Microeconomics

Practice Questions for the Midterm

This is just to give you some idea. Most of the multiple choice and fill in the blank questions will
be similar to Aplia or clicker questions. Please note that understanding the underlying concept
behind those questions is very important to be able to answer them. This requires active
participation and focus on class lecture. So let’s focus on concept so that you can solve even if
there are some twists in the questions.

The long-answer questions will be similar to practice questions posted on connect or textbook
questions; so please review them.

Part A: Multiple Choice

1. A medical clinic has 10 workers. Each worker can produce a maximum of either 2 units of
medical services or 5 units of secretarial services a day. One day, the firm decides it would
like to produce 10 units of medical services and 30 units of secretarial services. This output
level is
a) Attainable if the firm reduces the number of its workers.
b) Efficient.
c) Unattainable.
d) Inefficient.

2. The price of tomatoes at a local market will fall because of the following event
a) A hailstorm that destroys one half of the tomatoes just ready for harvest.
b) A news report of one medical study suggesting tomatoes cure certain illnesses.
c) A summer of prime tomato-growing weather resulting in a large harvest of tomatoes.
d) A strike by farm workers resulting in higher wages for harvesting tomatoes.

3. Consider four markets for luxury yachts, Markets A, B, C, and D. The demand for yachts in Market
A is perfectly inelastic. In Market B, ED = - 3. In Market C, ED = - 0.25 and in market D, ED = - 1. The
elasticity of supply in all four markets is identical. If the government wants to raise the maximum
revenue possible from a specific excise tax, upon which market should the government impose the
tax?
a) Market A.
b) Market B.
c) Market C.
d) Market D.

4. Suppose that the domestic demand for cotton towels can be expressed as Q = 300 - 20P and the
domestic supply can be expressed as Q = 30P. If the world price is $4 per towel, what must be the
per unit tariff on towels to (just) completely eliminate all imports?
a) $1.00.
b) $2.50.

Copyright © Ratna K. Shrestha. All rights reserved

 c) $10.00.
d) $2.00.

5. A good news for farming (such as a technological advance in farming methods) is more likely to
be a bad news for farmers when
a) demand curves for farm products are elastic.
b) demand curves for farm products are inelastic.
c) supply curves for farm products are elastic.
d) none of the above.

6. Suppose that the monthly demand for computers in Vancouver can be expressed as P = 150 - Q.
What is the price elasticity of demand at a price of $50 per computer?
a) - 0.5.
b) - 2.0.
c) - 1.0.
d) - 0.0.

7. Jane pays Chuck $50 to mow her lawn every week. When the government levies a mowing
tax of $5 on Chuck, he raises his price to $55, which Jane pays. What is Chuck’s after tax
producer surplus (assuming his cost of effort is zero) and what is the DWL?
a) $0, $0.
b) $0, $5.
c) $50, $0.
d) $5, $0.
8. Consider the following table for water bottle:
Q Bert’s value Erni’s cost
1 12 3
2 10 5
3 7 7
4 5 9
5 2 11
If price of a bottle P = $7, Ernie’s Producer Surplus = ___.
a) $0.
b) $15.
c) $8.
d) $6.

Part B. Fill in the Blank Questions

1. Mandatory health warnings in cigarette packages and ban on cigarette advertisements will
more likely shift _____ curve to the ________.

Copyright © Ratna K. Shrestha. All rights reserved

2. Consider two neighboring island countries called Felicidad and Contente with the following
production table:

If these countries specialize in the respective goods in which they have comparative advantage,
then the total daily production of Corn = __________and Jeans = __________. (Assume only one
worker in each country who works for only 8 hours a day).

3. The demand for Hilton Hawaiian Village hotel rooms in Hawaii is given by P = 200 - Q. If the
hotel is currently charging $90 per night, it is operating on the _______ portion of the demand
curve and hence lowing the price would further _________ __ its sales revenue.

Part C: Long-Answer Questions

1. The Government of Canada thinks that the current equilibrium wage of $12 for unskilled
workers is too low and decides to help the workers by setting minimum wage at $20. Using a
clearly labeled diagram, show a situation in which the workers (in total) will in fact lose rather
than gain (in terms of workers surpluses) from this legislation.

2. The demand and supply functions for hockey sticks are given by Qd = 200 - 2P and Qs = 50.
To raise revenue the government imposes a tax t = $2 per hockey stick sold.
a) Find the equilibrium P and Q before tax.
b) Find the price paid by buyers, received by sellers after the tax and tax revenue
c) Draw a diagram to illustrate your results.

Copyright © Ratna K. Shrestha. All rights reserved