

18 = 2L + 10

, so

L = 4

$ thousand hours. The quantity demanded at $18 is given as 2,000 hours (or 2 thousand hours). The deadweight loss is the triangular area between the supply and demand curves, from the quantity actually traded (2,000 hours) to the quantity that would be supplied at the minimum wage (4,000 hours). This triangle has a base of $$4 - 2 = 2

thousand hours. To find the height, you need the wage at which quantity demanded equals 2,000 hours on the supply curve:

w = 2(2) + 10 = 14

. The height is

18 - 14 = 4

. The deadweight loss is

\frac{1}{2} \times 2,000 \times 4 = 4,000$$. Answer A (

6,000) overestimates the loss. Answer B (

2,000) calculates only half the triangle. Answer D ($8,000) double-counts or uses incorrect dimensions. Remember: deadweight loss from price floors always forms a triangle between the controlled quantity and the quantity that would clear the market naturally.

Question 5

In a perfectly competitive industry, individual firms have supply curves given by P = 6 + 2q (where q is firm output), and there are currently 50 firms in the market. If the long-run equilibrium price is $16, how many firms will be in the industry in the long run if demand increases such that the new equilibrium price would be $20 with the original number of firms?

75 firms, because the price increase attracts exactly 25 new firms to restore equilibrium
62 firms, because entry continues until the original equilibrium price of $16 is restored (correct answer)
80 firms, because each firm's output increases and new firms enter until equilibrium
50 firms, because the number of firms remains constant in long-run equilibrium

Explanation: In perfect competition, long-run equilibrium requires zero economic profit, which occurs at the minimum average total cost. The original equilibrium price of $16 represents this minimum ATC. When demand increases, price temporarily rises to $20, creating economic profits that attract new firms. Entry continues until price returns to $16. At P = $16, each firm produces where 16 = 6 + 2q, so q = 5 units per firm. The demand increase that would support P = $20 with 50 firms means market quantity demanded increased. With more firms entering and price returning to $16, if the new market quantity demanded at P = $16 is 310 units, then 310/5 = 62 firms will be in long-run equilibrium.

Question 6

In a market with 100 identical firms, each firm's supply curve is P = 3Q + 12 for quantities where the firm chooses to produce. If the market price is $30, and then an excise tax of $6 per unit is imposed on producers, what is the change in total market quantity supplied?

Market quantity decreases by 300 units as firms respond to the effective price reduction
Market quantity decreases by 100 units as each firm reduces output by 1 unit
Market quantity decreases by 600 units as the tax shifts supply curves upward
Market quantity decreases by 200 units as each firm reduces output by 2 units (correct answer)

Explanation: When you encounter excise tax problems in microeconomics, focus on how the tax affects the relationship between market price and the price producers actually receive. An excise tax creates a wedge between what consumers pay and what producers keep. Let's work through this systematically. Initially, with market price at $30, each firm produces where $

P = 3Q + 12

, so

30 = 3Q + 12

, giving

Q = 6

$ units per firm. With 100 firms, total market quantity is 600 units. When a

6 excise tax is imposed on producers, they only receive $$P - 6$$ from each unit sold. So each firm's effective supply relationship becomes $$P - 6 = 3Q + 12$$, or $$P = 3Q + 18$$. If market price stays at

30 temporarily, each firm now produces where

30 = 3Q + 18

, giving

Q = 4

units per firm. Each firm reduces output by 2 units (from 6 to 4), so total market quantity decreases by

100 \times 2 = 200

units. Choice A incorrectly calculates a 300-unit decrease, likely from mathematical errors. Choice B shows only a 1-unit reduction per firm, missing the full impact of the $6 tax on the supply relationship. Choice C suggests a 600-unit decrease, which would eliminate all production—this confuses the tax amount with the quantity response. Study tip: With excise taxes on producers, always substitute

(P - \text{tax})

into the original supply equation, then solve for the new quantity. The tax shifts the supply curve up by exactly the tax amount, but the quantity change depends on the slope.

Question 7

A competitive market consists of two types of firms. There are 10 firms of Type A, each with an individual supply function of $q_A = P - 5$ . There are 5 firms of Type B, each with an individual supply function of $q_B = 2P - 20$ . What is the total market quantity supplied at a price of $12?

