ECON 10010/20010
Principles of Microeconomics
Name: ________________________________
Section: ________________
Practice Midterm A
Directions:
1. You have 75 minutes to complete the exam.
2. Write in your name and section number above.
3. Write you name and net ID (e.g., fspence) clearly on the scantron
4. Turn in your midterm, cheatsheet, and scantron at the end of the exam.
Allowable Materials:
1. Pencil
2. A calculator
3. 1 side of an 8.5 x 11’’ sheet of paper with anything on it.
Notes:
1. [Added to Practice Exam: A solution key is available on the last page of this document
and video solutions are posted to Canvas / Panopto]
2. Assume that if an agent (ex. a country) is indifferent between trading and not
trading, that the agent will trade. The same assumption holds for buyers and sellers
of a product.
3. If it is not explicitly stated that one side of the market has market power, you may
assume it is a perfectly competitive market.
4. Read every possible answer. In some cases, an answer is a combination of other
answers (for instance: “All of the above”).
ECON 10010/20010
Principles of Microeconomics
Figure 1
1. Refer to Figure 1, which shows supply and demand in a perfectly competitive market.
What is the equilibrium price and quantity in this market?
a) P = $50; Q = 500
b) P = $40; Q = 300
c) P = $70; Q = 300
d) P = $40; Q = 500
2. Refer to Figure 1, which shows supply and demand in a perfectly competitive market.
Suppose that the market transitions from being perfectly competitive to being served by a
firm with market power. Assume that the firm with market power faces the same overall
cost structure as the perfectly competitive firms. What is the change in surplus following
the transition from perfect competition to a market served by a firm with market power?
a) Consumer surplus increases by $8000. Producer surplus increases by $5000.
b) Consumer surplus decreases by $5000. Producer surplus increases by $8000.
c) Consumer surplus increases by $5000. Producer surplus increases by $8000.
d) Consumer surplus decreases by $8000. Producer surplus increases by $5000.
ECON 10010/20010
Principles of Microeconomics
Scenario 1: Suppose Ecuador and Peru only produce two goods: microwaves and guinea
pigs. The table below summarizes the average hourly worker productivity for both
countries.
Productivity
Microwaves
Guinea Pigs
Ecuador
8 per hour
2 per hour
Peru
10 per hour
5 per hour
3. Refer to Scenario 1. __________ has an absolute advantage in the production of
microwaves. __________ has a comparative advantage in the production of microwaves.
a) Ecuador; Peru
b) Peru; Ecuador
c) Ecuador; Ecuador
d) Peru; Peru
4. Refer to Scenario 1. Which of the following terms of trade would be acceptable to both
Ecuador and Peru (i.e., which of the following would make both countries better off)?
a) 30 microwaves for 3 guinea pigs
b) 40 microwaves for 8 guinea pigs
c) 20 microwaves for 4 guinea pigs
d) 60 microwaves for 20 guinea pigs
5. Suppose there is a decrease in the price of pesticides used in the production of oranges
(but not apples). How would this affect the equilibrium price and quantity in the market
for apples? Assume that consumers view apples and oranges as substitutes, but that
producers do not (i.e., land conducive to apple farming is not conducive to orange farming).
a) An increase in the price and the quantity of apples
b) An increase in the price and a decrease in the quantity of apples
c) A decrease in the price and an increase in the quantity of apples
d) A decrease in the price and quantity of apples
ECON 10010/20010
Principles of Microeconomics
6. Donald Trump appointed economist Peter Navarro as his chief trade advisor at the
beginning of his administration. The following is an excerpt of an Amazon review of
Navarro’s book, “Death by China.”
“Trump needs this book real bad... It is a must read for anyone who wants to
understand why [the Obama administration] wants us to [be] equally poor
with the rest of the world.”
Which of the following is a true statement that describes what the Amazon reviewer fails to
understand about international trade?
a) Trade between the U.S. and China can only benefit China because the U.S. has an
absolute advantage in producing manufactured goods.
b) Trade between the U.S. and China can only benefit China because China has a
comparative advantage in producing manufactured goods.
c) Increasing the amount of trade between the U.S. and China can lead the U.S. and
China to both become wealthier.
d) Trade with China does not have a negative impact on any individuals in the U.S.
