Practice questions for midterm 1
You should be able to answer questions on the following topics:
1. Ten principles of economics and application
2. Circular Flow Diagram
3. Production possibilities frontier
4. Difference in Microeconomics/macroeconomics
5. Positive/normative analysis
6. Demand curve, determinants of demand. Movement along the demand curve and shift
in the Demand curve
7. Supply curve, determinants of Supply. Movement along the Supply curve and shift in
the Supply curve
8. Demand and supply together, equilibrium price, equilibrium quantity. How a shift in the
demand and/or supply curve effects equilibrium price and equilibrium quantity.
9. Price elasticity of Demand, Income elasticity of demand, cross-price elasticity of
demand, price elasticity of supply. (Remember that you can ignore the negative sigh of
price elasticity of demand, but you need to keep the sign (either positive or negative) of
income and cross-price elasticities)
10. Normal and inferior goods
11. Price ceiling, Price floor: when they are binding and when they are not binding
12. The effect of tax on market outcomes. How buyers and sellers share the tax burden.
How the effect depends on elasticities of demand and supply.
13. Consumer surplus, producer surplus, tax revenue and total surplus with and without
taxation.
14. Gain from trade. Who loses and who gains if country exports? Who loses and who gains
if country imports? What about total surplus?
Some sample questions:
Figure 8-6
The vertical distance between points A and B represents a tax in the market.
,Practice questions for midterm 1
1 Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are
a. $16 and 300.
b. $10 and 600.
c. $10 and 300.
d. $6 and 300.
ANSWER: b
2 Refer to Figure 8-6. Without a tax, consumer surplus in this market is
a. $1,500.
b. $2,400.
c. $3,000.
d. $3,600.
ANSWER: d
3 Refer to Figure 8-6. Without a tax, producer surplus in this market is
a. $1,500.
b. $2,400.
c. $3,000.
d. $3,600.
ANSWER: b
4 Refer to Figure 8-6. Without a tax, total surplus in this market is
a. $3,000.
b. $4,800.
c. $6,000.
d. $7,200.
, Practice questions for midterm 1
ANSWER: c
5 Refer to Figure 8-6. When the tax is imposed in this market, the price buyers effectively pay is
a.$4.
b $6.
c $10.
d $16.
ANSWER: d
6 Refer to Figure 8-6. When the tax is imposed in this market, buyers effectively pay what amount
of the $10 tax?
a. $0
b. $4
c. $6
d. $10
ANSWER: c
7 Refer to Figure 8-6. When the tax is imposed in this market, sellers effectively pay what amount
of the $10 tax?
a. $0
b. $4
c. $6
d. $10
ANSWER: b
8 Refer to Figure 8-6. When the tax is imposed in this market, the price sellers effectively receive is
a. $4.
b $6.
c $10.
d $16.
ANSWER: b
9 Refer to Figure 8-6. When the tax is imposed in this market, consumer surplus is
a. $600.
You should be able to answer questions on the following topics:
1. Ten principles of economics and application
2. Circular Flow Diagram
3. Production possibilities frontier
4. Difference in Microeconomics/macroeconomics
5. Positive/normative analysis
6. Demand curve, determinants of demand. Movement along the demand curve and shift
in the Demand curve
7. Supply curve, determinants of Supply. Movement along the Supply curve and shift in
the Supply curve
8. Demand and supply together, equilibrium price, equilibrium quantity. How a shift in the
demand and/or supply curve effects equilibrium price and equilibrium quantity.
9. Price elasticity of Demand, Income elasticity of demand, cross-price elasticity of
demand, price elasticity of supply. (Remember that you can ignore the negative sigh of
price elasticity of demand, but you need to keep the sign (either positive or negative) of
income and cross-price elasticities)
10. Normal and inferior goods
11. Price ceiling, Price floor: when they are binding and when they are not binding
12. The effect of tax on market outcomes. How buyers and sellers share the tax burden.
How the effect depends on elasticities of demand and supply.
13. Consumer surplus, producer surplus, tax revenue and total surplus with and without
taxation.
14. Gain from trade. Who loses and who gains if country exports? Who loses and who gains
if country imports? What about total surplus?
Some sample questions:
Figure 8-6
The vertical distance between points A and B represents a tax in the market.
,Practice questions for midterm 1
1 Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are
a. $16 and 300.
b. $10 and 600.
c. $10 and 300.
d. $6 and 300.
ANSWER: b
2 Refer to Figure 8-6. Without a tax, consumer surplus in this market is
a. $1,500.
b. $2,400.
c. $3,000.
d. $3,600.
ANSWER: d
3 Refer to Figure 8-6. Without a tax, producer surplus in this market is
a. $1,500.
b. $2,400.
c. $3,000.
d. $3,600.
ANSWER: b
4 Refer to Figure 8-6. Without a tax, total surplus in this market is
a. $3,000.
b. $4,800.
c. $6,000.
d. $7,200.
, Practice questions for midterm 1
ANSWER: c
5 Refer to Figure 8-6. When the tax is imposed in this market, the price buyers effectively pay is
a.$4.
b $6.
c $10.
d $16.
ANSWER: d
6 Refer to Figure 8-6. When the tax is imposed in this market, buyers effectively pay what amount
of the $10 tax?
a. $0
b. $4
c. $6
d. $10
ANSWER: c
7 Refer to Figure 8-6. When the tax is imposed in this market, sellers effectively pay what amount
of the $10 tax?
a. $0
b. $4
c. $6
d. $10
ANSWER: b
8 Refer to Figure 8-6. When the tax is imposed in this market, the price sellers effectively receive is
a. $4.
b $6.
c $10.
d $16.
ANSWER: b
9 Refer to Figure 8-6. When the tax is imposed in this market, consumer surplus is
a. $600.