110
90 (correct answer)
70
20

Explanation: First, determine the quantity supplied by each firm type at P=$12. For Type A firms,

q_A = 12 - 5 = 7

. Since there are 10 such firms, their total supply is

10 \times 7 = 70

. For Type B firms,

q_B = 2(12) - 20 = 24 - 20 = 4

. Since there are 5 such firms, their total supply is

5 \times 4 = 20

. The total market quantity supplied is the sum of the quantities from both types of firms:

70 + 20 = 90

Question 8

Producers of a storable good, such as wine, anticipate that the market price for their product will be substantially lower one year from now. What is the most likely immediate impact on the current market supply curve for this wine?

The current supply curve will shift to the right as producers try to sell their inventory before the price drops. (correct answer)
The current supply curve will shift to the left as producers wait for market conditions to improve.
There will be a movement down along the current supply curve, reflecting the lower expected future price.
The current supply curve will be unaffected, but the supply curve one year from now will shift to the left.

Explanation: Expectations of future prices are a key determinant of current supply. If producers expect the price to be lower in the future, they have a strong incentive to sell as much of their storable inventory as possible in the present, while the price is still relatively high. This action increases the quantity they are willing to sell at any given current price, resulting in a rightward shift of the current supply curve.

Question 9

When the price of a bushel of corn is $8, farmers supply 200 million bushels. When the price falls to $6, they supply 120 million bushels. Using the midpoint method (arc elasticity), what is the price elasticity of supply for corn in this price range?

2.00
1.75 (correct answer)
0.57
0.50

Explanation: The midpoint formula for price elasticity of supply is:

E_S = \frac{(Q_2 - Q_1) / ((Q_1 + Q_2)/2)}{(P_2 - P_1) / ((P_1 + P_2)/2)}

. Here,

Q_1 = 200, Q_2 = 120, P_1 = 8, P_2 = 6

. The percentage change in quantity is

(120 - 200) / ((200 + 120)/2) = -80 / 160 = -0.5

. The percentage change in price is

(6 - 8) / ((8 + 6)/2) = -2 / 7 \approx -0.2857

. The elasticity is

(-0.5) / (-2/7) = 0.5 \times 3.5 = 1.75

. Since elasticity is positive, the answer is 1.75.

Question 10

A new environmental regulation requires all furniture manufacturers to use a more expensive, sustainably harvested wood. This new rule increases both the marginal cost of producing each chair and the fixed costs of operation (due to certification requirements). How will this regulation affect the market supply curve for furniture?

The supply curve will shift to the left, and it will likely become more inelastic.
The supply curve will shift to the right as firms signal their environmental responsibility to consumers.
The supply curve's position will be unchanged, but producer surplus will fall at all output levels.
The supply curve will shift to the left, reflecting the higher production costs. (correct answer)

Explanation: When you encounter questions about regulations that increase production costs, focus on how cost changes affect supply decisions. The supply curve shows the relationship between price and quantity supplied, and when it becomes more expensive to produce goods, suppliers need higher prices to justify producing the same quantities. This environmental regulation increases both marginal costs (more expensive wood per chair) and fixed costs (certification requirements). When production becomes more costly, firms require higher prices to maintain profitability at any given output level. This means the entire supply curve shifts leftward (or upward), indicating that at every price point, firms will supply less furniture than before the regulation. Looking at the wrong answers: Option A incorrectly adds that the supply curve becomes more inelastic. While costs increase, there's no information suggesting firms become less responsive to price changes - elasticity depends on factors like substitutability of inputs and time horizons, not just cost levels. Option B suggests a rightward shift due to environmental signaling, but this confuses supply-side cost effects with demand-side marketing benefits. Even if consumers value sustainability, the immediate supply-side effect is still higher costs reducing quantity supplied at each price. Option C claims the supply curve position is unchanged, which ignores the fundamental principle that increased production costs shift supply curves leftward. Remember: Cost increases always shift supply curves left/up, while cost decreases shift them right/down. Don't let secondary effects like consumer preferences distract you from the primary cost-supply relationship being tested.

Question 11

The market for high-speed internet in a city has two suppliers. Firm 1 has a supply function of $Q_1 = P - 20$ for $P \ge 20$ . Firm 2 has a supply function of $Q_2 = 0.5P - 5$ for $P \ge 10$ . Which equation represents the market supply curve for prices between $10 and $20?

