Microeconomics Sample Midterm Answers

Question 1

Refer to the figure. What would cause the supply curve to shift from S1 to S2?

a. $40 tax on each unit of output
b. $20 tax on each unit of output
c. $20 subsidy on each unit of output
d. $40 subsidy on each unit of output

Answer 1

b. $20 tax on each unit of output

Question 2

(Figure: Supply Tax) In the accompanying pizza market, with a $2 tax imposed on the sellers, how much of the tax is paid by the buyers and how much of the tax burden is borne by the sellers?

a. Sellers pay $1.50 and buyers pay $0.50 of the tax.
b. Buyers pay $1.50 and sellers pay $0.50 of the tax.
c. Buyers pay all of the $2 tax.
d. Sellers pay all of the $2 tax.

Answer 2

b. Buyers pay $1.50 and sellers pay $0.50 of the tax.

Question 3

(Table: Production in the United States and Germany) According to the table, the opportunity cost of producing one sofa in the United States is
___, and the opportunity cost of producing one sofa in Germany is ____

a. two clocks; three clocks
b. 2.5 clocks; three clocks
c. 10 clocks; 27 clocks
d. 0.4 clocks; 0.33 clocks

Answer 3

b. 2.5 clocks; three clocks

Question 4

A decrease in production costs at any given quantity ___ supply.

a. decreases
b. does not change
c. may increase or decrease
d. increases

Answer 4

d. increases

Question 5

A decrease in the opportunity cost of steel production will:

a. entice producers to produce more substitute goods
b. make suppliers more likely to produce steel, thus shifting the supply curve down and to the right.
c. make suppliers more likely to produce steel, thus shifting the supply curve up and to the left.
d. increase the price of steel.

Answer 5

c. make suppliers more likely to produce steel, thus shifting the supply curve up and to the left.

Question 6

A good with an absolute value of the price elasticity of demand of 1.0 is classified as:

a. unit elastic.
b. perfectly inelastic.
c. elastic
d. inelastic.

Answer 6

a. unit elastic.

Question 7

A new per unit subsidy for almond production in the United States increases the world supply of almonds. If almonds are inelastically demanded, what will happen to total revenues from almond production?

a. They will remain the same
b. They will change in an indeterminate direction
c. They will rise.
d. They will fall.

Answer 7

d. They will fall.

Question 8

A supply and/or demand graph typically shows:

a. the quantity of the good on the horizontal axis and the price of the good on the vertical axis.
b. supply or demand of the good on the horizontal axis and price of the good on the vertical axis.
c. the price of the good on the horizontal axis and the quantity of the good on the vertical axis.
d. price of the good on the horizontal axis and supply or demand of the good on the vertical axis.

Answer 8

a. the quantity of the good on the horizontal axis and the price of the good on the vertical axis.

Question 9

A vertical reading of the demand curve gives the maximum price per unit that consumers are willing to pay for a particular quantity of a good.

a. True
b. False

Answer 9

a. True

Question 10

According to economists, when the Food and Drug Administration raises the approval requirements for new drugs:

a. people will only demand more drug testing.
b. society potentially loses a new drug approval.
c. everyone will benefit and be better off.
d. everyone but the drug makers will lose.

Answer 10

b. society potentially loses a new drug approval.

Question 11

Adam Smith advocated the benefits of:

a. absolute advantage.
b. protectionism.
c. international trade.
d. trade tariffs over trade quotas.

Answer 11

c. international trade.

Question 12

America was so poor in past centuries that even George Washington caught malaria.

a. False
b. True

Answer 12

b. True

Question 13

An increase in supply refers to:

a. a downward movement along the supply curve.
b. a leftward shift of the supply curve.
c. a rightward shift of the supply curve.
d. an upward movement along the supply curve.

Answer 13

c. a rightward shift of the supply curve.

Question 14

As world coal prices rise due to increasing scarcity and coal-based energy costs rise, the demand for wind energy will:

a. remain the same.
b. change in random patterns.
c. decrease.
d. increase.

Answer 14

d. increase.

Question 15

Assume that cigarettes sell for $7 per pack in New Jersey and $3 per pack in South Carolina, and New Jersey taxes cigarettes at $3.00 per pack and South Carolina taxes cigarettes at $0.10 per pack. How might cigarette sellers respond to the after-tax price differential between the two states?

a. Cigarette sellers will decrease the supply of cigarettes to New Jersey and increase the supply of cigarettes to South Carolina.
b. Cigarette sellers will increase the supply of cigarettes to New Jersey and decrease the supply of cigarettes to South Carolina.
c. Cigarette sellers will decrease the supply of cigarettes to both New Jersey and South Carolina.
d.Cigarette sellers will increase the supply of cigarettes to both New Jersey and South Carolina.

