SAMPLE MID-SEMESTER EXAMINATION PAPER

SECTION A – MULTIPLE CHOICE QUESTIONS (60 MARKS)

1. Suppose that you purchased a ticket to a jazz festival for $100 from an online
ticket broker. Once you arrived at the festival, you discovered that parking costs
you an additional $15. In this situation, the additional $15 you pay for parking is
an example of
A. an economic loss.
B. opportunity cost.
C. marginal cost.
D. an inefficient cost.

2. The study of economics

A. is a very narrow endeavor.
B. is a way of analyzing decision-making processes caused by scarcity.
C. focuses on how a business should function.
D. is concerned with proving that capitalism is better than socialism.

3. If you own a building and you decide to use that building to open a bookstore
A. there is an opportunity cost of using this building for a bookstore because
it could have been used in other ways.
B. there is no opportunity cost of using this building for a bookstore because
you own it.
C. the opportunity costs equal the cost of inventory.
D. the only cost relevant to this decision is the price you paid for the
building.

4. Studying how the management of Hewlett Packard decides how many

computers to produce and the price to charge for its computers would be
considered
A. descriptive economics.
B. empirical economics.
C. macroeconomics.
D. microeconomics.

5. Health insurance should be provided to every citizen in a wealthy nation such as

the United States. This statement is best described as
A. a positive statement.
B. a normative statement.
C. a marginal statement.
D. an implication of an efficient market.
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6. Rent control laws are imposed when city officials believe landlords have been
exploiting tenants. Which of the following criteria are they using to guide their
actions?
A. Efficiency
B. Equity
C. Growth
D. Stability

7. According to the theory of comparative advantage, specialization, and free trade

will benefit
A. only that trading party that has a comparative advantage in the production
of all goods.
B. only that trading party that has an absolute advantage in the production of
all goods.
C. all trading parties, even when some are more efficient producers than
others.
D. only that trading party that has both an absolute advantage and a
comparative advantage in the production of all goods.

8.
Karisma Sekar
Writing Poems 8 12
Writing TV Commercials 2 4

Refer to Table for Karisma, the opportunity cost of writing one TV commercial
is
A. 2 poems.
B. 1/4 of a poem.
C. 6 poems.
D. 4 poems.

9. Someone has a comparative advantage in producing a good if she can produce

that good
A. in greater quantities.
B. using more capital and less labor.
C. at a lower opportunity cost.
D. using more labor and less capital.
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10. Refer to the Figure below for the economy of Microland to answer the question
that follows.

Point B represents a situation of

A. full employment but production inefficiency.
B. less than full employment but production efficiency.
C. less than full employment and production inefficiency.
D. both full resource employment and production efficiency.

11. Production inefficiency occurs

A. only when an economy produces underneath its production possibility
frontier.
B. only when an economy produces at the wrong point on the production
possibility frontier.
C. either when an economy produces underneath the production possibility
frontier or when the economy is producing the wrong combination of
goods on the production possibility frontier.
D. only when the economy produces outside the production possibility
frontier.

12. If an economy begins to use its resources more efficiently, it will move
A. farther away from its production possibility frontier.
B. from a point along its production possibility frontier to a point outside its
production possibility frontier.
C. from one point to another point along its production possibility frontier.
D. closer to its production possibility frontier.

13. As an individual consumes more of a product within a given time, each

additional unit consumed will likely yield
A. successively less satisfaction.
B. successively more satisfaction.
C. the same amount of satisfaction.
D. less satisfaction for a while and then start to add more satisfaction.

14. If the demand for sardines increases as income decreases, sardines are a(n)
A. normal good.
B. inferior good.
C. substitute good.
ECO 101/ECO155 Sample Mid-semester Examination Pg 4

D. complementary good.

15. An increase in demand for laptop computers would likely be caused by

A. an increase in the price of a substitute good.
B. an increase in the price of laptop computers.
C. an increase in the price of a complementary good.
D. a decrease in the price of laptop computers.

16. The price of circuit boards used in the manufacturing of LCD televisions has
fallen. This will lead to ________ LCD televisions.
A. a decrease in the quantity supplied of
B. an increase in the quantity supplied of
C. a decrease in the supply of
D. an increase in the supply of

17.

