STA 2023 Introduction to Statistics I
Final Assessment Review
(Questions & Solutions)
2025
©2025
, 1. Case Study – Supply Shock and Price Determination
A sudden drought in a major agricultural region drastically reduces the
supply of wheat. As a result, wheat prices rise sharply while the overall
quantity sold drops.
Question: Which market phenomenon best describes this situation?
A. Demand-pull inflation
B. Cost-push inflation
C. Exogenous supply shock
D. Monopolistic pricing
ANS: C. Exogenous supply shock
Rationale: An exogenous supply shock occurs when an external event
(in this case, a drought) suddenly reduces supply, shifting the supply
curve leftward, which increases price and reduces quantity cleared in the
market.
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2. Case Study – Elasticity and Revenue Implications
A technology firm raises the price of its flagship smartphone by 15%,
resulting in a 20% decline in sales volume.
Question: What does this indicate about the price elasticity of demand
for the smartphone, and what is the likely effect on total revenue?
A. Demand is inelastic; revenue increases
B. Demand is elastic; revenue decreases
C. Demand is unit elastic; revenue remains unchanged
D. Demand is inelastic; revenue decreases
ANS: B. Demand is elastic; revenue decreases
Rationale: Price elasticity of demand is calculated as the percentage
change in quantity divided by the percentage change in price. Here, the
elasticity is –20%/15% = –1.33 (elastic), so the percentage drop in
quantity exceeds the price increase, leading to a reduction in total
revenue.
©2025
, ---
3. Case Study – Consumer Surplus and Welfare
Researchers study the market for organic produce. When the market
price is $5 per pound while the average consumer’s willingness to pay is
$8, significant consumer surplus is generated.
Question: What best describes consumer surplus?
A. The extra benefit consumers receive when they pay less than they are
willing to
B. The additional profit earned by producers
C. The total market revenue minus producer surplus
D. The loss incurred by consumers when prices rise
ANS: A. The extra benefit consumers receive when they pay less than
they are willing to
Rationale: Consumer surplus is defined as the difference between the
maximum price consumers are willing to pay and the market price,
representing the net gain to consumers.
---
4. Case Study – Market Structures in Practice
A local farmers market features dozens of vendors selling nearly identical
fresh produce. Prices are largely determined by market forces rather
than individual vendor influence.
Question: Which market structure does this scenario best illustrate?
A. Monopoly
B. Monopolistic competition
C. Oligopoly
D. Perfect competition
ANS: D. Perfect competition
Rationale: In perfect competition, many sellers offer an identical
product, and no single seller can influence the market price. Entry and
exit are easy, and all firms are price takers.
©2025
Final Assessment Review
(Questions & Solutions)
2025
©2025
, 1. Case Study – Supply Shock and Price Determination
A sudden drought in a major agricultural region drastically reduces the
supply of wheat. As a result, wheat prices rise sharply while the overall
quantity sold drops.
Question: Which market phenomenon best describes this situation?
A. Demand-pull inflation
B. Cost-push inflation
C. Exogenous supply shock
D. Monopolistic pricing
ANS: C. Exogenous supply shock
Rationale: An exogenous supply shock occurs when an external event
(in this case, a drought) suddenly reduces supply, shifting the supply
curve leftward, which increases price and reduces quantity cleared in the
market.
---
2. Case Study – Elasticity and Revenue Implications
A technology firm raises the price of its flagship smartphone by 15%,
resulting in a 20% decline in sales volume.
Question: What does this indicate about the price elasticity of demand
for the smartphone, and what is the likely effect on total revenue?
A. Demand is inelastic; revenue increases
B. Demand is elastic; revenue decreases
C. Demand is unit elastic; revenue remains unchanged
D. Demand is inelastic; revenue decreases
ANS: B. Demand is elastic; revenue decreases
Rationale: Price elasticity of demand is calculated as the percentage
change in quantity divided by the percentage change in price. Here, the
elasticity is –20%/15% = –1.33 (elastic), so the percentage drop in
quantity exceeds the price increase, leading to a reduction in total
revenue.
©2025
, ---
3. Case Study – Consumer Surplus and Welfare
Researchers study the market for organic produce. When the market
price is $5 per pound while the average consumer’s willingness to pay is
$8, significant consumer surplus is generated.
Question: What best describes consumer surplus?
A. The extra benefit consumers receive when they pay less than they are
willing to
B. The additional profit earned by producers
C. The total market revenue minus producer surplus
D. The loss incurred by consumers when prices rise
ANS: A. The extra benefit consumers receive when they pay less than
they are willing to
Rationale: Consumer surplus is defined as the difference between the
maximum price consumers are willing to pay and the market price,
representing the net gain to consumers.
---
4. Case Study – Market Structures in Practice
A local farmers market features dozens of vendors selling nearly identical
fresh produce. Prices are largely determined by market forces rather
than individual vendor influence.
Question: Which market structure does this scenario best illustrate?
A. Monopoly
B. Monopolistic competition
C. Oligopoly
D. Perfect competition
ANS: D. Perfect competition
Rationale: In perfect competition, many sellers offer an identical
product, and no single seller can influence the market price. Entry and
exit are easy, and all firms are price takers.
©2025
