02 Jun Question Sample Questions for ECN 302 Midterm 1
Question
Sample Questions for ECN 302 Midterm 1
The correct answers are highlighted in yellow and the explanations for
selected questions are provided in bold italics.
Question (1): Which of the following will NOT cause a shift to the right in the
demand curve for beer?
a. A change in the price of beer.
(Notes: A change in the price of beer would induce a
movement along the demand curve for beer, rather than a shift
in the demand curve for beer.)
b. A health study indicating positive health benefits of moderate
beer consumption.
c. An increase in the price of French wine (a substitute).
d. A decrease in the price of potato chips (a complement).
Scenario 1:
The demand for books is: QD = 120 – P
The supply of books is: QS = 5P
Question (2): Refer to Scenario 1. What is the equilibrium price of books?
a. 5
b. 10
c. 15
d. 20
(Notes: To find this, set QD=QS (i.e. 120-P=5P). Thus, 6P=120
and P=20)
Question (3): Refer to Scenario 1. What is the equilibrium quantity of books
sold?
a. 25
b. 50
c. 75
d. 100
(Notes: To find this, substitute P=20 into QD or QS)
2
Question (4): Suppose there is a decrease in both the demand for and supply of
a good. What happens to equilibrium price and quantity?
a. Equilibrium quantity increases, but the effect on equilibrium price
is ambiguous
b. Equilibrium quantity decreases, but the effect on
equilibrium price is ambiguous
(Notes: Both the demand curve and the supply curve shift to
the left in this case. The new market equilibrium is given by
the intersection of the new demand curve and the new supply
curve. While the quantity is unambiguously lower at the new
market equilibrium since there is downwards pressure on the
quantity on both sides of the market, the net effect on price
depends on the relative magnitudes of the shifts since the
decrease in demand exerts downwards pressure on the price
while the decrease in supply exerts upwards pressure on the
price.)
c. Equilibrium price increases, but the effect on equilibrium quantity
is ambiguous
b. Equilibrium price decreases, but the effect on equilibrium
quantity is ambiguous.
Question (5): According to basic supply and demand analysis, when Hurricane
Katrina caused oil prices to rise, what happened to the equilibrium
price and quantity of sport utility vehicles?
a. Equilibrium price and quantity both increased
b. Equilibrium price and quantity both decreased
(Notes: Gasoline and sport utility vehicles are complements.
Thus, when the price of oil (and gasoline) increases, the
demand for sport utility vehicles decreases (i.e. the demand
curve for sport utility vehicles shifts to the left). Thus, the
equilibrium price and quantity for sport utility vehicles will
decrease.)
c. Equilibrium price increased and equilibrium quantity decreased
d. Equilibrium price decreased and equilibrium quantity increased
3
Question (6): Which of the following would cause a shift to the right of the supply
curve for gasoline?
I. A large increase in the price of public transportation.
II. A large decrease in the price of automobiles.
III. A large reduction in the costs of producing gasoline.
a. I only.
b. II only.
c. III only.
(Notes: Statement I and Statement II describe shocks to the
demand schedule for gasoline and thus the scenarios
described by these two statements would not affect the supply
curve for gasoline. Statement III describes a reduction in the
costs of producing gasoline. A reduction in the costs of
producing gasoline increases the supply of gasoline and
would shift the supply curve for gasoline to the right.)
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