Faculty of Management Technology

Business Economics Mock Exam

1. The human activity, among the following, which causes maximum environmental pollution having regional and global impacts,
is:
a. Industrialisation
b. Agriculture
c. Mining
d. None of the above

2. Sustainable development will not aim at:

a. Social economic development which optimise the economic and societal benefits available in the present, without spoiling the
likely potential for similar benefits in the future
b. Reasonable and equitable distributed level of economic well being that can be perpetuated continually
c. Development that meets the need of the present without compromising the ability of future generation to meet their own needs
d. Maximising the present day benefits through increased resource consumption

3. A government-imposed maximum price at which a good can be sold is called a price

a. floor.
b. ceiling.
c. support.
d. equilibrium.
ANSWER: b. ceiling.

4. A price ceiling will only be binding if it is set

a. equal to equilibrium price.
b. above equilibrium price.
c. below equilibrium price.
d. A price ceiling is never binding in a free market system.
ANSWER: c. below equilibrium price.
 Faculty of Management Technology
Business Economics

5. According to the graph shown, if the government imposes a binding price ceiling in this market at a price of $ 4.00, the result
would be a
a. shortage of 40 units.
b. shortage of 20 units.
c. surplus of 40 units.
d. surplus of 20 units.
ANSWER: a. shortage of 40 units.
6. The initial impact of a tax on the sellers of a product
a. is on the supply of the product.
b. is on the demand for the product.
c. is on both the supply of the product and the demand for the product.
d. Taxes impact both demand and supply.
ANSWER: a. is on the supply of the product.

7. According to the graph, the price buyers will pay after the tax is imposed is
a. $1.00.
b. $3.50.
c. $5.00.
d. $6.00.
ANSWER: d. $6.00.
8. According to the graph, the price sellers receive after the tax is imposed is
a. $1.00.
b. $3.50.
c. $5.00.
d. $6.00.
ANSWER: b. $3.50.
9. A tax on the sellers of TVs
a. leads sellers to supply a smaller quantity at every price.
b. leads buyers to demand a smaller quantity at every price.
c. leads sellers to supply a larger quantity at every price.
d. causes the supply curve to shift to the right.
ANSWER: a. leads sellers to supply a smaller quantity at every price.

8. Suppose that a unit tax of $2 is imposed on producers and that the initial equilibrium price of the good is $10. With a vertical
demand curve and an upward-sloping supply curve, we can predict that
a. the price faced by consumers is 12 after the tax.
b. the price faced by consumers is 8 after the tax.
c. the price faced by consumers is 10 after the tax.
d. the price faced by consumers is 11 after the tax.
ANSWER: a. the price faced by consumers is 12 AFTER TAX.

I- This question deals with demand and supply for flash lights.
a. Given the table, graph the demand and supply curves for flashlights. Make certain to label
 Faculty of Management
equilibrium Technology
price and equilibrium quantity.
Business Economics
Price Quantity Quantity
Demanded/Month Supplied/Month

$5 6,000 10,000
$4 8,000 8,000
$3 10,000 6,000
$2 12,000 4,000
$1 14,000 2,000

b. What is the equilibrium price and equilibrium quantity?

Pe= 4 and Qe=8
c. Suppose the price is currently at $5. What problem would exist in the economy? What would you expect to
happen to price? Show this on your graph.

@ P=5, Qd= 6000 and Qs=1000 thus there is production surplus (excess in supply)
equals 4000. Expected price will decrease towards equilibrium to clear surplus.
 d. Suppose the price is currently $2. What problem exists in the economy? What would you expect
to happen to price? Show this on your graph.
@ P=2, Qd= 12000 and Qs=4000 thus there is production shortage (excess in demand)
equals 8000. Expected price will increase towards equilibrium to clear shortage.
II- Consider the below situations, suppose we are analyzing orange market.
Graphically illustrate the impact each of the following would have on demand or supply. Also show
how equilibrium price and quantity have changed (each case separately).
a. Cold weather damages the orange crop.
 Supply shifts to the left, which lead to new equilibrium at higher price and lower
quantity.

b. Health campaigns on TV stresses on the importance that children eat orange in winter.
Demand shifts to the right, which leads to new equilibrium at higher price and
higher quantity.
c. Government imposes a new policy setting a price ceiling for orange.
Pceiling is a maximum legal price, price cannot be higher than the ceiling. This
would decrease price and create shortage.
d. The government subsidies farmers producing orange inorder to decrease their cost.