7. In a 2004 New York Times article entitled, “Second Thoughts on Free Trade,” Senator
Charles “Chuck” Schumer argues the following:
“While some economists and elected officials suggest that all we need is a
robust retraining effort for laid-off workers, we do not believe retraining alone
is an answer, because almost the entire range of ''knowledge jobs” [software
engineers in the context of the article] can be done overseas.”
In advocating for more protectionism, Schumer fails to acknowledge which of the following
benefits of a decrease in trade barriers (a decrease in protectionism)?
a) A reduction in trade barriers can benefit political relationships between countries.
b) An increase in wealth in other countries can lead them to demand more U.S. goods
and services.
c) A reduction in trade barriers can lead to lower prices for U.S. consumers.
d) All of the above statements are true.
ECON 10010/20010
Principles of Microeconomics
8. Suppose the supply of tennis balls, a complement to tennis racquets for consumers,
decreases. What happens to the equilibrium price of balls and racquets?
a) The price of tennis balls will decrease. The price of tennis racquets will increase.
b) The price of tennis balls will increase. The price of tennis racquets will decrease.
c) The price of both tennis balls and tennis racquets will decrease.
d) The price of both tennis balls and tennis racquets will increase.
Figure 2
9. Refer to Figure 2, which shows demand shifting in the market for bananas. Which of the
following shocks to the banana market is consistent with the shift shown above?
a) A decrease in the price of fertilizer
b) A decrease in the price of apples (a substitute for bananas)
c) A decrease in the price of bananas
d) A decrease in the price of peanut butter (a complement for bananas)
ECON 10010/20010
Principles of Microeconomics
10. What would happen to the equilibrium price and quantity of lattes if coffee shops begin
using a machine that reduces the amount of labor necessary to produce steamed milk (used
in making lattes) and research is publicized that states that coffee can prevent heart
attacks?
a) The equilibrium price will increase. The equilibrium quantity could increase,
decrease, or stay the same.
b) The equilibrium price will decrease. The equilibrium quantity could increase,
decrease, or stay the same.
c) The equilibrium quantity will increase. The equilibrium price could increase,
decrease, or stay the same.
d) The equilibrium quantity will decrease. The equilibrium price could increase,
decrease, or stay the same.
11. Suppose that consumers view cucumbers and tomatoes as complements. Producers
view cucumbers and tomatoes as substitutes in production. If the price of cucumbers rises,
what would happen to the price and quantity of tomatoes?
a) The equilibrium price will increase. The equilibrium quantity could increase,
decrease, or stay the same.
b) The equilibrium price will decrease. The equilibrium quantity could increase,
decrease, or stay the same.
c) The equilibrium quantity will increase. The equilibrium price could increase,
decrease, or stay the same.
d) The equilibrium quantity will decrease. The equilibrium price could increase,
decrease, or stay the same.
12. Suppose sellers learn news that causes them to increase their expectations of the price
they can sell their product at in the future. What happens to the equilibrium price and
quantity of this product today?
a) The equilibrium price and quantity both increase.
b) The equilibrium price and quantity both decrease.
c) The equilibrium price increases. The equilibrium quantity decreases.
d) The equilibrium price decreases. The equilibrium quantity increases.
ECON 10010/20010
Principles of Microeconomics
Figure 3
13. Refer to Figure 3, which shows supply and demand in a perfectly competitive market.
How much consumer and producer surplus are created when the market is in equilibrium?
a) CS = $1,250; PS = $1,250
b) CS = $2,500; PS = $2,500
c) CS = $3,750; PS = $3,750
d) CS = $5,000; PS = $5,000
14. Refer to Figure 3, which shows supply and demand in a perfectly competitive market.
How much total surplus is generated if a consumer and supplier exchange the “70th” unit.
a) Total surplus decreases by $40
b) Total surplus does not change.
c) Total surplus increases by $40.
d) Total surplus increases by $120.
ECON 10010/20010
Principles of Microeconomics
15. Which of the following is the closest to being a perfectly competitive firm?
a) A hot dog vendor in a large city
b) Microsoft Corporation
c) Ford Motor Company
d) The campus bookstore
16. Complete the following line from Act 3, Scene 5 of Shakespeare’s “The Merchant of
Venice.” Note that many practicing Jews do not consume pork.
