Unit 2: Supply & Demand
Micro · Unit 2 · Paper 2

Supply & Demand unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1Paper 2Paper 3
Each paper is built from this unit’s 37 terms and is the same for everyone, so a teacher can assign “Unit 2, Paper 2” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.
Suggested time 37 min 34 points0/17 attempted
1

Price ceiling

2

Inferior good

3

Substitution effect

4

Producer surplus

5

Change in quantity demanded vs change in demand

6

Elasticity along a linear demand curve

7

Total surplus

8

Double shift

9

Tax revenue on a graph

10

Consumer surplus

11

Unit elastic demand

12

Demand shifters

Short answer 1. Define or explain: Effect of a per-unit tax

3 pts

Short answer 2. Define or explain: Law of demand

3 pts

Short answer 3. Define or explain: Income effect

3 pts

Short answer 4. Define or explain: Excise tax incidence

3 pts

Free response

10 pts

This course has no free-response prompt tagged to this unit, so one from elsewhere in the course is used. It is still worth writing — the skill transfers.

LONG FREE-RESPONSE. Vantis Pharmaceuticals holds a patent and is the sole seller of a medication. Market demand is P = 120 − 2Q, and the firm’s marginal cost and average total cost are both constant at $40 per unit.

Draw a correctly labeled graph showing the demand, marginal revenue, and marginal cost curves for Vantis.

Calculate the profit-maximizing quantity and price, showing your work.

Calculate the firm’s economic profit.

Calculate consumer surplus at the monopoly price.

Identify the allocatively efficient quantity and explain why the monopoly outcome is not allocatively efficient.

Calculate the deadweight loss and shade it on your graph.

Suppose a regulator imposes a price ceiling of $40 per unit. Explain the effect on quantity, on economic profit, and on deadweight loss.