$Q_M = 1.5P - 25$
$Q_M = P - 20$
$Q_M = 0.5P - 5$ (correct answer)
$Q_M = 0.75P - 12.5$

Explanation: The market supply curve is the horizontal summation of individual supply curves. We must consider the price ranges at which each firm is willing to supply. Firm 2 enters the market at P=

10. Firm 1 only enters the market at P=

20. Therefore, for prices between $10 and $20 (specifically,

10 \le P < 20

), only Firm 2 is supplying the good. The market supply in this price range is simply Firm 2's supply:

Q_M = Q_2 = 0.5P - 5

Question 12

A farmer can use land to grow either wheat or barley. These two crops are considered substitutes in production. If a new biofuel technology increases the demand for and price of barley, what is the expected effect on the market supply of wheat?

The supply of wheat will increase because farmers will use the extra profits from barley to fund wheat production.
The quantity supplied of wheat will decrease, which is represented by a movement down along the supply curve for wheat.
The supply of wheat will decrease because the opportunity cost of growing wheat has increased. (correct answer)
The supply of wheat will be unaffected as the change in the price of barley does not alter the costs of producing wheat.

Explanation: Because wheat and barley are substitutes in production, they compete for the same resource (land). When the price of barley increases, it becomes more profitable to grow barley relative to wheat. This increases the opportunity cost of growing wheat. As a result, farmers will allocate more land to barley and less to wheat, causing the supply of wheat to decrease at every price level. This is represented by a leftward shift of the supply curve for wheat.

Question 13

Consider the market for rare earth minerals, which require extensive and specialized mining operations. In contrast, consider the market for printed t-shirts, where production can be scaled up quickly with existing technology. How does the price elasticity of supply for these two goods likely compare in the short run?

The supply of both goods will be perfectly inelastic in the short run.
The supply of rare earth minerals will be more elastic than the supply of t-shirts.
The supply of t-shirts will be more elastic than the supply of rare earth minerals. (correct answer)
The elasticity of supply will be identical for both because it is determined by price, not production factors.

Explanation: Price elasticity of supply measures how responsive the quantity supplied is to a change in price. This responsiveness depends heavily on the flexibility of the production process and the time horizon. In the short run, it is difficult to open new mines or significantly increase extraction rates for rare earth minerals, making their supply highly inelastic. Conversely, t-shirt production can be increased relatively easily by running more shifts or ordering more blank shirts, making its supply significantly more elastic.

Question 14

A firm produces widgets using labor and steel as primary inputs. A new manufacturing process is adopted that reduces the amount of labor required per widget. Simultaneously, due to global shortages, the price of steel increases significantly.

The supply curve will shift to the right because the technological improvement is always the dominant factor.
The supply curve will shift to the left because input price increases generally have a larger impact than technology.
The supply curve will shift, but the direction of the shift is uncertain without more information on the magnitude of the two effects. (correct answer)
The supply curve will not shift; instead, there will be a movement along the curve reflecting the change in production costs.

Explanation: The new manufacturing process is a positive technology shock, which lowers production costs and shifts the supply curve to the right. The increase in the price of steel, an input, raises production costs and shifts the supply curve to the left. Since these two effects work in opposite directions, the net effect on the supply curve's position is ambiguous without knowing the relative magnitudes of the cost savings from the technology and the cost increase from the steel price.

Question 15

Consider a market where the supply is highly price-inelastic and the demand is highly price-elastic. If the government imposes a per-unit tax on the producers, what will be the effect on the quantity supplied?

The quantity supplied will decrease substantially because producers bear most of the tax burden.
The quantity supplied will increase because the tax will drive less efficient firms from the market.
The quantity supplied will not change because consumers will bear the entire burden of the tax.
The quantity supplied will decrease only slightly because producers cannot easily adjust their output levels. (correct answer)

Explanation: When analyzing tax incidence and market responses, you need to consider how price elasticity affects both the distribution of tax burden and quantity changes. Price elasticity determines how responsive buyers and sellers are to price changes. In this scenario, supply is highly price-inelastic (producers can't easily adjust output) while demand is highly price-elastic (consumers are very responsive to price changes). When a per-unit tax is imposed on producers, the market price will rise, but because consumers are highly price-sensitive, they'll significantly reduce their purchases if prices increase much. This forces producers to absorb most of the tax burden to avoid losing customers. However, since supply is highly inelastic, producers cannot easily reduce their output levels even when facing higher costs from the tax. Their inability to quickly adjust production means quantity supplied will decrease only slightly, making D correct. A is wrong because while producers do bear most of the tax burden, this doesn't automatically mean quantity supplied decreases substantially—that depends on supply elasticity, not tax burden distribution. B incorrectly suggests quantity would increase; taxes always create deadweight loss and reduce market activity. C misidentifies who bears the tax burden—with elastic demand and inelastic supply, producers bear most of the burden, not consumers. Remember this key pattern: the side of the market that's less elastic (less responsive to price changes) bears more of the tax burden and shows smaller quantity adjustments. Elasticity determines both burden distribution and the magnitude of quantity changes.