Jessica: Nay, you need not fear us, Lorenzo. Launcelot and I are out. He tells
me flatly, there is no mercy for me in heaven, because I am a Jew’s daughter
and he says you are no good member of the commonwealth. For in converting
Jews to Christians, you ______________.
a) lower the price of pork.
b) raise the price of pork.
c) lower the cost of producing pork.
d) raise the cost of producing pork.
17. In 2016, an oil pipeline burst in Alabama leading to higher gas prices in the Southeast
United States. Which of the following is (are) an advantage(s) of using a decentralized
price system (i.e., a free market) rather a central planner (i.e., the government) to control
market outcomes in response to the pipeline bursting?
a) A central planner is unable to collect and use information on changes in market
conditions as quickly or as efficiently as a decentralized price system (e.g., the sharp
and quick increase in the price of gasoline ensured that as gas became more scarce,
it would only be used for it’s most valuable purposes).
b) A central planner will be subject to political pressure to keep prices high, which
would result in gas surpluses.
c) A decentralized price system will allocate gasoline in a manner that is most fair (e.g.,
everyone who needs gasoline will have access to it, regardless of income levels).
d) All of the above are advantages of using a decentralized price system.
ECON 10010/20010
Principles of Microeconomics
Figure 4
18. Refer to Figure 4, which shows supply and demand for a perfectly competitive market.
At a price of $30,
a) there is a shortage because the quantity demanded exceeds the quantity supplied by
20 units.
b) there is a shortage because the quantity demanded exceeds the quantity supplied by
40 units.
c) there is a surplus because the quantity supplied exceeds the quantity demanded by
20 units.
d) there is a surplus because the quantity supplied exceeds the quantity demanded by
40 units.
19. Which of the following would cause a decrease in demand for televisions in the United
States? Assume that televisions are a normal good.
a) News that causes a reduction in consumers’ beliefs about the price of televisions in
the future.
b) An increase in consumers’ incomes
c) A study released that shows positive cognitive effects from extended television
viewing.
d) A tariff enacted on televisions imported from China. Assume that the tariff does not
affect the quality of televisions available to U.S. consumers.
ECON 10010/20010
Principles of Microeconomics
Scenario 2: Suppose Xiao and Lan work for a company that grades exams. There are two
types of questions: math and verbal. Lan and Xiao have the ability to trade graded
questions (e.g., Lan could trade 10 graded math questions to Xiao for a graded verbal
question.). There are no additional workers at the company that the individuals can
trade graded questions with. The table below summarizes the average number of each
type of question they can grade in an hour (e.g., Lan can grade 40 math questions in an
hour, 20 math questions and 4 verbal questions in an hour, 8 verbal questions in an hour,
etc.).
Productivity
Math
Verbal
Lan
40 per hour
8 per hour
Xiao
32 per hour
2 per hour
20. Refer to Scenario 2. Can both individuals benefit from trading graded questions?
a) Yes. They can both benefit if Lan specializes in grading math questions and Xiao
specializes in grading verbal questions.
b) Yes. They can both benefit if Lan specializes in grading verbal questions and Xiao
specializes in grading math questions.
c) No. Lan cannot benefit from trading with Xiao.
d) No. Xiao cannot benefit from trading with Lan.
21. Refer to Scenario 2. Suppose Xiao is indifferent between trading with Lan as long as
she couldn’t have graded the assignments quicker herself. What is the maximum number
of math questions that Lan can grade in an hour (including the possibility that he can trade
with Xiao)?
a) 56 math questions
b) 62 math questions
c) 72 math questions
d) 128 math questions
ECON 10010/20010
Principles of Microeconomics
22. Consider a hypothetical tariff proposal that would protect 5,000 jobs in Cleveland,
Ohio. The tariff would also lead to significant increases in the price of the good. Which of
the following is a reason that the tariff could make it through the political process (i.e., get
passed into law)?
a) The workers in Cleveland have a greater incentive to put political pressure on their
congressmen than the consumers of the good.
b) The tariff will likely lead to overall economic gains for all countries involved.
c) The tariff will encourage U.S. firms within that industry to be more productive.
d) None of the above statements are true.
