AAU, College of Business and Economics, Department of Economics, Introduction to Economics Mid Exam, Time Allowed: 1hr.

Program: Degree(R), Exam date: 25/03/2016E.C

NAME_______________________________________________Department________________section_________sign_______

Part one: True or False Item (1 pt. each)

1. As the time period increases, most products will become more elastic in their price elasticity of demand.
2. Economics is concerned both with the analysis of facts and with value judgments.
3. Goods and services are the objects (goods) and actions (services) that people value and produce to satisfy
human wants.
4. Income elasticity of demand for necessity goods is negative
5. Scarcity is a physical condition where the quantity desired of a particular resource exceeds the quantity
available.
6. Supply curve will shift to rightward and leftward when input price increases & there exists technological
advancements respectively.
7. The basic problems of the economy are closely associated with the central problem of endless wants and
virtually limited resources.
8. The law of demand can be described by the downward demand curve from left to right (true)
9. The most fundamental fact of economics is that people must make choices.
10. Two goods let x and y are said to be substitute, if price x is inversely related to quantity demand of y
Part II: Choose best alternative for each of the following questions (1.5 Pt. Each)
1. Scarcity is;
A. All intermittent economic resources that a society wants to produce goods and services
B. The fundamental economic problem that any human society faces in deprived country
C. The imbalance between our wants and the means to satisfy those wants of the society
D. A physical condition where the desired of a particular resource less the quantity available.
2. Any human society should answer;
A. The problem of determining the quantities of each commodity and service to be produced.
B. The problem of the national product to be divided among different individuals and families
C. The problem of choice between commodities. D. All of the above
3. Some inputs are better adapted to the production of one good than to the production of the other are;
A. Specialization B. Scarification C. Modernization D. Concentration
4. Identify the correct statement from the following alternatives

1|Page
A. The fundamental economic problem that any human society faces is the problem of shortage.
B. Microeconomics and macroeconomics are substitution to each other.
C. In economics, there is no such thing as a free lunch.
D. Both inductive and deductive methods are alike rather than reverse.
5. Law of increasing opportunity cost (OC) states that;
A. As we produce more and more of a product, the OC per unit of the extra output falls.
B. As we produce less and less of a product, the OC per unit of the extra input falls.
C. As we produce more and more of a product, the OC per unit of the extra output rise.
D. As we produce less and less of a product, the OC per unit of the extra input rise.
6. Which of the following is an example of movement along a supply curve?
A. The quantity of apples offered for sale increases as the price of apples rises.
B. An apple orchard burns down in an accidental fire, decreasing the number of suppliers on the market.
C. Thanks to good weather conditions, apple growers enjoy a bumper crop this year.
D. The price of fertilizer increases, making it more expensive to produce apples.
7. The cross elasticity of demand for complementary goods such as cars and petrol, etc. will be:
A. Positive B. Zero C. Negative D. None of the above
8. One of the following correctly predicts the situation when a market price is set below the market
equilibrium price. Which one?
A. Excess demand exists, which will create upward pressure on the price
B. Excess supply exists, which will create downward pressure on the price
C. Surplus exists, which will create upward pressure on the price
D. Shortage exists, which will create downward pressure on the price
9. The Law of demand states that, other things remain constant;
A. When price of a commodity increases quantity supply of that good increases
B. When price of the commodity increases quantity demand of that good decrease
C. When price of commodity decreases, quantity supply of that good increases
D. There is no relationship between price and quantity demanded
10. Which of the following is/are satisfying the law of demand?
A. Q d =100+5 p B . Qd =10+55 p C .Q d=2−3 p D . P=100+ 4 Qd
11. Suppose an increase in consumers’ incomes has increased the demand for computers. At the same time,
computer makers have enjoyed unprecedented increases in technology growth and decreases in costs of
raw materials. What can we say about the equilibrium price and quantity in the computer market as a
result of these two changes?
2|Page
A. Price will rise and quantity will fall
B. Quantity will fall, but the effect on equilibrium price is unknown
C. Price will fall and quantity will fall
D. Quantity will rise, but the effect on equilibrium price is unknown
12. You observe that the price of coffee has increased and the quantity has also increased. Ceteris paribus,
this could result from
A. A decrease in the demand for coffee. C. An increase in the supply of coffee
B. A decrease in the supply of coffee D. An increase in the demand for coffee
13. A researcher tells you that the elasticity of demand for televisions is -2. You notice that this month, the
price of televisions has increased by 10%, you accurately predict that the quantity of televisions will:
A. fall by 20% B. rise by 20 % C. fall by 5 % D. rise by 5%
14. To say that the demand curve for movies is downward sloping to the right means that:
A. less will be demanded at lower prices.
B. more will be demanded as color TV sets become more expensive.
C. less will be demanded at higher prices.
D. less will be demanded if movies become poorer in quality.
15. When the actual price of a good is above its equilibrium market price, competition among:
A. buyers will force the actual price upward. C. sellers will force the actual price upward.
B. sellers will force the actual price downward D. buyers will force the actual price downward
16. The quantity of a good demanded rises from 90 units to 110 units when the price falls from $1.20 to $.80
per unit. The point price elasticity of demand for this product approximates:
A. 0.67 B. 1.5 C. 2.4 D. 4
17. An income elasticity of demand equal to 2 for a particular product means that:
A. demand curves for the product slope upward B. the product is an inferior good
B. the product is a luxury good D. demand is inelastic
18. A normal good can be defined as one which consumer purchase more of as
A. prices fall B. prices rise C. incomes fall D. incomes increase
19. If price changes by 1% and supply changes by 2%, then the supply is:
A. Unitary elastic B. Indeterminate C. Inelastic D. Elastic
20. Which of the following metrics is not a constant factor while moving upwards along the supply curve?
A. The price of the commodity C. The number of sellers
B. Expected future prices D. Cost of the resources used for producing that commodity
part III: Work out and Discussion Questions (Show All Steps of Calculation Clearly)

3|Page
1. Why you learn economics? Explain in brief. and thus, what is the role of economics in your living? As far
as the concept of economics is concerned. (1 pt.)
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
1. Suppose that the market DD and market SS functions for good X are Q d =50−8 P∧Q S =−4 +10 P

a) What are the equilibrium price and quantity? (2 points)

b) What is the market outcome if price is 5 per unit? What do you expect to happen? Why? (1 points)

c) Calculate price elasticity of demand and interpret the result of price elasticity of demand at the
equilibrium point (1 points)

Answer key
T/F 1 2 3 4 5 6 7 8 9 10
MC 11 12 13 14 15 16 17 18 19 20
21 22 23 24 25 26 27 28 29 30

4|Page