Answer 15

a. Cigarette sellers will decrease the supply of cigarettes to New Jersey and increase the supply of cigarettes to South Carolina.

Question 16

Assume that demand decreases by 3 percent, the absolute value of price elasticity of demand is 1.0, and price elasticity of supply is 1.0. What is the percentage price change in this case?

a. 0.5
b. -1.5
c. 1.5
d. -0.5

Answer 16

b. -1.5

Question 17

Assume that spaghetti is an inferior good for most people. As their incomes increase, all other things held constant, the demand for spaghetti will:

a. decrease. shitting the demand curve to the right.
b. increase shifting the demand curve to the right.
c. decrease, shifting the demand curve to the left.
d. increase, shifting the demand curve to the left.

Answer 17

c. decrease, shifting the demand curve to the left.

Question 18

Bill Gates dropped out of college and founded Microsoft. His opportunity cost of continuing to attend college was

a. tuition, the cost of books, and a low-paying job.
b. tuition. the cost of books. and room and board
c. tuition, the cost of books, and the income from his Microsoft pursuits.
d. only the income from his Microsoft pursuits.

Answer 18

c. tuition, the cost of books, and the income from his Microsoft pursuits.

Question 19

During the period of dramatic inflation in Zimbabwe, if you had one trillion Zimbabwean dollars, you still were not very rich.

a. True
b. False

Answer 19

a. True

Question 20

Economics is the study of:

a. how to make the world most productive.
b. what is good and what is bad.
c. how to make everyone rich.
d. trade-offs when making decisions.

Answer 20

d. trade-offs when making decisions.

Question 21

According to the figure, who bears the greater burden of a commodity tax?

a. The government will bear the full burden of the tax.
b. The seller will bear the greater burden of the tax.
c. The buyer will bear the greater burden of the tax
d. The buyer and the seller will split the tax burden equally.

Answer 21

b. The seller will bear the greater burden of the tax.

Question 22

Which of the four panels shows an increase in the quantity supplied?

a. Panel A
b. Panel C
c. Panel D
d. Panel B

Answer 22

d. Panel B

Question 23

Which event would shift the demand curve for piano lessons from D1 to D2, as shown in the diagram?

a. a decrease in the price of pianos
b. a decrease in the price of piano lessons
c. an increase in the price of pianos
d. an increase in the price of piano lessons

Answer 23

a. a decrease in the price of pianos

Question 24

Refer to the figure. It shows two different supply curves. Based on the graph, which statement is TRUE?

a. The same price increase would cause a bigger increase in the quantity supplied along curve B.
b. The same price increase would cause a bigger increase in the quantity supplied along curve A.
c. If comparing responsiveness from a common point, like the intersection, we can conclude that supply curve B is more elastic.
d. Curve A reflects a less responsive supply.

Answer 24

b. The same price increase would cause a bigger increase in the quantity supplied along curve A.

Question 25

If the government places a tax on sellers of $0.67 per unit in this market, who will bear the burden of the tax?

a. Sellers will pay 100 percent of the tax in the form of lower prices.
b. Sellers will pay the majority of the tax.
c. The tax will be split 50-50 between sellers and buyers.
d. Buyers will pay the majority of the tax.

Answer 25

d. Buyers will pay the majority of the tax.

Question 26

If consumers pay 100 percent of a commodity tax, what could one conclude?

a. Suppliers have more effective lobbying in Washington than consumers.
b. Neither side has a perfectly elastic curve but the supply side is more elastic than the demand side.
c. The commodity in question has a perfectly elastic supply curve.
d. The commodity in question has a perfectly elastic demand curve.

Answer 26

c. The commodity in question has a perfectly elastic supply curve.

Question 27

If demand is more elastic than supply, the majority of a tax is paid by the buyers.

A. False
B. True

Answer 27

A. False

Question 28

If romaine lettuce and iceberg lettuce are substitutes, a(n) ___
in the price of romaine lettuce will ___ the demand for iceberg lettuce.

a. Increase: decrease
b. decrease: increase
c. increase: increase
d. decrease: not change

Answer 28

c. increase: increase

Question 29

If supply decreases and its slope remains the same, consumer surplus:

a. stays the same
b. increases
c. decreases
d. cannot be determined given the information provided.

