Midterm examination

Introduction to Economics
BSSE_f12_____
Name: _____________________
Signature: _____________________
Part A:
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)

Indicate whether the sentence or statement is true or false. Please fill the circles in previous sheet.
A perfectly competitive market consists of products that are all slightly different from one another.
The law of demand states that an increase in the price of a good decreases the demand for that good.
If apples and oranges are substitutes, an increase in the price of apples will decrease the demand for oranges.
If pencils and paper are complements, an increase in the price of pencils causes the demand for paper to decrease or
shift to the left.
An advance in the technology employed to manufacture roller blades will result in a decrease in the equilibrium price
and an increase in the equilibrium quantity in the market for roller blades.
If there is an increase in supply accompanied by a decrease in demand for coffee, then there will be a decrease in both
the equilibrium price and quantity in the market for coffee.
If the quantity demanded of a good is sensitive to a change in the price of that good, demand is said to be price inelastic.
The demand for tyres should be more inelastic than the demand for Michelin brand tyres.
The demand for a necessity such as petrol tends to be elastic.
An advance in technology that shifts the market supply curve to the right always increases total revenue received by
producers.
Part B:
Identify the letter of the choice that best completes the statement or answers the question.
1) If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then blue jeans and
tennis shoes are
a) complements.
b) inferior goods.
c) normal goods.
d) none of these answers.
e) substitutes.

2) The law of demand states that an increase in the price of a good

a) increases the supply of that good.
b) decreases the quantity demanded for that good.
c) decreases the demand for that good.
d) increases the quantity supplied of that good.
e) none of these answers.
3) If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then camping equipment
is
a) a normal good.
b) none of these answers.
c) an inferior good.
d) a substitute good.
e) a complementary good.
4) Economics can best be described as

a) the study of how to reduce inflation and unemployment

b)
c)
d)
e)

a normative science
the study of the use of scarce resources to satisfy unlimited human wants
the study of how a society ought to allocate its resources
the application of sophisticated mathematical models to address social problems.

5) Which of the following shifts the demand for watches to the right?
a) an increase in the price of watches
b) none of these answers
c) a decrease in the price of watch batteries if watch batteries and watches are complements
d) a decrease in consumer incomes if watches are a normal good
e) a decrease in the price of watches
6) If the price of a good is equal to the equilibrium price,
a) there is a shortage and the price will fall.
b) the quantity demanded is equal to the quantity supplied and the price remains unchanged.
c) there is a surplus and the price will rise.
d) there is a shortage and the price will rise.
e) there is a surplus and the price will fall.
7) Suppose there is an increase in both the supply and demand for personal computers. Further, suppose the supply of
personal computers increases more than demand for personal computers. In the market for personal computers, we
would expect
a) the change in the equilibrium quantity to be ambiguous and the equilibrium price to fall.
b) the equilibrium quantity to rise and the equilibrium price to rise.
c) the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.
d) the equilibrium quantity to rise and the equilibrium price to fall.
e) the equilibrium quantity to rise and the equilibrium price to remain constant.
8) Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward
orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice?
a) Price will decrease; quantity is ambiguous.
b) The impact on both price and quantity is ambiguous.
c) Price will increase; quantity will increase.
d) Price will increase; quantity will decrease.
e) Price will increase; quantity is ambiguous.
9) Suppose consumer tastes shift toward the consumption of apples. Which of the following statements is an accurate
description of the impact of this event on the market for apples?
a) There is an increase in the quantity demanded of apples and in the supply for apples.
b) There is an increase in the demand and supply of apples.
c) There is an increase in the demand for apples and a decrease in the supply of apples.
d) There is a decrease in the quantity demanded of apples and an increase in the supply for apples.
e) There is an increase in the demand for apples and an increase in the quantity supplied of apples.
10) Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect
to happen to the equilibrium price and quantity in the market for wheat today?
a) The impact on both price and quantity is ambiguous.
b) Price will decrease; quantity is ambiguous.
c) Price will increase; quantity will decrease.
d) Price will increase; quantity is ambiguous.
e) Price will increase; quantity will increase.

