ECN 801 Final Exam Actual Exam 2026/2027 | Questions
and Answers with Detailed Rationales | Pass Guaranteed
– A+ Graded
Section 1: Demand, Supply & Elasticity Analysis
Q1: Which of the following best describes the difference between a change in demand
and a change in quantity demanded?
A. A change in demand is a movement along the curve, while a change in quantity
demanded is a shift of the entire curve.
B. A change in demand occurs only when the good's own price changes, while a change
in quantity demanded is caused by income changes.
C. A change in demand is a shift of the entire curve caused by non‑price determinants,
while a change in quantity demanded is a movement along the curve caused by the
good's own price changing. [CORRECT]
D. There is no meaningful difference; both terms describe the same economic
phenomenon.
Correct Answer: C
Rationale: The best answer is C. A change in demand refers to the entire curve shifting
left or right due to factors like income, tastes, or prices of related goods, whereas a
change in quantity demanded is simply moving to a different point on the same curve
because the price itself changed. What you'll want to remember for the final exam is
that "demand" and "quantity demanded" are not interchangeable—they describe two very
different things.
Q2: Suppose the price of coffee rises from $4 to $5 per pound, and as a result, the
quantity demanded falls from 1,000 pounds to 800 pounds per week. Using the
midpoint method, what is the price elasticity of demand?
A. –0.8
B. –1.0 [CORRECT]
C. –1.25
,D. –2.0
Correct Answer: B
Rationale: The best answer is B. Using the midpoint formula, the percentage change in
quantity is (800 – 1,000) / 900 = –0.222, and the percentage change in price is (5 – 4) /
4.5 = 0.222, giving an elasticity of –1.0. This aligns with the economic theory that states
unitary elasticity occurs when the percentage changes in price and quantity are equal in
magnitude.
Q3: A firm sells luxury watches and notices that when consumer incomes rise by 10%,
sales drop by 15%. What type of good is this, and what does this imply about its income
elasticity?
A. A normal good with income elasticity of 1.5
B. An inferior good with income elasticity of –1.5 [CORRECT]
C. A necessity with income elasticity of 0.67
D. A luxury good with income elasticity of 1.5
Correct Answer: B
Rationale: The best answer is B. When income rises and consumers buy less of a good,
that's the classic signature of an inferior good, and the income elasticity is negative:
–15% / 10% = –1.5. This choice is correct because inferior goods are defined by a
negative relationship between income and quantity demanded.
Q4: The government imposes a binding price ceiling below the market equilibrium price.
Which of the following outcomes is most likely?
A. A surplus will develop as suppliers produce more than consumers want to buy.
B. The market will clear without any shortage or surplus.
C. A shortage will develop because quantity demanded exceeds quantity supplied at the
ceiling price. [CORRECT]
D. Producer surplus will increase unambiguously.
Correct Answer: C
Rationale: The best answer is C. When a price ceiling is set below equilibrium, the lower
price encourages buyers to demand more while simultaneously discouraging sellers
from supplying as much, creating a shortage. What you'll want to remember for the final
exam is that binding price ceilings always sit below equilibrium and always generate
shortages.
, Q5: If two goods are complements, what would you expect to see regarding their
cross‑price elasticity of demand?
A. A positive cross‑price elasticity, because an increase in the price of one leads to an
increase in demand for the other.
B. A negative cross‑price elasticity, because an increase in the price of one leads to a
decrease in demand for the other. [CORRECT]
C. A cross‑price elasticity of zero, because the goods are unrelated.
D. A cross‑price elasticity greater than one, indicating luxury complementarity.
Correct Answer: B
Rationale: The best answer is B. Complements are consumed together—think coffee
and cream—so when the price of one rises, people buy less of both, giving a negative
cross‑price elasticity. This aligns with the economic theory that states complementary
goods have negative cross‑price elasticities.
Q6: A city introduces a rent control policy that caps apartment rents at $1,200 per
month when the market equilibrium rent is $1,500. Over time, landlords convert some
apartments into condominiums. Which concept best explains this long‑run outcome?
A. The price ceiling becomes non‑binding as the market adjusts.
B. The supply of rental housing becomes more elastic in the long run, causing a larger
shortage. [CORRECT]
C. The demand for apartments decreases because of the lower price.
D. Producer surplus increases because landlords can now sell condos at higher prices.
Correct Answer: B
Rationale: The best answer is B. In the short run, the supply of apartments is relatively
fixed, but over time landlords can exit the rental market by converting to condos or
letting buildings deteriorate, making supply more elastic and worsening the shortage.
This choice is correct because long‑run supply elasticity is typically greater than
short‑run elasticity in housing markets.
Q7: A pharmaceutical company sells a patented drug with no close substitutes. If the
company raises the price by 8% and quantity demanded falls by only 2%, which pricing
implication is most accurate?
