Introduce to Economics 2026 University

Principles of Economics - Mid-term Exam (Chapters 1, 2, 3, 4, 6, 7)

20 questions

90 min

Answer key

Exam info

Subject: Introduce to Economics
Exam type: University
Questions: 20
Duration: 90 min
Year: 2026
Answers: ✓ With explanations

Questions (20)

Q 1.
According to the Ten Principles of Economics, which of the following best illustrates the concept of opportunity cost?
- A.
  A student buys a new laptop for $1,200.
- B.
  A student spends 4 hours studying for an economics exam instead of working a part-time job that pays $15 per hour.
- C.
  A government raises taxes to fund a new road.
- D.
  A firm increases its output in response to higher prices.
Q 2.
When the government imposes a binding price ceiling in a competitive market (e.g., rent control), the most likely outcome is:
- A.
  An increase in the equilibrium quantity traded.
- B.
  A surplus of the good.
- C.
  A shortage of the good, requiring sellers to ration it among buyers.
- D.
  No change in market outcomes because prices adjust automatically.
Q 3.
Country A can produce 1 pound of coffee in 2 hours and 1 bottle of wine in 4 hours. Country B can produce 1 pound of coffee in 1 hour and 1 bottle of wine in 5 hours. Which country has a comparative advantage in producing wine?
- A.
  Country A, because it requires 4 hours to produce 1 bottle of wine.
- B.
  Country B, because it requires only 1 hour to produce 1 pound of coffee.
- C.
  Country A, because its opportunity cost of 1 bottle of wine is 1/2 pound of coffee, while Country B's is 1/5 pound of coffee.
- D.
  Country A, because its opportunity cost of 1 bottle of wine is 2 pounds of coffee, while Country B's is 5 pounds of coffee.
Q 4.
Which of the following events would shift the demand curve for coffee to the LEFT (decrease demand)?
- A.
  Consumer income increases and coffee is a normal good.
- B.
  The price of tea (a substitute for coffee) decreases.
- C.
  A new study reports health benefits from drinking coffee.
- D.
  The number of coffee drinkers in the market increases.
Q 5.
A binding minimum wage set above the equilibrium wage in the unskilled labor market will most likely cause:
- A.
  A shortage of workers (Qs < Qd).
- B.
  An increase in the unemployment rate among unskilled workers.
- C.
  An increase in the total number of jobs available.
- D.
  Higher wages for all workers without any effect on employment.
Q 6.
In a market with elastic supply and inelastic demand, when a per-unit tax is imposed on the good, who bears the greater share of the tax burden?
- A.
  Sellers, because they can easily exit the market.
- B.
  Buyers, because they have inelastic demand and cannot easily leave the market.
- C.
  The government, because it collects the tax revenue.
- D.
  The burden is shared equally between buyers and sellers regardless of elasticities.
Q 7.
Consumer surplus is best described as:
- A.
  The total amount of money a consumer is willing to pay for a good.
- B.
  The area below the demand curve and above the price, representing the benefit buyers receive from participating in the market.
- C.
  The amount a seller receives for a good minus the cost of producing it.
- D.
  The total revenue earned by sellers in the market.
Q 8.
The production possibilities frontier (PPF) is bowed outward (concave to the origin) primarily because:
- A.
  Resources are perfectly adaptable to producing any good.
- B.
  Some resources are better suited for producing one good than another, leading to increasing opportunity costs.
- C.
  The economy always produces at points inside the PPF.
- D.
  Technology is constantly improving over time.
Q 9.
If a $1.50 per-unit tax is imposed on sellers of pizza, what happens in the market?
- A.
  The supply curve shifts up by $1.50, the equilibrium quantity falls, and both buyers and sellers share the tax burden.
- B.
  The demand curve shifts down by $1.50, but the equilibrium quantity remains unchanged.
- C.
  Sellers pay the entire tax, and buyers are unaffected.
- D.
  The market price rises by exactly $1.50, with no change in quantity.
Q 10.
Which of the following statements is an example of a NORMATIVE economic statement?
- A.
  An increase in the minimum wage causes unemployment among teenage workers.
- B.
  The unemployment rate in the country is currently 4.5%.
- C.
  The government should provide universal healthcare to all citizens.
