1|Page
, 2|Page
Introduction to Microeconomics Midterm
Exam Pack – Solved Problem Sets
Question 1
Which of the following will cause an outward shift of the demand curve for a normal
good?
• An increase in consumer income
• A decrease in the price of the good itself
• An increase in the price of a complementary good
• A decrease in the number of buyers in the market
Rationale: For normal goods, an increase in consumer income gives buyers more
purchasing power, shifting the entire demand curve to the right.
Question 2
According to the law of demand, an increase in the price of a good leads to:
• A shift of the demand curve to the left
• A decrease in the quantity demanded
• An increase in the quantity demanded
• A shift of the demand curve to the right
Rationale: The law of demand states that price and quantity demanded have an
inverse relationship, causing a movement along the curve.
Question 3
If the price of peanut butter increases, what happens in the market for jelly, its
complement?
• The demand for jelly increases.
• The demand for jelly decreases.
• The supply of jelly decreases.
• The quantity demanded of jelly increases.
Rationale: When the price of a complement rises, it becomes more expensive to
consume the goods together, reducing the demand for the related good.
Question 4
If tea and coffee are substitutes, a sharp rise in the price of coffee will cause:
• A decrease in the demand for tea
• An increase in the demand for tea
• A decrease in the quantity demanded of tea
• No change in the market for tea
Rationale: Consumers switch away from the more expensive coffee toward the
relatively cheaper substitute, increasing the demand for tea.
Question 5
An advance in production technology that lowers manufacturing costs will cause:
• The supply curve to shift to the left
• A movement up along the supply curve
• The supply curve to shift to the right
, 3|Page
• The demand curve to shift to the right
Rationale: Lower production costs make sellers more willing and able to supply more
goods at every price level.
Question 6
When the market price is lower than the equilibrium price, which of the following
occurs?
• A surplus develops, and the price will fall.
• A surplus develops, and the price will rise.
• A shortage develops, and the price will rise.
• A shortage develops, and the price will fall.
Rationale: At a price below equilibrium, quantity demanded exceeds quantity
supplied. This shortage puts upward pressure on the price.
Question 7
If a market experiences a simultaneous increase in demand and increase in supply,
what is the definitive outcome?
• Equilibrium price will increase.
• Equilibrium price will decrease.
• Equilibrium quantity will increase.
• Equilibrium quantity will decrease.
Rationale: Both shifts increase quantity, making the final quantity increase certain.
However, price change depends on which shift is larger.
Question 8
A legal maximum price that is set below the equilibrium price is called a binding:
• Price floor, causing a surplus
• Price floor, causing a shortage
• Price ceiling, causing a surplus
• Price ceiling, causing a shortage
Rationale: A price ceiling prevents prices from rising to equilibrium, keeping quantity
demanded higher than quantity supplied.
Question 9
An increase in the wages of factory workers will cause the supply curve of the
product they make to:
• Shift to the left
• Shift to the right
• Remain completely unchanged
• Become perfectly horizontal
Rationale: Higher wages increase input costs, which decreases profitability and
reduces supply.
Question 10
If consumers expect the price of a good to rise drastically next month, their current
demand will:
• Shift to the left
• Shift to the right
• Stay the same but quantity demanded falls
• Become perfectly inelastic
Rationale: Buyers will rush to purchase the good now before the price increase
occurs, boosting current demand.
, 4|Page
Part 2: Elasticity
Question 11
If a 20% increase in price leads to a 40% drop in quantity demanded, the price
elasticity of demand is:
• 0.5 and inelastic
• 0.5 and elastic
• 2.0 and inelastic
• 2.0 and elastic
Rationale: Elasticity is calculated as % change in quantity divided by % change in
price (40/20 = 2). Since it is greater than 1, it is elastic.
Question 12
When demand is price inelastic, an increase in the price of the good will cause total
revenue to:
• Decrease
• Increase
• Remain completely unchanged
• Drop directly to zero
Rationale: With inelastic demand, the percentage increase in price outweighs the
percentage drop in quantity, raising total revenue.
Question 13
Which of the following goods is most likely to have a perfectly inelastic demand
curve?
• A luxury sports car
• A specific brand of laptop
• A critical, life-saving medication
• Fresh organic apples
Rationale: Consumers will pay any price to survive, meaning quantity demanded
remains fixed regardless of price changes.
Question 14
If the cross-price elasticity of demand between two goods is positive, the goods are:
• Complements
• Substitutes
• Inferior goods
• Giffen goods
Rationale: A positive cross-price elasticity means a price rise in one good causes an
increase in demand for the other, showing they substitute for each other.