Answer 29

c. decreases

Question 30

If the market price is above the equilibrium price, which of the following will occur?

a. Quantity demanded will exceed quantity supplied and the market price will eventually fall.
b. Quantity supplied will exceed quantity demanded and the market price will eventually fall.
c. Quantity supplied will exceed quantity demanded, and the market price will eventually rise.
d. Quantity demanded will exceed quantity supplied and the market price will eventually rise.

Answer 30

b. Quantity supplied will exceed quantity demanded and the market price will eventually fall.

Question 31

If the price elasticity of demand is 1 in absolute value, then a percentage drop in price will lead to an equal percentage increase in quantity demanded.

a. True
b. False

Answer 31

a. True

Question 32

If the price of a good falls from $20 to $10 and quantity demanded rises from 400 to 500, the demand would be classified as inelastic.

a. False
b. True

Answer 32

a. True

Question 33

If the price of ski lift tickets increases, the demand for ski lift tickets will increase.

a. True
b. False

Answer 33

b. False

Question 34

In a competitive market, sellers compete with other sellers.

a. True
b. False

Answer 34

a. True

Question 35

In a free market equilibrium, the gains from trade are always greater for consumers than for producers.

a. True
b. False

Answer 35

b. False

Question 36

In a market with a downward-sloping demand curve and an upward sloping supply curve, a tax placed on sellers will cause sellers to receive a lower price and buyers to pay a higher price.

a. True
b. False

Answer 36

a. True

Question 37

Joe runs a landscape company and uses one of his home’s bedrooms as a home office. This office could be used to earn rental income from college students. If average rental income in Joe’s neighborhood were to rise:

a. Joe’s landscape company would experience a decrease in demand for services at all prices.
b. Joe should expand his office space in his home.
c. Joe’s opportunity cost of using a bedroom as a home office would decrease.
d. Joe’s opportunity cost of using a bedroom as a home office would increase.

Answer 37

d. Joe’s opportunity cost of using a bedroom as a home office would increase.

Question 38

One of the ways trade increases wealth is by taking advantage of differences in preferences.

a. True
b. False

Answer 38

a. True

Question 39

Specialization in its comparative advantage and trading with other nations benefits a country in terms of its total output, but not individuals when it comes to their wages.

a. False
b. True

Answer 39

a. False

Question 40

The average starting salary of economics majors is just behind that of

a. chemical and nuclear engineering majors
b. marketing majors.
c. political science majors
d. education majors

Answer 40

a. chemical and nuclear engineering majors

Question 41

The fundamental determinant of the elasticity of demand is:

a. population
b. how quickly per-unit costs increase with an increase in production
c. tastes and preferences
d. the number and closeness of substitutes.

Answer 41

d. the number and closeness of substitutes.

Question 42

The key condition for equilibrium to occur in a market is:

a. demand for one good equals demand for all other goods.
b. quantity demanded equals quantity supplied.
c. the demand curve equals the supply curve
d. price equals quantity.

Answer 42

b. quantity demanded equals quantity supplied.

Question 43

The opportunity cost of attending college includes tuition, room and board, cost of meals, and the lost opportunity to make money at a job.

a. False
b. True

Answer 43

a. False

Question 44

There is a positive relationship between price and quantity demanded.

a. False
b. True

Answer 44

a. False

Question 45

Trade increases productivity when production is carried out by the person/group with the comparative advantage.

a. True
b. False

Answer 45

a. True

Question 46

Trade makes rich people richer and poor people poorer

a. True
b. False

Answer 46

b. False

Question 47

Trading increases the amount a single country can produce

a. True
b. False

Answer 47

b. False

Question 48

Two people can benefit from trade if they both live in the same country, but not if they believe live in different countries.

a. False
b. True

Answer 48

a. False

Question 49

Utilizing comparative advantage can best be exemplified as:

a. a world-renowned chef hiring someone to cook meals for his family.
b. your lawyer word-processing her own legal briefs.
c. the president of your university teaching a class again
d. the CEO of Microsoft programming his own computer.

Answer 49

a. a world-renowned chef hiring someone to cook meals for his family.

Question 50

When the price of oil used for generating electricity increases, the demand for nuclear power will increase.

a. True
b. False

Answer 50

a. True