Supply shifts to the right lower price for consumer as well as higher quantity.
III- Consider the following pairs of goods. Which would you expect to have the more elastic demand?
Why?
a. insulin; aspirin
Insulin , it has no subsituites thus more inelastic while aspririn more elastic
b.an AIDS vaccine over the next month; an AIDS vaccine over the next five years.
Over next five years, the longer the period the higher the demand elasticity
IV- Suppose Alahram newspaper estimates that if it raises the price of its newspaper from LE1.00 to
LE1.50, then the number of subscribers will fall from 50,000 to 40,000.
a. What is the price elasticity of demand for Alahram newspaper Daily Newspaper when elasticity is
calculated using the midpoint method?

Therefore it is inelastic
Differene in quantity/difference
n-o/o

b. If Alahram newspaper is only concerned about maximizing total revenue, should it raise the price of a
newspaper LE1.50? Why or why not?
Yes since it is inelastic then the % increase will be higher than %decrease in quantity which leads to increase
in total revenue
V- For each pair of goods listed below, which good would you expect to have the more elastic
supply? Why?
a. televisions; beach front seat
Televisions because the production of televisions can be increased in response to an increase in the price of
televisions while the quantity of beach front property is fixed.
b. a painting by van Gogh; a print of the same painting.
A van Gogh print (not painting of van Gogh) because more of them can be created in response to an
increase in price while the quantity of an original work is fixed and cannot be made again.
VI- Consider the below graph then answer the related questions
a. Complete the below statements:
1- This is a tax imposed on -----supplier------ with an amount
equals-----2.5------------------------------------------------------------------------------------------------------------ --.
2- The consumer tax burden equals -----------$1-------------------------------while producers tax burden
equals $1.5 .
3- Due to tax, production will decrease by ---------10 units--------------------------------.

VI- Answer the following questions based on the graph that represents Aya demand and Samah Supply
of good X

a. At equilibrium price, how many units would Aya be willing to purchase?

Pe= 8, Qe=40
b. How much is Aya willing to pay for 20 units of this good?

$10
c. How much would Aya’s total consumer surplus be at the equilibrium price?
At equilibrium CS= ½* 4*40= 80

PS for 10th unit= 8-3=5

d. How much is Samah getting as producer surplus from the 10th unit?
e. How much must the price of Samah be to supply 20 units to the market?
Price should be $5
f. At the equilibrium price, what is total surplus in the market?
Total surplus= ½(12-2)*40=200
g. Suppose that a price ceiling is set at 5. Show on the graph Consumer surplus after price ceiling
as well as producer surplus after price ceiling.
shaded grey area is consumer surplus
h. What is the effect of a price ceiling set at 10? No effect
it’s a nonbinding price ceiling
 VII- Consider the below situation then answer related questions:
Teacher’s Helper is a small company that has a subcontract to produce instructional materials for disabled
children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600
a month and has leased computer equipment that costs
$480 a month. Complete the below cost table:
Output
(Instructional Average
Modules per Variable Average Variable Average Marginal
Month) Fixed Costs Total Fixed Cost Total Cost
Costs Cost Cost Cost

0 1,080 0 1080

1 1,080 400 1,480 1080 400 1480 400

2 1,080 850 1930 540 425 965 450
3 1,080 1,350 2,430 360 450 810 500
4 1,080 1,900 2980 270 475 745 550

10. The recent observed changes in the environment seen in (global warming, heat waves, increasing pollution, rising sea
level, etc), has forced the economists to change their view regarding the economic activities and overall objectives.
Discuss this statement and give example to support your answer
Shifting from Economic Growth to Economic Development