Question 15
The income elasticity of demand for an inferior good is always:
• Positive
• Negative
• Greater than one
, 2|Page
Introduction to Microeconomics Midterm
Exam Pack – Solved Problem Sets
Question 1
Which of the following will cause an outward shift of the demand curve for a normal
good?
• An increase in consumer income
• A decrease in the price of the good itself
• An increase in the price of a complementary good
• A decrease in the number of buyers in the market
Rationale: For normal goods, an increase in consumer income gives buyers more
purchasing power, shifting the entire demand curve to the right.
Question 2
According to the law of demand, an increase in the price of a good leads to:
• A shift of the demand curve to the left
• A decrease in the quantity demanded
• An increase in the quantity demanded
• A shift of the demand curve to the right
Rationale: The law of demand states that price and quantity demanded have an
inverse relationship, causing a movement along the curve.
Question 3
If the price of peanut butter increases, what happens in the market for jelly, its
complement?
• The demand for jelly increases.
• The demand for jelly decreases.
• The supply of jelly decreases.
• The quantity demanded of jelly increases.
Rationale: When the price of a complement rises, it becomes more expensive to
consume the goods together, reducing the demand for the related good.
Question 4
If tea and coffee are substitutes, a sharp rise in the price of coffee will cause:
• A decrease in the demand for tea
• An increase in the demand for tea
• A decrease in the quantity demanded of tea
• No change in the market for tea
Rationale: Consumers switch away from the more expensive coffee toward the
relatively cheaper substitute, increasing the demand for tea.
Question 5
An advance in production technology that lowers manufacturing costs will cause:
• The supply curve to shift to the left
• A movement up along the supply curve
• The supply curve to shift to the right
, 3|Page
• The demand curve to shift to the right
Rationale: Lower production costs make sellers more willing and able to supply more
goods at every price level.
Question 6
When the market price is lower than the equilibrium price, which of the following
occurs?
• A surplus develops, and the price will fall.
• A surplus develops, and the price will rise.
• A shortage develops, and the price will rise.
• A shortage develops, and the price will fall.
Rationale: At a price below equilibrium, quantity demanded exceeds quantity
supplied. This shortage puts upward pressure on the price.
Question 7
If a market experiences a simultaneous increase in demand and increase in supply,
what is the definitive outcome?
• Equilibrium price will increase.
• Equilibrium price will decrease.
• Equilibrium quantity will increase.
• Equilibrium quantity will decrease.
Rationale: Both shifts increase quantity, making the final quantity increase certain.
However, price change depends on which shift is larger.
Question 8
A legal maximum price that is set below the equilibrium price is called a binding:
• Price floor, causing a surplus
• Price floor, causing a shortage
• Price ceiling, causing a surplus
• Price ceiling, causing a shortage
Rationale: A price ceiling prevents prices from rising to equilibrium, keeping quantity
demanded higher than quantity supplied.
Question 9
An increase in the wages of factory workers will cause the supply curve of the
product they make to:
• Shift to the left
• Shift to the right
• Remain completely unchanged
• Become perfectly horizontal
Rationale: Higher wages increase input costs, which decreases profitability and
reduces supply.
Question 10
If consumers expect the price of a good to rise drastically next month, their current
demand will:
• Shift to the left
• Shift to the right
• Stay the same but quantity demanded falls
• Become perfectly inelastic
Rationale: Buyers will rush to purchase the good now before the price increase
occurs, boosting current demand.
, 4|Page
Part 2: Elasticity
Question 11
If a 20% increase in price leads to a 40% drop in quantity demanded, the price
elasticity of demand is:
• 0.5 and inelastic
• 0.5 and elastic
• 2.0 and inelastic
• 2.0 and elastic
Rationale: Elasticity is calculated as % change in quantity divided by % change in
price (40/20 = 2). Since it is greater than 1, it is elastic.
Question 12
When demand is price inelastic, an increase in the price of the good will cause total
revenue to:
• Decrease
• Increase
• Remain completely unchanged
• Drop directly to zero
Rationale: With inelastic demand, the percentage increase in price outweighs the
percentage drop in quantity, raising total revenue.
Question 13
Which of the following goods is most likely to have a perfectly inelastic demand
curve?
• A luxury sports car
• A specific brand of laptop
• A critical, life-saving medication
• Fresh organic apples
Rationale: Consumers will pay any price to survive, meaning quantity demanded
remains fixed regardless of price changes.
Question 14
If the cross-price elasticity of demand between two goods is positive, the goods are:
• Complements
• Substitutes
• Inferior goods
• Giffen goods
Rationale: A positive cross-price elasticity means a price rise in one good causes an
increase in demand for the other, showing they substitute for each other.
Question 15
The income elasticity of demand for an inferior good is always:
• Positive
• Negative
• Greater than one
