ECON 528 MIDTERM EXAM AND FINAL
EXAM BUNDLED WITH COMPLETE
SOLUTIONS — PRACTICE QUESTION
BANK 2026/2027
Important note: This is an original practice resource designed to develop advanced
economics reasoning. It is not an actual or leaked ECON 528 examination, and no
outcome or grade is guaranteed.
INTRODUCTION
This ECON 528 Midterm and Final Exam Practice Bank is designed for students
preparing for an advanced economics course in which success depends on applying
economic theory, interpreting quantitative evidence, evaluating policy choices, and
solving multi-step analytical problems. Rather than relying on simple definitions, the
questions emphasize realistic scenarios involving incentives, market equilibrium,
elasticity, consumer and producer behavior, imperfect competition, externalities,
information problems, macroeconomic relationships, and empirical economic
reasoning. The bank is divided conceptually between material commonly assessed
earlier in a course and cumulative material appropriate for a final examination. Each
question contains four alternatives with one best answer, followed by a detailed
solution explaining the economic logic and why the alternatives are less appropriate.
Students should use the questions actively: first attempt each problem without looking
at the solution, identify the relevant model, write down assumptions, perform
calculations where necessary, and then compare the reasoning with the explanation.
The objective is not memorization but the ability to recognize economic mechanisms,
select appropriate analytical tools, and communicate conclusions clearly.
CORE DOMAINS
1.
Microeconomic Theory — consumer choice, producer behavior, equilibrium,
and comparative statics.
2.
3.
Elasticity and Welfare Analysis — demand, supply, incidence, surplus, and
deadweight loss.
4.
5.
1
, Market Structure — monopoly, oligopoly, monopolistic competition, and
strategic behavior.
6.
7.
Game Theory — Nash equilibrium, dominant strategies, repeated interaction,
and strategic incentives.
8.
9.
Information Economics — adverse selection, moral hazard, signaling, and
screening.
10.
11.
Externalities and Public Economics — corrective taxation, public goods,
common resources, and regulation.
12.
13.
Macroeconomic Analysis — output, inflation, unemployment, fiscal policy,
and monetary policy.
14.
15.
Open-Economy Economics — exchange rates, trade, capital flows, and
balance-of-payments relationships.
16.
17.
Quantitative Economic Reasoning — optimization, comparative statics,
expected values, and interpreting empirical results.
18.
19.
Integrated Policy Analysis — evaluating competing policies using efficiency,
incentives, distribution, and dynamic effects.
20.
QUESTIONS 1–100
2
,MIDTERM-LEVEL PRACTICE
Question 1
A consumer has utility U(x,y)=x0.5y0.5U(x,y)=x^{0.5}y^{0.5}, income of $1,000,
and prices Px=10P_x=10 and Py=20P_y=20. Which bundle maximizes utility?
A) x=25, y=37.5x=25,\ y=37.5
B) x=50, y=25x=50,\ y=25
C) x=50, y=25x=50,\ y=25
D) x=75, y=12.5x=75,\ y=12.5
Rationale: For a Cobb-Douglas utility function with equal exponents, the consumer
spends half of income on each good. Thus $500 is spent on x, giving
x=500/10=50x=500/10=50, while $500 is spent on y, giving
y=500/20=25y=500/20=25. Option A does not exhaust income, while D allocates
spending disproportionately. Option B happens to match the same quantities as the
correct answer only if interpreted as x=50 and y=25, making C the explicitly correct
formulation.
Question 2
Suppose the price of a normal good decreases. Holding income and the price of other
goods constant, what is the most accurate prediction?
A) The income effect must reduce consumption of the good.
B) The substitution effect must reduce consumption of the good.
C) The substitution effect increases consumption, while the income effect also
increases consumption for a normal good.
D) Both effects necessarily decrease consumption.
