MIZAM TEPI UNIVERSITY Time allotted: 0:45’

Department of Agricultural Economics Total load: 30

Mid-exam: Microeconomics-I (AgEc 211)

Name____________________________ ID No____________ Signature________________

I. Choice: Choose the answer/s from the given alternatives accordingly (15 pts)

1. ____The market equilibrium price of home heating oil is $1.50 per gallon. If a price
ceiling of $1.00 per gallon is imposed, which of the following will occur in the market for
home heating oil?
A. Quantity supplied and Quantity demanded will increase.
B. Quantity demanded will decrease.
C. Quantity supplied and Quantity demanded will decrease.
D. Quantity supplied will decrease.
E. Both Quantity supplied and Quantity demanded are ambiguous
2. ____ If an increase in the price of good X causes a decrease in the demand for good Y,
good Y is.
A. An inferior good
B. A luxury good
C. A necessary good
D. A substitute for good X
E. A complement to good X
3. ____If the demand for a product is price elastic, which of the following is true?
A. An increase in the product price will have no effect on the firm’s total revenue.
B. An increase in the product price will increase the firm’s total revenue.
C. A decrease in the product price will increase the firm’s total revenue.
D. A decrease in the product price will decrease the firm’s rate of inventory turnover.
E. A decrease in the product price will decrease the total cost of goods sold.
4. ____The demand curve for cars is downward sloping because an increase in the price of
cars leads to
A. The increased use of other modes of transportation
B. A decrease in the expected future price of cars
C. A decrease in the number of cars available for purchase
D. A increase in the prices of gasoline and other oil-based products

1|Page
 E. A change in consumers’ tastes in cars
5. ____If a retail firm plans to increase the price of a product it sells, the firm must believe
that
A. The good is an inferior good
B. The price of complements will also increase
C. The price of substitutes will decrease
D. Demand for the product is perfectly price elastic
E. Demand for the product is price inelastic.
6. ____An improvement in production technology for a certain good lead to
A. an increase in demand for the good
B. an increase in the supply of the good
C. an increase in the price of the good
D. a shortage of the good
E. a surplus of the good
7. ____If the cross-price elasticity of demand between good A and good B is negative, then
good A and good B are.
A. Substitutes
B. Complements
C. Unrelated
D. In high demand
E. In low demand
8. ____Which one of the following is true if hot weather and earthquake simultaneously
occurred in the ice cream market?
A. Both demand and supply curves must not shift

B. The demand curve shift to the left and supply curve shift to the right

C. Movement along the demand curve due to hot weather.

D. Both demand and supply curves must shift

E. None of the above

9. ____Which one of the following graph/s indicate shift to the left?

2|Page
 A. B. C. D. E.
None
10. ____One of the following causes changes in demand. But?
A. Income
B. Price of related good
C. Price of complement good
D. Price of the good
E. All except ‘’D’’

II. True/false: Say true if the statement is correct otherwise false (3 pts)

1. ________An increase in the demand for notebooks raises the quantity of notebooks
demanded, but not the quantity supplied.
2. ________Market demand schedule is a table showing the different quantities of a good
that a person is demanded to buy at various prices over a given period.
3. ________The shift in demand and supply curve necessarily has to be parallel.

III. Filling: Fill in the blank (2 pts)

1. The extent of the demand for a good is determined by two factors. These factors are:
A. _________________________
B. _________________________

IV. Discussion and Workout: question #1 is discussion and the rest is workout
(10pts)
1. Using supply-and-demand diagrams, show the effect of the following events on the
market for sweatshirts.
A. A hurricane in Metema damages the cotton crop.
2. Consider a linear demand curve, Q =350-7P.
A. Derive the inverse demand curve corresponding to this demand curve.
B. Find the choke price?
C. find the price elasticity of demand at P=50?
D. Indicate and interpret the types of elasticity?

3|Page
BONUS!

1. Suppose a constant elasticity demand curve is given by the formula Q=200P -1/2. What is
the price elasticity of demand at P=25 and P=10?

4|Page