JIGJIGA UNIVERITY
Collage of Business and Economics
Department of Economics
Mid Exam for the course Introduction to Economics Total time allotted: 1:45m
Name………………………………………….
I.D……………………………………………
Section …………………………………………
Instruction
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Don’t write around the bush.(be to the point)
Support your answer with graphs, formulas and the like in case of necessary.
Cheating has no excuse.
Part One: Choose (!% each)
1. It is the study of what should be and used to make value judgments, identify problems,
and prescribe solutions.
a. Positive Economics
b. Normative Economics
2. In the production of cement, the rocks and the stone are the example of?
a. Property
C. land
b. Labor
d. capital
3. It’s the value of the best alternative sacrificed when taking an action.
a. Opportunity cost
c. choice
b. Scarcity
d. none of the above
4. If the prices of goods and services increased above equilibrium, so what will happen?
a. Excess
c. shortage
b. Profit
d. Nothing will happen price will adjust itself
5. Pick out the wrong statement.
a) Arc price elasticity of demand measures elasticity at a point in the demand curve.
b) Quantity demand is less responsive for the price change if demand is inelastic.
c) If price elasticity of demand is infinitive, demand is perfectly elastic.
d) Inferior goods have negative income elasticity of demand.
e) Complementary goods have negative cross price elasticity of demand.
6. Production possibility frontier illustrates the
a) Resources the economy processes, but not its level of technology.
b) Limits to people wants.
c) Maximum combination of goods and services that can be produced.
d) Goods and services that people wants.
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7. One characteristics of a model market economy is that
a) Businesses are guaranteed a profit.
b) Society’s production is shared equally.
c) Government regulates competition.
d) Property is privately owned.
e) All except B
8. Pick out the wrong statement
a) If Price Elasticity of demand is elastic Quantity demand responds highly for a given
change in the price of the commodity.
b) If Price Elasticity of demand is inelastic Quantity demand does not responds highly
for a given change in the price of the commodity.
c) When the numerical value of the price elasticity of demand is zero (0), we say that
demand is perfectly inelastic.
d) When the numerical value of the price elasticity of demand is infinitive, we say that
demand is perfectly elastic.
a) None of the above.
9. Pick out the wrong statement
a) Market is a group of buyers and sellers with a potential to trade
b) Aggregate demand is equal with market demand.
c) If buyers expect the price of coca cola will increase in the future, they may choose to
buy more currently.
d) A fall in the price of an input that the firm uses to produce output causes the firm to
increase its supply and will shift the supply curve to the left.
e) None of the above.
10. Except one all of them all are changes the demand curve.
a) Prices of related goods.
c) income
b) Expected future prices.
d) Population.
e) None of the above.
11. If price changes, the effect is shown by movement along the supply curve, we call this
effect as
a) Supply demand curve.
b) Change in the law of supply.
c) Change in quantity supplied.
d) Quantity supplied.
12. In Economics the goods that satisfy same needs and wants are
a) Inferior goods.
b) Complementary goods.
c) Substitute goods.
d) Velben goods.
e) None of the above.
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13. the study of the behavior of individual households, firms, and governments; the choices
they make; and their interaction in specific markets
a) macroeconomics
b) microeconomics
c) International economics.
d) Financial economics
14. It is the diagram that shows how goods, resources, and dollar payments flow between
households and firms.
a. Production possibility curve
b. Market model
c. Opportunity cost
d. Circular flow of income
15. When a fall in the price of one good reduces the demand for another good, the two goods
are called
a. Substitutable goods
b. Complementary goods
c. Normal goods
d. Inferior goods
Part Two: Discuss (Select two of the questions 2.5% each)
1. State and explain the basic the determinants of supply?
2. Explain why the price in a free market will not remain above or below equilibrium for
long, unless there is out-side interference.
3. What are some reasons why a country might be operating inside its production
possibilities frontier (PPF)?
Part Three: Work out (5% each)
4. Suppose that demand is given by the equation Qd = 500 - 50P, where Qd is quantity
demanded, and p is the price of the good. Supply is described by the equation
QS = 50 +25P, where Qs is quantity supplied. Calculate
a. Equilibrium price
b. Equilibrium quantity
5. The demand for bottled water in a small town is as follows
Price per bottle
quantity
1.00
500
1.50
400
2.00
300
2.50
200
3.00
100
Calculate
a. Calculate the price elasticity of demand for bottled water for a price rise from $1.00
to $1.50.
b. Is demand elastic or inelastic for this price change?
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