ECO 2023 Principles of Microeconomics
Final Assessment Review
(Questions & Solutions)
2025
©2025
, 1. Case Study – Supply and Demand Shocks
A regional manufacturer experiences a sudden increase in the cost of raw
materials due to an international supply disruption. As a result, the
market price of the final product increases, and the quantity supplied
decreases while consumer demand collapses further, causing a
contraction in overall market output.
Question: Which of the following best explains the market effects in
this scenario?
A. Demand-pull inflation
B. Cost-push inflation
C. Exogenous supply shift
D. Technological advancement
ANS: B. Cost-push inflation
Rationale: A supply shock that raises production costs tends to push
prices up (inflation) even if demand is weak. Here, the raw material
shortage drives cost-push inflation along with a reduction in quantity
supplied.
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2. Case Study – Price Elasticity
A coffee shop owner notices that when the price of a specialty latte is
raised by 10%, sales drop by 25%.
Question: Based on the reaction of consumers, the specialty latte is
considered:
A. Price inelastic
B. Price elastic
C. Unit elastic
D. Perfectly inelastic
ANS: B. Price elastic
Rationale: Price elasticity of demand is calculated as the percentage
change in quantity divided by the percentage change in price. Here, with
a –25% change in quantity for a 10% increase in price (elasticity = –2.5),
©2025
, the demand is highly responsive (elastic).
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3. Case Study – Consumer Surplus Analysis
A market study shows that at a market price of $5 per unit for an organic
smoothie, consumers value the product at $8 each on average.
Question: What economic concept explains the difference between
what consumers are willing to pay and what they actually pay?
A. Producer surplus
B. Consumer surplus
C. Deadweight loss
D. Marginal utility
ANS: B. Consumer surplus
Rationale: Consumer surplus is the difference between the maximum
price consumers are willing to pay and the actual market price,
representing the extra benefit received by consumers.
---
4. Case Study – Perfect Competition
A grain farmer operates in a market of many producers selling identical
products. Prices are determined solely by market supply and demand,
and the farmer earns only normal profits.
Question: Which market structure does this scenario illustrate?
A. Monopoly
B. Monopolistic competition
C. Perfect competition
D. Oligopoly
ANS: C. Perfect competition
Rationale: In perfect competition, many small firms sell homogeneous
products with free entry and exit, resulting in zero economic profit in the
long run.
---
©2025
Final Assessment Review
(Questions & Solutions)
2025
©2025
, 1. Case Study – Supply and Demand Shocks
A regional manufacturer experiences a sudden increase in the cost of raw
materials due to an international supply disruption. As a result, the
market price of the final product increases, and the quantity supplied
decreases while consumer demand collapses further, causing a
contraction in overall market output.
Question: Which of the following best explains the market effects in
this scenario?
A. Demand-pull inflation
B. Cost-push inflation
C. Exogenous supply shift
D. Technological advancement
ANS: B. Cost-push inflation
Rationale: A supply shock that raises production costs tends to push
prices up (inflation) even if demand is weak. Here, the raw material
shortage drives cost-push inflation along with a reduction in quantity
supplied.
---
2. Case Study – Price Elasticity
A coffee shop owner notices that when the price of a specialty latte is
raised by 10%, sales drop by 25%.
Question: Based on the reaction of consumers, the specialty latte is
considered:
A. Price inelastic
B. Price elastic
C. Unit elastic
D. Perfectly inelastic
ANS: B. Price elastic
Rationale: Price elasticity of demand is calculated as the percentage
change in quantity divided by the percentage change in price. Here, with
a –25% change in quantity for a 10% increase in price (elasticity = –2.5),
©2025
, the demand is highly responsive (elastic).
---
3. Case Study – Consumer Surplus Analysis
A market study shows that at a market price of $5 per unit for an organic
smoothie, consumers value the product at $8 each on average.
Question: What economic concept explains the difference between
what consumers are willing to pay and what they actually pay?
A. Producer surplus
B. Consumer surplus
C. Deadweight loss
D. Marginal utility
ANS: B. Consumer surplus
Rationale: Consumer surplus is the difference between the maximum
price consumers are willing to pay and the actual market price,
representing the extra benefit received by consumers.
---
4. Case Study – Perfect Competition
A grain farmer operates in a market of many producers selling identical
products. Prices are determined solely by market supply and demand,
and the farmer earns only normal profits.
Question: Which market structure does this scenario illustrate?
A. Monopoly
B. Monopolistic competition
C. Perfect competition
D. Oligopoly
ANS: C. Perfect competition
Rationale: In perfect competition, many small firms sell homogeneous
products with free entry and exit, resulting in zero economic profit in the
long run.
---
©2025
