13th Oct, 2022
SOCSC-1111 UH – Fall 2022
Midterm 1 Practice Questions
1. Consider the market for oranges. Suppose that both of the following occur simultaneously: (i)
the price of apples (a substitute for oranges) decreases; and (ii) world-wide droughts reduce
the harvest of oranges by 30%. Then, how will it affect the equilibrium price and quantity of
oranges?
2. In a supply and demand diagram, draw the shift of the demand curve for hamburg- ers in
your hometown due to the following events. In each case, show the effect on equilibrium
price and quantity.
a. The price of tacos increases.
b. All hamburger sellers raise the price of their french fries.
c. Income falls in town. Assume that hamburgers are an inferior good for most people.
3. Captain Eddy takes his 25-seat party boat out for a harbor cruise every night, rain or shine.
Whether he gets $70 per seat or $0 per seat, he always fills every seat. In a suitable diagram,
graph the supply curve of cruise seats per night.
4. If demand is elastic, how will an increase in price change total revenue? Explain.
5. Suppose that a market is described by the following supply and demand equations;
𝑄
P = 2𝑠
And
P = 300−Qd.
a. Draw the supply and demand curves and find the market equilibrium.
b. Suppose that the government imposes an excise tax of $60 which has to be paid by the
suppliers in this market.
i.
On the above graph, show the impact of the tax on the market equilibrium.
ii.
What is the equation of the new supply curve?
iii.
Find the new equilibrium quantity.
iv. What happens to the price received by sellers and the price paid by buyers after
the imposition of the tax?
v.
Explain what the new market price will be after the imposition of the tax.
1
13th Oct, 2022
SOCSC-1111 UH – Fall 2022
vi.
vii.
viii.
Midterm 1 Practice Questions
Calculate the consumer surplus and producer surplus after tax.
Calculate the tax incidence on consumers and the tax incidence on pro- ducers.
Calculate the tax revenue and dead-weight loss.
c. Suppose that the government imposes an excise tax of $60 which has to be paid by the
consumers in this market.
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
On a graph, show the impact of the tax on the market equilibrium.
What is the equation of the new demand curve?
Find the new equilibrium quantity.
What happens to the price received by sellers and the price paid by buyers after
the imposition of the tax?
Explain what the new market price will be after the imposition of the tax.
Calculate the consumer surplus and producer surplus after tax.
Calculate the tax incidence on consumers and the tax incidence on pro- ducers.
Calculate the tax revenue and dead-weight loss.
6. In the market for automobiles explain how demand responds to:
a. an increase in the price of automobiles today and
b. an expected increase in the future price of automobiles.
7. In the context of supply and demand under international trade, when will a country decide to
export a particular good? Import a good? Who gains and loses under each decision?
2