EC270: Microeconomic Theory I Chapters 16:
Equilibrium Practice Questions & Correct
Answers 2025 (The Ultimate Guide for
2026/2027)
©L. McLeod
Fall 2025
Wilfrid Laurier University
1 Multiple Choice Questions
1.1 Multiple Choice Answers
1. (d)
2. (d)
3. (d)
4. (b)
5. (c)
6. (b)
7. (b)
8. (c)
11. (d)
14. (d)
15. (c)
1.2 Economic Concepts to Remember
Market Equilibrium: a market is in equilibrium when total quantity demanded by buyers equals total
quantity supplied by sellers at the equilibrium price (p∗):
D(p∗) = S(p∗)
1
,Answers Practice Questions (Chapters 16: Equilibrium) EC270: Microeconomic Theory I
Price Ceiling / Imposition of a Subsidy: The price ceiling means the buyers can not pay a price higher than
a specific amount (i.e., pD ≤ pD). Also note that a subsidy (s) is just a negative tax (i.e,. s = −t). Therefore,
a subsidy would still introduce a “wedge” between the price demanders pay (pD) and the price sellers
receive (pS) equal to the size of the subsidy (t): pD + s = pS OR pD = pS − s. Notice they are the same.
Consumer Surplus, Producer Surplus, and Deadweight Loss of a Tax: Consumer surplus measures
aggregate gains from trade (demand side), while producer surplus measures aggregate gains from
trade (supply side). When working with a linear demand function and linear supply function, surplus
can be calculated as:
The deadweight loss is the total surplus lost in the presence of a tax. Again, when working with a
linear demand function and linear supply function, the deadweight loss of a tax can be calculated as:
Imposition of a Tax: When a tax is imposed (on either the buyers or the sellers) there will be a “wedge”
introduced between the price demanders pay (pD) and the price sellers receive (pS) equal to the size
of the tax (t): pD = pS + t OR pD − t = pS. Notice they are the same. We also know that in equilibrium
demand will equal supply: D(pD) = S(pS).
Tax Incidence: refers to the share of the tax paid by buyers and sellers. The fraction of a $t quantity tax paid
by sellers rises as supply becomes less own-price elastic (ϵS ⇓) or as demand becomes more own-price
elastic (ϵD ⇑):
The fraction of a $t quantity tax paid by buyers rises as supply becomes more own-price elastic (ϵS ⇑)
or as demand becomes less own-price elastic (ϵD ⇓):
1.3 Multiple Choice Solutions
Question 1 : The demand for pickles is given by p = 167 − 3q and the supply is given by p = 5 + 6q. What is
the equilibrium quantity?
Answer: we can use the inverse demand and supply functions to solve for the equilibrium quantity:
pD(q∗) = pS(q∗)
167 − 3q∗ = 5 + 6q∗
167 − 5 = 9q∗
2 ©L. McLeod, Fall 2025
, Answers Practice Questions (Chapters 16: Equilibrium) EC270: Microeconomic Theory I
9q∗ = 162
q ∗ = 18
Question 2 : Schrecklich and LaMerde are two justifiably obscure nineteenth-century impressionist
painters. The world’s total stock of paintings by Schrecklich is 130, and the world’s stock of paintings
by LaMerde is 120. The two painters are regarded by connoisseurs as being very similar in style.
Therefore the demand for either painter’s work depends both on its own price and the price of the
other painter’s work. If the demand function for Schrecklichs is 200 − 4pS − 2pL and the demand
function for LaMerdes is 200 − 3pL − pS, where pS and pL are respectively the price of Schrecklichs and
LaMerdes, what is the equilibrium price of LaMerdes?