11) An inferior good is one for which an increase in income causes a(n)
a) decrease in supply.
b) increase in demand.
c) increase in supply.
d) decrease in demand.
12) If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand
for that good is
a) income inelastic.
b) price inelastic.
c) price elastic.
d) unit price elastic.
e) income elastic.
13) The price elasticity of demand is defined as
a) the percentage change in the quantity demanded divided by the percentage change in income
b) the percentage change in income divided by the percentage change in the quantity demanded.
c) the percentage change in the quantity demanded of a good divided by the percentage change in the price of that
good.
d) none of these answers.
e) the percentage change in price of a good divided by the percentage change in the quantity demanded of that
good.
14) The supply and demand schedules for dozens of roses are given below:

Price
Quantity Supplied per period Quantity Demanded per period
$10
200
500
$20
300
450
$30
400
400
$40
500
350
$50
600
300
The equilibrium price for a dozen roses is __$30______.
a) 500.
b) 300
c) 450
d) 400
e) 600
15) In general, a flatter demand curve is more likely to be
a) price elastic.
b) unit price elastic.
c) none of these answers.
d) price inelastic.

16) Which of the following would cause a demand curve for a good to be price inelastic?
a) The good is a luxury.
b) There are a great number of substitutes for the good.
c) The good is a necessity.
d) The good is an inferior good.
17) If a supply curve for a good is price elastic, then
a) the quantity supplied is sensitive to changes in the price of that good.

b)
c)
d)
e)

the quantity demanded is insensitive to changes in the price of that good.

the quantity demanded is sensitive to changes in the price of that good.
the quantity supplied is insensitive to changes in the price of that good.
none of these answers.

18) If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught
the fisherman's price elasticity of supply for fresh fish is
a) zero.
b) infinite.
c) one.
d) unable to be determined from this information.
19) If the income elasticity of demand for a good is negative, it must be
a) an elastic good.
b) an inferior good.
c) a normal good.
d) a luxury good.
20) If Shift in the supply curve from S2 to S1 might be caused by
a) additional suppliers entering the industry
b) a decrease in demand for X
c) an improvement in the technology of producing good X
d) a decrease in the price of X
e) a rise in the costs of producing good X<

ii. Carefully explain the difference between quantity demanded and demand for a good/product
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
iii. Suppose the market for frozen orange juice is in equilibrium at a price of $1.00 per can and
a quantity of 4200 cans per month. Now suppose that at a price of $1.50 per can, quantity
demanded falls to 3000 cans per month and quantity supplied increases to 4500 cans per
month.
l.
a. Draw the appropriate diagram for this market
v.
w.
x.
y. Demand

o.

m.
n.

p.
q.
r. $1.50
s.
t. $1.00
u.
aa.
ab.
ac.
ad.
ae.

z.

af.

3000

4200

Supply

4500 Orange Juice

ag.
ah.

b. Calculate the price elasticity of demand for frozen orange juice between the prices of $1.00 and $1.50.
Is the demand elasticity elastic or inelastic?
ai.
aj.
ak.
al.
am.
an.
ao.
ap.
aq.
ar.
as.
at.
au.
av.

aw.

inelastic demand for the orange juice

ax.
ay.

Calculate the elasticity of supply for frozen orange juice between prices of $1.00 and
$1.50. IS the supply elasticity elastic or inelastic.?

c.
az.

d.
g.
j.

e.
h.
k.

f.
i.
l.

ba.
bb. In Country Faraway, cigarettes are forbidden, so people trade cigarettes in a
bc. black market. The cigarette demand is QD = 12 P , and the cigarette supply is Qs = 2P . (a) (3 points) Find the
equilibrium price and quantity in the black market.
bd.
be.
bf.
bg.
bh.
bi.
bj.
bk.
bl.
bm.
bn.

bo.
bp.

Mid term examination

Introduction to Economics
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BSSE_f12___
Name: ______________________________________________

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