Microeconomics Exam

MIDTERM PRACTICE TEST – MICROECONOMICS:
1
An example of an effective price ceiling would be the government setting the price of wheat at ______ per bushel when the market price is at $4.25 per bushel.

⦁ $ 3.75
⦁ $ 5.00
⦁ $ 7.75
⦁ $12.00

2
If the market price of green tea is $20.00 per pound but the government will not allow green tea growers to charge more than $15.00 per pound of green tea, which of the following will happen?

⦁ Demand must eventually decrease so that the market will come into equilibrium at a price of $17.50.
⦁ There will be a shortage of green tea.
⦁ Supply must eventually increase so that the market will come into equilibrium at a price of $17.50.
⦁ There will be a surplus of green tea.

3
An effective price ceiling must be set

⦁ above the equilibrium price.
⦁ below the equilibrium price.
⦁ at the equilibrium price.
⦁ either at or above the equilibrium price.

4
The law of demand says that:
⦁ price and quantity demanded are directly related.
⦁ price and quantity demanded are inversely related.
⦁ price and quantity supplied are directly related.
⦁ price and quantity supplied are inversely related.

Questions 5-6 refer to the following graph.

5
Equilibrium price and quantity are:
⦁ $4,120
⦁ $3,120
⦁ $4,150
⦁ $2,150
6
At $2, there would be a _____ in this market.
⦁ surplus of 60.
⦁ surplus of 30.
⦁ shortage of 60.
⦁ shortage of 30.

7
At what price would there be a surplus of 60?
⦁ $2
⦁ $3
⦁ $4
⦁ cannot say from this data.

Questions 8-9 refer to the following graph.

Figure 4-3

8
Refer to Figure 4-3. A change from Point A to Point E represents a(n):
⦁ increase in supply.
⦁ decrease in supply.
⦁ increase in quantity supplied.
⦁ decrease in quantity supplied.
9
Refer to Figure 4-3. A change from Point A to Point B represents a(n):
⦁ increase in supply.
⦁ decrease in supply.
⦁ increase in quantity supplied.
⦁ decrease in quantity supplied.

10
When demand increases:
⦁ equilibrium price will increase, but equilibrium quantity will decrease.
⦁ equilibrium price will decrease, but equilibrium quantity will increase.
⦁ both equilibrium price and quantity will decrease.
⦁ both equilibrium price and quantity will increase.

11
When supply increases:
⦁ equilibrium price will increase, but equilibrium quantity will decrease.
⦁ equilibrium price will decrease, but equilibrium quantity will increase.
⦁ both equilibrium price and quantity will decrease.
⦁ both equilibrium price and quantity will increase.

12
After widespread press reports about the dangers of contracting “mad cow disease” by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is:
⦁ no change; only the supply curve for beef is likely to be affected.
⦁ a shift of the demand curve for beef to the left.
⦁ a movement down along the demand curve for beef to the right.
⦁ a shift of the demand curve for beef to the right.

13
If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that:
⦁ the price of Good Y will increase.
⦁ Goods X and Y are normal goods.
⦁ Goods X and Y are substitute goods.
⦁ Goods X and Y are complement goods.

14
Sugar is an important input in the production of cookies. If the price of sugar decreases, what would we expect to happen to the supply of cookies?
⦁ No change
⦁ Increases
⦁ Decreases
⦁ Disappears

15
A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:
⦁ the supply curve.
⦁ the demand curve, as consumers try to economize because of the shortage.
⦁ both the supply and demand curves.
⦁ the supply curve and a rightward shift of the demand curve, resulting in a higher equilibrium price.

16
Which of the following would reduce the supply of microcomputers?
⦁ a technological improvement that lowers the cost of producing the computers
⦁ higher wage rates for the workers that assemble the computers
⦁ a reduction in the price of computer chips used to produce the computers
⦁ a reduction in the price of computers.

17
When the demand for a commodity decreases and its supply is vertical we can conclude that:
⦁ both price and quantity will rise.
⦁ price will fall while quantity remains constant.
⦁ quantity will rise while price remains constant.
⦁ neither price nor quantity will change.

18
An expectation that the p rice of housing will increase more rapidly in coming years will cause the:
⦁ Quantity supplied of houses today will decrease.
⦁ demand for houses today to increase.
⦁ supply of houses today to increase.
⦁ demand for houses today to decrease.

19
An increase in the demand for a commodity accompanied by a decrease in its supply will result in a(n):
⦁ decrease in price and an increase in quantity.
⦁ increase in both price and quantity.
⦁ increase in price while the quantity can increase or decrease.
⦁ decrease in price while the quantity can increase or decrease.

20
Which of the following would result in a higher equilibrium quantity and an ambiguous change in equilibrium price?
⦁ An increase in supply and demand
⦁ An increase in supply and a decrease in demand
⦁ A decrease in supply and demand
⦁ A decrease in supply and an increase in demand

21
The president of a college has been told that when they raised their tuition by 15% the previous year, total revenue from tuition remained unchanged. Assuming the change in revenue is due to the change in tuition only, the president could conclude that demand for that college, over that tuition range, must be:
⦁ greater than 1.
⦁ equal to 1.
⦁ equal to zero.
⦁ less than 1.

22
A perfectly elastic supply curve would:
⦁ be horizontal.
⦁ be vertical.
⦁ intersect the two axes at the origin.
⦁ intersect the horizontal axis.

23
A marketing student observes that when the price of ice cream rises by 10%, the quantity of ice cream a supplier is willing to sells rises by 5%. The student correctly concludes that the elasticity of supply for ice cream is:
⦁ .5.
⦁ 5.
⦁ .2.
⦁ 2.

24
If the supply curve intersects the vertical (price) axis, the supply curve has an elasticity:
⦁ greater than one.
⦁ less than one.
⦁ that is indeterminate.
⦁ equal to one.

25
Assume that the income elasticity of demand for a good is greater than one. Then evaluate each of the following statements and choose the best answer from among the lettered choices below.
1) The good is a luxury good.
2) The good is a necessity.
3) The good is a normal good.
4) The good is an inferior good.
⦁ Only Statements 1 and 3 are correct.
⦁ Only Statement 1 is correct.
⦁ Only Statement 3 is correct.
⦁ Only Statement 2 is correct.
⦁ Only Statement 4 is correct.