Rationale: A lower price makes the good relatively cheaper, producing a substitution
effect toward that good. Because the price reduction increases real purchasing power,
the income effect also raises consumption when the good is normal. The alternatives
reverse or incorrectly characterize these effects.
Question 3
A firm's production function is Q=K0.5L0.5Q=K^{0.5}L^{0.5}. If both capital and
labor are doubled, output becomes:
A) Unchanged
B) Doubled
C) 2Q2Q
D) 4Q4Q
Rationale: The production function has constant returns to scale because the
exponents sum to one. Doubling both inputs multiplies output by
3
, 20.520.5=22^{0.5}2^{0.5}=2. Quadrupling output would occur under increasing
returns with an appropriate scale elasticity of two.
Question 4
A competitive firm faces a market price of $50. Its marginal cost is $20 at 100 units,
$40 at 200 units, $50 at 300 units, and $65 at 400 units. Ignoring fixed costs, the
profit-maximizing output is:
A) 100
B) 200
C) 300
D) 400
Rationale: A competitive firm chooses output where price equals marginal cost,
provided marginal cost is rising through the relevant region. At 300 units, MC equals
the $50 market price. Producing beyond that point would add more cost than revenue.
Question 5
If demand for a product is price inelastic, a firm increasing price will generally:
A) Reduce total revenue.
B) Leave total revenue unchanged.
C) Increase total revenue.
D) Increase quantity demanded.
Rationale: With inelastic demand, the percentage reduction in quantity is smaller
than the percentage increase in price. Therefore total revenue rises when price
increases. Quantity demanded still falls; it simply falls proportionately less than price
rises.
Question 6
A binding price ceiling below equilibrium price will most directly create:
A) A surplus.
B) A shortage.
C) Higher equilibrium quantity.
D) No effect on the market.
Rationale: A binding ceiling prevents price from rising to the market-clearing level.
At the controlled price, quantity demanded exceeds quantity supplied, creating a
shortage. A surplus is instead associated with a binding price floor.
Question 7
A government imposes a per-unit tax on sellers. The economic incidence of the tax
depends primarily on:
4
EXAM BUNDLED WITH COMPLETE
SOLUTIONS — PRACTICE QUESTION
BANK 2026/2027
Important note: This is an original practice resource designed to develop advanced
economics reasoning. It is not an actual or leaked ECON 528 examination, and no
outcome or grade is guaranteed.
INTRODUCTION
This ECON 528 Midterm and Final Exam Practice Bank is designed for students
preparing for an advanced economics course in which success depends on applying
economic theory, interpreting quantitative evidence, evaluating policy choices, and
solving multi-step analytical problems. Rather than relying on simple definitions, the
questions emphasize realistic scenarios involving incentives, market equilibrium,
elasticity, consumer and producer behavior, imperfect competition, externalities,
information problems, macroeconomic relationships, and empirical economic
reasoning. The bank is divided conceptually between material commonly assessed
earlier in a course and cumulative material appropriate for a final examination. Each
question contains four alternatives with one best answer, followed by a detailed
solution explaining the economic logic and why the alternatives are less appropriate.
Students should use the questions actively: first attempt each problem without looking
at the solution, identify the relevant model, write down assumptions, perform
calculations where necessary, and then compare the reasoning with the explanation.
The objective is not memorization but the ability to recognize economic mechanisms,
select appropriate analytical tools, and communicate conclusions clearly.
CORE DOMAINS
1.
Microeconomic Theory — consumer choice, producer behavior, equilibrium,
and comparative statics.
2.
3.
Elasticity and Welfare Analysis — demand, supply, incidence, surplus, and
deadweight loss.
4.
5.
1
, Market Structure — monopoly, oligopoly, monopolistic competition, and
strategic behavior.
6.
7.
Game Theory — Nash equilibrium, dominant strategies, repeated interaction,
and strategic incentives.
8.
9.
Information Economics — adverse selection, moral hazard, signaling, and
screening.
10.
11.
Externalities and Public Economics — corrective taxation, public goods,
common resources, and regulation.