A. The company should lower the price immediately because demand is elastic.
B. Total revenue will decrease because the percentage drop in quantity exceeds the
price increase.
and Answers with Detailed Rationales | Pass Guaranteed
– A+ Graded
Section 1: Demand, Supply & Elasticity Analysis
Q1: Which of the following best describes the difference between a change in demand
and a change in quantity demanded?
A. A change in demand is a movement along the curve, while a change in quantity
demanded is a shift of the entire curve.
B. A change in demand occurs only when the good's own price changes, while a change
in quantity demanded is caused by income changes.
C. A change in demand is a shift of the entire curve caused by non‑price determinants,
while a change in quantity demanded is a movement along the curve caused by the
good's own price changing. [CORRECT]
D. There is no meaningful difference; both terms describe the same economic
phenomenon.
Correct Answer: C
Rationale: The best answer is C. A change in demand refers to the entire curve shifting
left or right due to factors like income, tastes, or prices of related goods, whereas a
change in quantity demanded is simply moving to a different point on the same curve
because the price itself changed. What you'll want to remember for the final exam is
that "demand" and "quantity demanded" are not interchangeable—they describe two very
different things.
Q2: Suppose the price of coffee rises from $4 to $5 per pound, and as a result, the
quantity demanded falls from 1,000 pounds to 800 pounds per week. Using the
midpoint method, what is the price elasticity of demand?
A. –0.8
B. –1.0 [CORRECT]
C. –1.25
,D. –2.0
Correct Answer: B
Rationale: The best answer is B. Using the midpoint formula, the percentage change in
quantity is (800 – 1,000) / 900 = –0.222, and the percentage change in price is (5 – 4) /
4.5 = 0.222, giving an elasticity of –1.0. This aligns with the economic theory that states
unitary elasticity occurs when the percentage changes in price and quantity are equal in
magnitude.
Q3: A firm sells luxury watches and notices that when consumer incomes rise by 10%,
sales drop by 15%. What type of good is this, and what does this imply about its income
elasticity?
A. A normal good with income elasticity of 1.5
B. An inferior good with income elasticity of –1.5 [CORRECT]
C. A necessity with income elasticity of 0.67
D. A luxury good with income elasticity of 1.5
Correct Answer: B
Rationale: The best answer is B. When income rises and consumers buy less of a good,
that's the classic signature of an inferior good, and the income elasticity is negative:
–15% / 10% = –1.5. This choice is correct because inferior goods are defined by a
negative relationship between income and quantity demanded.
Q4: The government imposes a binding price ceiling below the market equilibrium price.
Which of the following outcomes is most likely?
A. A surplus will develop as suppliers produce more than consumers want to buy.
B. The market will clear without any shortage or surplus.
C. A shortage will develop because quantity demanded exceeds quantity supplied at the
ceiling price. [CORRECT]
D. Producer surplus will increase unambiguously.
Correct Answer: C
Rationale: The best answer is C. When a price ceiling is set below equilibrium, the lower
price encourages buyers to demand more while simultaneously discouraging sellers
from supplying as much, creating a shortage. What you'll want to remember for the final
exam is that binding price ceilings always sit below equilibrium and always generate
shortages.
, Q5: If two goods are complements, what would you expect to see regarding their
cross‑price elasticity of demand?
A. A positive cross‑price elasticity, because an increase in the price of one leads to an
increase in demand for the other.
B. A negative cross‑price elasticity, because an increase in the price of one leads to a
decrease in demand for the other. [CORRECT]
C. A cross‑price elasticity of zero, because the goods are unrelated.
D. A cross‑price elasticity greater than one, indicating luxury complementarity.
Correct Answer: B
Rationale: The best answer is B. Complements are consumed together—think coffee
and cream—so when the price of one rises, people buy less of both, giving a negative
cross‑price elasticity. This aligns with the economic theory that states complementary
goods have negative cross‑price elasticities.
Q6: A city introduces a rent control policy that caps apartment rents at $1,200 per
month when the market equilibrium rent is $1,500. Over time, landlords convert some
apartments into condominiums. Which concept best explains this long‑run outcome?
A. The price ceiling becomes non‑binding as the market adjusts.
B. The supply of rental housing becomes more elastic in the long run, causing a larger
shortage. [CORRECT]
C. The demand for apartments decreases because of the lower price.
D. Producer surplus increases because landlords can now sell condos at higher prices.
Correct Answer: B
Rationale: The best answer is B. In the short run, the supply of apartments is relatively
fixed, but over time landlords can exit the rental market by converting to condos or
letting buildings deteriorate, making supply more elastic and worsening the shortage.
This choice is correct because long‑run supply elasticity is typically greater than
short‑run elasticity in housing markets.
Q7: A pharmaceutical company sells a patented drug with no close substitutes. If the
company raises the price by 8% and quantity demanded falls by only 2%, which pricing
implication is most accurate?
A. The company should lower the price immediately because demand is elastic.
B. Total revenue will decrease because the percentage drop in quantity exceeds the
price increase.