Refer to the Figure above. The market is initially in equilibrium at Point A. If

supply shifts from S1 to S2 and the price of cheeseburgers remains constant at
$5.00, there will be
A. a surplus of 6 cheeseburgers.
B. a shortage of 6 cheeseburgers.
C. a surplus of 3 cheeseburgers.
D. a shortage of 4 cheeseburgers.

18. If the government imposes a price ceiling that is above the equilibrium price
A. quantity demanded will be less than the quantity supplied.
ECO 101/ECO155 Sample Mid-semester Examination Pg 5

B. demand will be greater than supply.

C. this price ceiling will have no economic impact.
D. the available supply will have to be rationed with a nonprice rationing
mechanism.

19. The owner of a local hot dog stand has estimated that if he lowers the price of
hot dogs from $2.00 to $1.50, he will increase sales from 400 to 500 hot dogs
per day. Using the midpoint formula, the demand for hot dogs is
A. elastic.
B. inelastic.
C. unit elastic.
D. perfectly elastic.

20. To discourage consumers from consuming sugary soft drinks, the government is
considering placing a tax on sugary soft drink sales. Which of the following
statements is true?
A. Given the numerous alternatives, consumers' demand for sugary soft
drinks is relatively elastic and the tax will likely work to discourage
sugary soft drink consumption.
B. The tax on sugary soft drinks will likely raise considerable revenue but
will be unlikely to reduce the consumption of sugary soft drinks by
consumers.
C. The tax on sugary soft drinks will likely decrease the demand for sugar-
free soft drinks.
D. Taxes do not discourage consumers from consuming products.

21. Hashim has $2,000 a month to spend on clothing and food. The price of clothing
is $50 and the price of food is $20. Hashim spends his entire income when he
purchases ________ units of clothing and ________ units of food.
A. 20; 20
B. 50; 10
C. 24; 40
D. 32; 16

22. Darius has $1,200 a month to spend on clothing (c) and food (f). The price of
clothing is $60 and the price of food is $10. What is the equation for Darius's
budget constraint, assuming he spends his entire budget?
A. Clothing + Food < $1,200
B. $60 × Clothing + $10 × Food > $1,200
C. $60 × Clothing + $10 × Food ≤ $1,200
D. $60 × Clothing + $10 × Food = $1,200
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23. Carlos can buy either sushi or egg rolls. If the prices of sushi and eggrolls triple
and Carlos's money income doubles, we can deduce that Carlos's budget
constraint will
A. shift in but remain parallel to the old one.
B. shift out but remain parallel to the old one.
C. swivel in so that the slope of the budget constraint is doubled.
D. remain unchanged.

24. Richard is consuming X and Y so that he is spending his entire income and
MUx/Px = 6 and MUy/Py = 10. To maximize utility, he should
A. continue to consume the same amount of X and Y since he is already
maximizing utility.
B. consume less of both X and Y.
C. consume more X and less Y.
D. consume less X and more Y.

25. Refer to the Figure below to answer the question that follows.

If the price of a hot dog is $2, Jason's nominal income is

A. $25.
B. $200.
C. $300.
D. indeterminate because the price of sandwiches is not given.

26. Total revenue increases if price ________ and demand is ________.

A. falls; elastic
B. falls; inelastic
C. rises; elastic
D. rises; unit elastic
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27. Which of the following best explains why demand is often more elastic in the
long run than it is in the short run?
A. When demand is elastic, price increases reduce revenue because a small
price increase will lead to a large decrease in the quantity demanded.
B. Consumers tend to postpone making purchasing decisions as long as
possible.
C. In the short run, prices can change rapidly, but in the long run, they are
more stable.
D. In the long run, consumers have greater access to substitutes.

28. If the market price of coffee is $3.00 per pound but the government will not
allow coffee growers to charge more than $2.00 per pound of coffee, which of
the following will happen?
A. The demand must eventually decrease so that the market will come into
equilibrium at $2.50.
B. Supply must eventually increase so that the market will come into
equilibrium at $2.50.
C. There will be a shortage of coffee.
D. The market will be in equilibrium at $2.00.

29. A situation where illegal trading at market prices takes place is known in
economics as a
A. smuggler's market.
B. pirate market.
C. black market.
D. command market.