23. In 2009, at the end of the Great Recession, the United States government provided
approximately $80 billion in loans to the large automakers General Motors and Chrysler.
The alternative was to let the companies fail. Governmental support, in forms such as this,
is likely to,
a) increase the rate of creative destruction in the economy because these firms know
that if they are large enough, the government will not let them fail.
b) increase the rate of creative destruction in the economy because the support will be
provided to the least productive firms in an industry.
c) decrease the rate of creative destruction in the economy because it provides firms
with an additional incentive to cut costs and boost productivity.
d) decrease the rate of creative destruction in the economy because the support is
provided to the least productive firms (i.e., those most likely to fail).
ECON 10010/20010
Principles of Microeconomics
Name
Willingness to Pay ($)
Anthony
2,200
Brett
700
Danny
1,200
Margot
1,600
Will
Table 1
500
24. Refer to Table 1, which shows how much five individuals are willing to pay for an
iPhone X. If the price of an iPhone X is $1,000, how many individuals will purchase an
iPhone (exchange is voluntary)?
a) 2
b) 3
c) 4
d) 5
25. Refer to Table 1, which shows how much five individuals are willing to pay for an
iPhone X. If the price of an iPhone X is $1,000, how much consumer surplus is generated
for these individuals?
a) $1,200
b) $2,000
c) $5,000
d) $6,200
ECON 10010/20010
Principles of Microeconomics
Figure 5
26. Refer to Figure 5, which shows Canada’s production possibility and consumption
possibility frontiers. What is Canada’s opportunity cost of producing an apple if they do not
trade?
a) ½ of an orange
b) 1 orange
c) 2 oranges
d) 4 oranges
27. Refer to Figure 5, which shows Canada’s production possibility and consumption
possibility frontiers. Suppose Canada completely specializes in the production of apples
and trades 200 apples for 200 oranges. What is their final allocation of apples and oranges
(after trade)?
a) 200 apples and 200 oranges
b) 200 apples and 600 oranges
c) 600 apples and 200 oranges
d) 600 apples and 600 oranges
ECON 10010/20010
Principles of Microeconomics
Figure 6
28. Refer to Figure 6. Suppose that a firm with market power faces a change in demand
from D1 to D2. What impact does this change have on its profit-maximizing price?
a) The profit-maximizing price does not change.
b) The profit-maximizing price decreases by 20.
c) The profit-maximizing price decreases by 30.
d) The profit-maximizing price decreases by 40.
ECON 10010/20010
Principles of Microeconomics
29. Suppose the price of high quality ham is $20 per pound in Indiana and $5 per pound for
low quality ham. Further suppose that the price of high quality ham is $12 per pound in
North Carolina and $4 per pound for low quality ham. In which state is the opportunity
cost of eating high quality ham higher?
a) The opportunity cost is higher in Indiana because they give up more low quality
ham for each pound of high quality ham they consume.
b) The opportunity cost is higher in Indiana because they give up less low quality ham
for each pound of high quality ham they consume.
c) The opportunity cost is higher in North Carolina because they give up more low
quality ham for each pound of high quality ham they consume.
d) The opportunity cost is higher in North Carolina because they give up less low
quality ham for each pound of high quality ham they consume.
30. Between 2008 and 2010, oil prices and consumption both decreased in Greece. How
many of the following could be consistent with this observation? Please note if an outcome
is ambiguous, then all outcomes are consistent. For instance, if given shifts cause prices to
definitely decrease and quantities to be ambiguous, then prices dropping and quantities
also dropping is a possible outcome. Assume a perfectly competitive market.
•
•
•
•
Supply increases, demand increases
Supply increases, demand decreases
Supply decreases, demand increases
Supply decreases, demand decreases
a) 1 of the above is consistent with the observed changes.
b) 2 of the above are consistent with the observed changes.
c) 3 of the above are consistent with the observed changes.
d) 4 of the above are consistent with the observed changes.
ECON 10010/20010
Principles of Microeconomics
Solution Key
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
17)
18)
19)
20)
21)
22)
23)
24)
25)
26)
27)
28)
29)
30)
A
D
B
D
D
C
D
B
D
C
D
C
A
A
A
B
A
B
A
B
B
A
D
B
B
A
C
D
A
B (2nd and 4th bullets are consistent with this)