Introduction to Economics/Microeconomics

Undergraduate Program

Midterm Test (100points/120 minutes)

Faculty of Economics & Business

September 2013
Padjadjaran University

Instructor Team

Read all questions prior to selection. Do your selected problems in order. Allocate your time
& energy according to the weight/score of each problem selected. Graphics must be
10x10cm2 or larger. Use color pens/pencils for graphics. Use of calculators and dictionaries
are allowed.

I. Essay, graphics & calculation [ @ 25points ]

1. Given : demand is Qd = 400 - 25P, supply is Qs = - 20 + 5P; where Q is ton/week, P is

$/kg

a. Calculate P and Q at Equilibrium (= Pe, Qe). Draw the market figure (graphic)

b. If government sets a floor-P of $10.8, what will happen in the market? Please explain

c. If government sets a floor-P of $14.4, what will happen in the market? Please explain

d. If P is increased from $7 to $11, calculate the own-P elasticity of demand

2. American Boeing 787 is the sole competitor to European Airbus 350 (their P and
quality are about the same.)

a. Draw 2 markets, one each for these 2 aircrafts. Indicate the equilibrium of Boeing 787
market as (P1, Q1) and Airbus 350 as (P2, Q2.)

b. Because of the recent Boeing Malaysian Airline accidents (MH370 & MH17), the American
firm is forced to increase the safety of 787 which raised its P. Show what will happen in the
trade of these 2 aircrafts due to market adjustments. Indicate the new equilibrium as (P1,
Q1) and (P2, Q2). Narrate (provide comments on) the market adjustments.

HINT: Be careful with the details of the market adjustment.

II. Brief Answers [ @ 10points ]

1. Rice farmers in Indonesia often complained that during good harvest times their
income usually decreased. Please explain this phenomenon, illustrate it with demand and
supply curves.

2. Look at this cost function: TC = 2,000 + 10Q + 0.5Q2 ; where q is units, cost is $.
What is FC, VC & MC? Is this a short-run or long-run cost function? Explain

III. Multiple Choice [ @ 3points ]

Select ONE best answer. Write your answers on your working papers. Otherwise, no points

1. Economics is a branch of the social sciences that is concerned with

a. Choices, priority and trade of c. Efficiency and equity

b. Scarcity d. All of the above

2. The own-P elasticity of a vertical demand is

a. Infinity c. Perfectly elastic demand

b. Zero d. Perfectly inelastic supply

3. When both demand and supply contract, then

a. P & Q increase c. Q decreases

b. P increases d. P decreases & Q increases

4. If demand is own-P elastic, reducing the P will

a. Raise TR c. Reduce supply

b. Raise supply d. Reduce Q

5. If own-P elasticity of supply is 1.2, raising the P by 10% will ..

a. Raise Q-demanded by 12% c. Raise Q-demanded by 1.2%

b. Raise Q-supplied by 12% d. Raise Q-supplied by 1.2%

6. In the beginning of the production process, increasing labor will increase MPL. This is
due to
a. Division of work c. Specialization

b. Division of labor d. All of the above

7. IRTS production function means that when scale of production is doubled, output will
be .

a. Doubled c. More than doubled

b. Less than doubled d. None of the above

8. Consumer reaches equilibrium when TU is maximized, subject to budget. This is

indicated by:

(Note: MU of product A, B is MUa, MUb; P of A, B is Pa, Pb; Indiference Curve & Budget Line
is IC & BL)

a. MRS = P-ratio c. Slope of IC = slope of BL

b. MUa/MUb = Pa/Pb d. All of the above

9. Producer behavior theory assumes that producers equilibrium is

a. Maximum profit c. Minimum cost

b. Maximum output d. None of the above

10. When MPL > APL, then

a. APL will fall c. TP is at maximum

b. APL will rise d. APL is at maximum