Answer: Approach this question as you would a standard market equilibrium question. That is, we
know each market (i.e., the market for Schrecklichs and the market for LaMerdes) will each be in
equilibrium:
DS(pL,pS) = SS(pL,pS) 200 −
4p S − 2p L = 130
DL(pL,pS) = SL(pL,pS)
200 − 3p L − p S = 120
Use the equilibrium equation for the LaMerdes market to find an expression for pS in terms of pL:
200 − 3pL − pS = 120 pS = 200 − 3pL −
120
pS = 80 − 3pL
Substitute this into the equilibrium equation for the Schrecklichs market and solve for pL:
200 − 4pS − 2pL = 130
70 − 4(80 − 3pL) − 2pL = 0
70 − 320 + 12pL − 2pL = 0
10pL = 250 p L
= 25
Question 3
: In a
crowded
city far
away, the
3 ©L. McLeod, Fall 2025
Equilibrium Practice Questions & Correct
Answers 2025 (The Ultimate Guide for
2026/2027)
©L. McLeod
Fall 2025
Wilfrid Laurier University
1 Multiple Choice Questions
1.1 Multiple Choice Answers
1. (d)
2. (d)
3. (d)
4. (b)
5. (c)
6. (b)
7. (b)
8. (c)
11. (d)
14. (d)
15. (c)
1.2 Economic Concepts to Remember
Market Equilibrium: a market is in equilibrium when total quantity demanded by buyers equals total
quantity supplied by sellers at the equilibrium price (p∗):
D(p∗) = S(p∗)
1
,Answers Practice Questions (Chapters 16: Equilibrium) EC270: Microeconomic Theory I
Price Ceiling / Imposition of a Subsidy: The price ceiling means the buyers can not pay a price higher than
a specific amount (i.e., pD ≤ pD). Also note that a subsidy (s) is just a negative tax (i.e,. s = −t). Therefore,
a subsidy would still introduce a “wedge” between the price demanders pay (pD) and the price sellers
receive (pS) equal to the size of the subsidy (t): pD + s = pS OR pD = pS − s. Notice they are the same.
Consumer Surplus, Producer Surplus, and Deadweight Loss of a Tax: Consumer surplus measures
aggregate gains from trade (demand side), while producer surplus measures aggregate gains from
trade (supply side). When working with a linear demand function and linear supply function, surplus
can be calculated as:
The deadweight loss is the total surplus lost in the presence of a tax. Again, when working with a
linear demand function and linear supply function, the deadweight loss of a tax can be calculated as:
Imposition of a Tax: When a tax is imposed (on either the buyers or the sellers) there will be a “wedge”
introduced between the price demanders pay (pD) and the price sellers receive (pS) equal to the size
of the tax (t): pD = pS + t OR pD − t = pS. Notice they are the same. We also know that in equilibrium
demand will equal supply: D(pD) = S(pS).
Tax Incidence: refers to the share of the tax paid by buyers and sellers. The fraction of a $t quantity tax paid
by sellers rises as supply becomes less own-price elastic (ϵS ⇓) or as demand becomes more own-price
elastic (ϵD ⇑):
The fraction of a $t quantity tax paid by buyers rises as supply becomes more own-price elastic (ϵS ⇑)
or as demand becomes less own-price elastic (ϵD ⇓):
1.3 Multiple Choice Solutions
Question 1 : The demand for pickles is given by p = 167 − 3q and the supply is given by p = 5 + 6q. What is
the equilibrium quantity?
Answer: we can use the inverse demand and supply functions to solve for the equilibrium quantity:
pD(q∗) = pS(q∗)
167 − 3q∗ = 5 + 6q∗
167 − 5 = 9q∗
2 ©L. McLeod, Fall 2025
, Answers Practice Questions (Chapters 16: Equilibrium) EC270: Microeconomic Theory I
9q∗ = 162
q ∗ = 18
Question 2 : Schrecklich and LaMerde are two justifiably obscure nineteenth-century impressionist
painters. The world’s total stock of paintings by Schrecklich is 130, and the world’s stock of paintings
by LaMerde is 120. The two painters are regarded by connoisseurs as being very similar in style.
Therefore the demand for either painter’s work depends both on its own price and the price of the
other painter’s work. If the demand function for Schrecklichs is 200 − 4pS − 2pL and the demand
function for LaMerdes is 200 − 3pL − pS, where pS and pL are respectively the price of Schrecklichs and
LaMerdes, what is the equilibrium price of LaMerdes?
Answer: Approach this question as you would a standard market equilibrium question. That is, we
know each market (i.e., the market for Schrecklichs and the market for LaMerdes) will each be in
equilibrium:
DS(pL,pS) = SS(pL,pS) 200 −
4p S − 2p L = 130
DL(pL,pS) = SL(pL,pS)
200 − 3p L − p S = 120
Use the equilibrium equation for the LaMerdes market to find an expression for pS in terms of pL:
200 − 3pL − pS = 120 pS = 200 − 3pL −
120
pS = 80 − 3pL
Substitute this into the equilibrium equation for the Schrecklichs market and solve for pL:
200 − 4pS − 2pL = 130
70 − 4(80 − 3pL) − 2pL = 0
70 − 320 + 12pL − 2pL = 0
10pL = 250 p L
= 25
Question 3
: In a
crowded
city far
away, the
3 ©L. McLeod, Fall 2025