30. When the supply of bubble gum increases while the demand for bubble gum
decreases, the equilibrium ________ of bubble gum will definitely ________,
ceteris paribus.
A. price; increase
B. price; decrease
C. quantity; increase
D. quantity; decrease
ECO 101/ECO155 Sample Mid-semester Examination Pg 8

SECTION B – SHORT ANSWER QUESTIONS (40 MARKS)

Answer ANY FOUR (4) questions. Each question carries 10 marks

Question 1

Suppose Candanomic uses its resources and technology to produce bread and soft drinks.
The table below provides the nation’s annual production possibilities of bread (in
thousand loaves) and soft drinks (in thousand bottles).

Soft drink Bread The marginal The marginal

opportunity opportunity
cost of soft cost of bread
drink
0 300
5 240
10 180
15 120
20 60
25 0

Use the above information to answer the following questions:

a) Draw the Candonomic's production possibilities frontier. (2 marks)

b) Complete the above table by calculating the marginal opportunity cost for soft drinks
and the marginal opportunity cost of bread with the changes in the production
combination.
(2 marks)
c) What happens to the marginal opportunity cost of soft drinks as the production of
soft drinks increases? (1 mark)
ECO 101/ECO155 Sample Mid-semester Examination Pg 9

d) Explain the shape of the production possibilities frontier. (1 mark)

e) An improvement in the production technology of soft drinks increases the
production of soft drinks by 10%. Determine the new production possibilities of soft
drinks. Explain the impact of technological improvement on the nation’s production
possibility frontier. (4 marks)

Question 2

The table below illustrates the headphones market in a very small town.

Price per
headphone ($) Quantity demanded Quantity supplied
0 60 0
20 50 10
40 40 20
60 30 30
80 20 40
100 10 50
120 0 60

a) Use the above information to determine the equilibrium price and equilibrium
quantity of the headphones. (2 marks)
b) Now suppose the government imposes a price ceiling of $40 per unit of
headphones. Describe the consequences of the government intervention. (4
marks)
c) Now suppose the government imposes a price floor of $40 per unit of
headphones. Describe the consequences of the government intervention. (4
marks)
ECO 101/ECO155 Sample Mid-semester Examination Pg 10

Question 3
Assume that Mary has $136 to spend on books and movies each month and that both
goods must be purchased whole(no fractional units). Movies cost $8 each and books cost
$20 each. Mary’s preferences for books and movies are summarized in the table below.

Number per month Movies Books

Total utility(TU) utils Total utility(TU) utils
1 50 22
2 80 42
3 100 52
4 110 57
5 116 60
6 121 62
7 123 63
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Refer to the above table to answer the following questions. Make sure to provide the
complete work and explanation.

a) Compute the marginal utility of movies and the marginal utility of books. (2
marks)
b) Are these preferences consistent with the law of diminishing marginal utility?
Explain. (2 marks)
c) Compute the marginal utility per dollar for both movies and books. (2 marks)
d) Determine the optimal consumption of books and movies. (2 marks)
e) What is the maximum utility? (2 marks)

Question 4
The table below the market for PenDrive.
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Price($) Quantity demanded Quantity supplied

per unit (in thousands) (in thousands)
0 90 0
10 80 20
20 70 40
30 60 60
40 50 80
50 40 100
60 30 120
70 20 140
80 10 160
90 0 180

Use the information given in the table

a) Determine the equilibrium price and quantity of pens. (2 marks)
b) Compute the consumer surplus, producer surplus, and total surplus when the market
is in equilibrium. (4 marks)
c) If underproduction occurs in this market, and only 20,000 PenDrives are produced,
what happens to the amounts of consumer surplus, producer surplus, and total
surplus? What is the value of deadweight loss? (4 marks)

Question 5
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A study of the price elasticities of demand for products sold in supermarkets contained
the following data:

Product Price elasticity of demand

Soft drinks -3.18
Canned soup -1.62
Cheese -0.72
Toothpaste -0.45

a) Explain the term ‘price elasticity of demand’.(2 marks)

b) Refer to the above table to explain the results of the price elasticity of demand for the
products. (2 marks)
c) Use the information in the table to predict the percentage change in the quantity
demanded for each product following a 10% price increase. (2 marks)
d) Discuss the factors influencing the price elasticity demand of a product. (4 marks)

Question 6
ECO 101/ECO155 Sample Mid-semester Examination Pg 14

Use the demand and supply diagram to analyze and explain the impact of the following
events on the market for the iPhone. Treat each event separately.

a) A significant improvement in the production technology of Samsung reducing its

per unit cost of production. (5 marks)
b) Purchasing an iPhone is now a fashion among smartphone users. (5 marks)