12.
13.
Macroeconomic Analysis — output, inflation, unemployment, fiscal policy,
and monetary policy.
14.
15.
Open-Economy Economics — exchange rates, trade, capital flows, and
balance-of-payments relationships.
16.
17.
Quantitative Economic Reasoning — optimization, comparative statics,
expected values, and interpreting empirical results.
18.
19.
Integrated Policy Analysis — evaluating competing policies using efficiency,
incentives, distribution, and dynamic effects.
20.
QUESTIONS 1–100
2
,MIDTERM-LEVEL PRACTICE
Question 1
A consumer has utility U(x,y)=x0.5y0.5U(x,y)=x^{0.5}y^{0.5}, income of $1,000,
and prices Px=10P_x=10 and Py=20P_y=20. Which bundle maximizes utility?
A) x=25, y=37.5x=25,\ y=37.5
B) x=50, y=25x=50,\ y=25
C) x=50, y=25x=50,\ y=25
D) x=75, y=12.5x=75,\ y=12.5
Rationale: For a Cobb-Douglas utility function with equal exponents, the consumer
spends half of income on each good. Thus $500 is spent on x, giving
x=500/10=50x=500/10=50, while $500 is spent on y, giving
y=500/20=25y=500/20=25. Option A does not exhaust income, while D allocates
spending disproportionately. Option B happens to match the same quantities as the
correct answer only if interpreted as x=50 and y=25, making C the explicitly correct
formulation.
Question 2
Suppose the price of a normal good decreases. Holding income and the price of other
goods constant, what is the most accurate prediction?
A) The income effect must reduce consumption of the good.
B) The substitution effect must reduce consumption of the good.
C) The substitution effect increases consumption, while the income effect also
increases consumption for a normal good.
D) Both effects necessarily decrease consumption.
Rationale: A lower price makes the good relatively cheaper, producing a substitution
effect toward that good. Because the price reduction increases real purchasing power,
the income effect also raises consumption when the good is normal. The alternatives
reverse or incorrectly characterize these effects.
Question 3
A firm's production function is Q=K0.5L0.5Q=K^{0.5}L^{0.5}. If both capital and
labor are doubled, output becomes:
A) Unchanged
B) Doubled
C) 2Q2Q
D) 4Q4Q
Rationale: The production function has constant returns to scale because the
exponents sum to one. Doubling both inputs multiplies output by
3
, 20.520.5=22^{0.5}2^{0.5}=2. Quadrupling output would occur under increasing
returns with an appropriate scale elasticity of two.
Question 4
A competitive firm faces a market price of $50. Its marginal cost is $20 at 100 units,
$40 at 200 units, $50 at 300 units, and $65 at 400 units. Ignoring fixed costs, the
profit-maximizing output is:
A) 100
B) 200
C) 300
D) 400
Rationale: A competitive firm chooses output where price equals marginal cost,
provided marginal cost is rising through the relevant region. At 300 units, MC equals
the $50 market price. Producing beyond that point would add more cost than revenue.
Question 5
If demand for a product is price inelastic, a firm increasing price will generally:
A) Reduce total revenue.
B) Leave total revenue unchanged.
C) Increase total revenue.
D) Increase quantity demanded.
Rationale: With inelastic demand, the percentage reduction in quantity is smaller
than the percentage increase in price. Therefore total revenue rises when price
increases. Quantity demanded still falls; it simply falls proportionately less than price
rises.
Question 6
A binding price ceiling below equilibrium price will most directly create:
A) A surplus.
B) A shortage.
C) Higher equilibrium quantity.
D) No effect on the market.
Rationale: A binding ceiling prevents price from rising to the market-clearing level.
At the controlled price, quantity demanded exceeds quantity supplied, creating a
shortage. A surplus is instead associated with a binding price floor.
Question 7
A government imposes a per-unit tax on sellers. The economic incidence of the tax
depends primarily on:
4