Question 16

Due to a widespread health trend, consumer preferences shift strongly in favor of oat milk, causing its market price to increase by 30%. How is this event correctly illustrated on a supply-demand graph for the oat milk market?

The supply curve for oat milk shifts to the right, leading to a higher equilibrium quantity.
There is a movement upward along the existing supply curve for oat milk to a higher quantity supplied. (correct answer)
The supply curve for oat milk shifts to the left, as existing producers cannot meet the new demand.
The supply curve becomes steeper as producers take advantage of the higher willingness of consumers to pay.

Explanation: The initial event is a change in consumer preferences, which shifts the demand curve to the right. This leads to a higher equilibrium price. The increase in the market price of oat milk causes producers to increase their output. This response is a change in the quantity supplied, represented as a movement upward along the existing, unchanged supply curve. The supply curve itself does not shift because the determinants of supply (e.g., input costs, technology) have not changed.

Question 17

The supply of a product is given by the equation $Q_S = 20P - 100$ . If the market price increases from $10 to $15, what is the resulting change in producer surplus?

$750 (correct answer)
$1,000
$250
$1,250

Explanation: The producer surplus is the area above the supply curve and below the price. First, find the price-intercept of the supply curve by setting

Q_S = 0

, which gives

0 = 20P - 100

, so

P = 5

. At the initial price of

10, the quantity supplied is \(Q_S = 20(10) - 100 = 100\). The initial producer surplus is the area of a triangle: \(0.5 \times \text{base} \times \text{height} = 0.5 \times 100 \times (

10 - $5) = $250). At the new price of

15, the quantity supplied is \(Q_S = 20(15) - 100 = 200\). The new producer surplus is \(0.5 \times 200 \times (

15 - $5) =

1000\). The change in producer surplus is the difference between the new and initial surplus: \(

1000 - $250 = $750).

Question 18

The government imposes a new $3 per-unit tax on the producers of a good. The market supply curve before the tax is given by the equation $Q_S = 100 + 20P$ , where P is the price received by sellers.

$Q_S = 40 + 20P$ (correct answer)
$Q_S = 160 + 20P$
$Q_S = 100 + 20(P-3)$
$Q_S = 97 + 20P$

Explanation: The per-unit tax affects the price sellers receive. For any given market price (P), sellers now only receive (P - $3). To find the new supply curve, we substitute (P - 3) for P in the original supply equation:

Q_S = 100 + 20(P - 3)

. Distributing the 20 gives

Q_S = 100 + 20P - 60

, which simplifies to

Q_S = 40 + 20P

. This represents a leftward shift of the supply curve.

Question 19

A manufacturing process creates two products, A and B, in a fixed ratio. This is an example of joint supply. A new use for Product B is discovered, dramatically increasing its market price.

The supply curve for Product A will shift to the left due to production resources being diverted to Product B.
The supply curve for Product A will shift to the right because the increased profitability of Product B encourages more overall production. (correct answer)
The supply curve for Product A will be unaffected because the two goods have separate markets.
There will be a movement along the supply curve for Product A as its price adjusts to the change in the market for Product B.

Explanation: In joint supply, producing one good necessarily results in the production of the other. When the price of Product B increases, the overall production process becomes more profitable. This incentivizes firms to increase their total output. Since Products A and B are produced together, an increase in the production of B will lead to a corresponding increase in the availability of A. This increases the supply of Product A at any given price, shifting its supply curve to the right.

Question 20

The number of active oil rigs in a country is fixed in the very short term. A sudden geopolitical crisis causes the global price of oil to double.

The producer surplus for oil producers will decrease due to market instability.
The producer surplus for oil producers will increase, while the quantity supplied remains constant. (correct answer)
The quantity supplied will double to match the price increase, and producer surplus will more than double.
Producer surplus will not change because the quantity produced is fixed.

Explanation: In the very short term, if the quantity of oil that can be supplied is fixed, the supply curve is perfectly inelastic (vertical). Producer surplus is the area above the supply curve and below the price. When the price doubles, this area increases significantly. The increase is a rectangle with a height equal to the change in price and a width equal to the fixed quantity. Therefore, producer surplus increases even though the quantity supplied does not change.