- D.
  Higher prices lead consumers to buy smaller quantities of a good.
Q 11.
A technological improvement that reduces the cost of producing tablet computers would most likely cause:
- A.
  The supply curve of tablets to shift to the left.
- B.
  The supply curve of tablets to shift to the right, lowering the equilibrium price and increasing the equilibrium quantity.
- C.
  The demand curve for tablets to shift to the left.
- D.
  Both the equilibrium price and quantity of tablets to increase.
Q 12.
Two countries can gain from trade even when one of them has an absolute advantage in producing both goods because:
- A.
  Absolute advantage is the only relevant factor determining trade patterns.
- B.
  Each country has a different opportunity cost of producing each good, so each can specialize in the good it produces at lower opportunity cost.
- C.
  The country with the absolute advantage will produce all goods and trade with itself.
- D.
  Trade is only beneficial when one country has lower costs in both goods.
Q 13.
When the market for a good is in equilibrium, the equilibrium quantity is the quantity at which:
- A.
  Consumer surplus is greater than producer surplus.
- B.
  Quantity demanded equals quantity supplied, and the market clears.
- C.
  Total revenue is at its maximum.
- D.
  The price equals the cost of production.
Q 14.
According to the principle of comparative advantage, a country should specialize in and export the good for which it has:
- A.
  The highest absolute productivity.
- B.
  The lowest opportunity cost relative to other goods it could produce.
- C.
  The largest total output.
- D.
  The lowest input prices.
Q 15.
If supply is perfectly inelastic and demand is downward-sloping, when a per-unit tax is imposed, the tax burden is borne:
- A.
  Entirely by buyers.
- B.
  Entirely by sellers, since they cannot change the quantity supplied in response to the tax.
- C.
  Equally by buyers and sellers.
- D.
  Entirely by the government, since it sets the tax rate.
Q 16.
Using a supply and demand diagram, explain how an increase in the price of a substitute good (e.g., tea, when analyzing the coffee market) affects equilibrium price and quantity in the coffee market. In your answer, also describe the difference between a movement ALONG the demand curve and a SHIFT of the demand curve.
Q 17.
Suppose the U.S. can produce 1 airplane in 500 labor hours or 1 ton of soybeans in 10 labor hours, while Japan can produce 1 airplane in 625 labor hours or 1 ton of soybeans in 25 labor hours. (a) Calculate the opportunity cost of producing 1 airplane and 1 ton of soybeans in each country. (b) Which country has the comparative advantage in producing airplanes? In producing soybeans? (c) Explain why both countries can gain from trade even though the U.S. has an absolute advantage in both goods.
Q 18.
A city government is considering imposing a rent control law that would set a price ceiling on apartments 20% below the current equilibrium rent. Discuss the likely short-run effects of this policy on (a) the quantity of apartments rented, (b) the rental market (shortage or surplus), and (c) the allocation of apartments among potential renters. Then explain why many economists argue that price ceilings often hurt the very people they are intended to help.
Q 19.
Consider a market where the equilibrium price is $20 and the equilibrium quantity is 100 units. The government imposes a $6 per-unit tax on the good. Using the concepts of consumer surplus, producer surplus, and deadweight loss, explain what happens to total surplus in the market. Why is the equilibrium quantity considered efficient, and how does the tax affect this efficiency?
Q 20.
Two countries, Alpha and Beta, each have 100 labor hours available. In Alpha, producing 1 unit of food requires 5 hours and producing 1 unit of clothing requires 10 hours. In Beta, producing 1 unit of food requires 2 hours and producing 1 unit of clothing requires 4 hours. (a) Which country has an absolute advantage in each good? (b) Calculate the opportunity cost of producing 1 unit of food and 1 unit of clothing in each country. (c) Which country should specialize in food? In clothing? (d) If the countries trade at a rate of 1 unit of clothing for 2 units of food, show that both countries can gain from trade by computing consumption possibilities with and without trade.

Answers and explanations are in mode.