TOTAL: 100 points

Part 1 (Total 30 points – suggested time 15 min):

Multiple choice: choose one correct answer

1. All of the following can be considered a student's opportunity cost of going to university, except:
a. room and board (that cost the student about the same as they were paying before
entering university)
b. tuition and fees
c. The student's time, which can no longer be devoted to earning a salary.
d. textbooks

2. In a market economy, the decisions of what and how much to produce are generally made by:
a. voters in elections
b. all producers and consumers
c. European finance ministers
d. non-governmental agencies.

3. Economic models are:

a. simplified versions of economic theories
b. usually composed of diagrams and equations
c. created by making assumptions
d. all of these options are true.

4. If good B is a substitute for good A, and the price of good B increases:

a. the price of good A will decrease
b. the quantity demanded of good A will decrease
c. the quantity demanded of good B will increase.
d. the demand for good A will increase

5. Suppose that a good has an income elasticity of demand of –2.0. This means that the good is:
a. a complement.
b. a substitute
c. normal
d. inferior

6. Suppose that a regulation is in place that does not allow the price of a good to exceed €5. If this price is
above the equilibrium point in the market, this would be an example of a:
a. binding price floor
b. non-binding price ceiling
c. binding price ceiling
d. non-binding price floor.

7. Perfectly inelastic demand is a ____________ line

a. vertical (│);
b. horizontal (▬)
c. upward sloping
d. downward sloping

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8. Any points above PPF are __________
a. impossible
b. efficient
c. possible but inefficient
d. impossible but efficient

9. Consider the supply of cereal.

Which of the following would cause a movement along the supply curve (that is, a change in the quantity
supplied) for cereal?
A change in the: Check all that apply.
price of cereal
number of producers
price of labour (used in the production of cereal)

10. Which of the following would cause a shift of the supply curve for cereal?
A change in: Check all that apply.
expectations about the future price of cereal
the number of producers
the price of cereal

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 Part 2 (Total 70 points - suggested time – 1 hour):

1. (30 points) Suppose we have the following market supply and demand schedules for bicycles:

a) What is the equilibrium price of bicycles?

(5 points)

b) What is the equilibrium quantity of bicycles?

(5 points)

c) If the price of bicycles were €400, is there a surplus or a shortage? How many units of surplus
or shortage are there?

(10 points)

d) Using midpoint method, calculate Price elasticity of demand when price increases from $300 to
$500. Based on your calculations, is the demand elastic or inelastic? Justify

(10 points)

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 2. (40 points) Assume the supply of Beef is given by the equation QS = -50+25P, and the
demand for Beef is given by the equation QD = 150 – 25P, where quantity (Q) is measured in
millions of units and price (P) is measured in euros per unit.

a) Calculate the equilibrium price and quantity:

(10 points)

b) Draw Demand and Supply curves and show the equilibrium point (P*, Q*)

(10 points)

c) The government decides to levy a tax of €1.00 per unit on Beef, to be paid by the producers. As
a result, new supply equation with tax is Q’S= – 75+25P

Calculate and show on the graph New equilibrium quantity, Price paid by buyers, Price received by
producers and Tax.

New equilibrium quantity = __________

P paid by consumers = €_________

P received by producers = €________

(10 points)

d) The tax incidence (or tax burden) on consumers is €__________ per unit

the tax incidence on producers is €__________ per unit

(10 points)