Principles of Economics (Econ 100) Quiz-1, 6th October,

2021

Roll Number: ___________________________

Principles of Economics (Econ 100)

Quiz-1
Instructions
 Answer all questions.
 Bracket after question number indicates points.
 Maximum score: 50-points

Section 1: Multiple Choice Questions (2-points each)

Question-1

Refer to the above diagram. This is a graph of sanitizers produced with the price per sanitizer of Adeel
Sanitizer Firm. Now, by looking and analysing the graph what will a price of $20 in this market result
in:
a. The Market will have a shortage by 50 units and hence is optimal.
b. This is the equilibrium
c. The market will have a surplus of 50 units.
d. The market will have a surplus of 100 units.
e. There will be a overall shortage of 100 units.
Question-2

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 Principles of Economics (Econ 100) Quiz-1, 6th October,
2021

Roll Number: ___________________________

These are some supply and demand shifts. According to these graphs which of them shows the
income of consumer decreasing in the market of second-hand clothes. A and C
a. A only
b. B only
c. C only
d. D only

Question-3

Which of the following is false?

a. The opportunity cost of a good increases as more of that good is produced
b. The OC of cameras in terms of mobiles is changing along the PPF
c. The endowment of resources changes from A to C
d. There is a trade-off for society upon moving from A to C

Question-4
Which of the following events would cause a movement upward and to the left along the demand
curve for olives?

a. The number of buyers of olives decreases.

b. Consumer income decreases, and olives are a normal good.
c. The price of pickles decreases, and pickles are a substitute for olives.
d. The price of olives rises.

Question-5

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 Principles of Economics (Econ 100) Quiz-1, 6th October,
2021

Roll Number: ___________________________

The diagram above is a type of production possibility frontier for an individual. What is the
opportunity cost to the individual of the extra earnings when moving from position Z to X?
a. $10
b. 9 hours of leisure per day
c. $ 20
d. No opportunity cost

Question-6
A plane flying to Karachi is about to take off and has 15 empty seats left. The average price per seat is
PKR 11000. At what price should the airline sell tickets to standby passengers to fill in the remaining
seats?
a) Slightly less than PKR 11000
b) At least PKR 11000
c) PKR 1100
d) Any price greater than PKR 0 so that maximum standby passengers board

Question-7
Governments are NOT responsible for _______.
a) Making production decisions
b) Intervention during market failure caused by externalities
c) Intervention during market failure caused by market power
d) Enforcing property rights

Question-8
What is the expected outcome of Government policies aimed towards reducing inflation?
a) Increases employment in short-run
b) Decreases unemployment in short-run
c) Increases unemployment in long-run
d) Decreases unemployment in long-run

Question-9
Consider the average salary of a baker increases by 35% whereas the average salary of a
painter increases by 50%. Which of the following represents people’s response to incentives?
a) University students will switch their majors
b) More students will enroll in bakery courses
c) More students will enroll in painting courses
d) None of the above

Question-10
Which of the following does not represent the opportunity cost of going on a cruise?
a) Spending money on the cruise booking
b) Spending money of food
c) Spending money on cruise activities
d) Leisure time spent enjoying cruise activities

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 Principles of Economics (Econ 100) Quiz-1, 6th October,
2021

Roll Number: ___________________________

Section 2: Structured questions [40]

Question-1 [5]
True/False, Explain. “An increase in the supply of sanitisers raises the supply, but not the quantity
demanded. [3] What is the exception? Draw that case. [2]

False. The increase in supply will also result in an increased quantity demanded because as the supply
curve shifts to the right, it lowers price. This increases the quantity demanded and that is how
you reach the new equilibrium where the Q is higher and the P is lower
Exception is vertical demand curve

Question-2 [14]

a. With reference to the circular flow diagram, explain how the economy can be
modelled in a circular flow pattern? [4]
Households supply inputs for which they earn money. They spend this money when they
buy output in the finals goods & services market from firms. My income as a shop-keeper
is your expenditure as a customer.

b. In the resource market:

i. What is the role of firms? [1]
Firms buy inputs
ii. What is the role of households? [1]
HHs supply inputs

c. Give three examples of resource markets: [3]

Market for land, energy, labour, raw materials, machinery or financial capital
d. How can we make the circular flow diagram we have studied more realistic? [5]
We have omitted for simplicity the rest of the world, the financial sector, and the government. We
may add in these elements and gain a more accurate measure of incomes/revenues or expenditures.

Question-3 [6]
Naan and cheese are often eaten together, they are complements. You must write out all the
intermediate steps in the transition from the old to the new equilibrium.

We observe that both the equilibrium price of cheese and the equilibrium quantity of naan have risen.
What could be responsible for this pattern—a fall in the price of flour or a fall in the price of milk?
Illustrate and explain your answer. [3+3]

Fall in price of flour. Milk is an input in cheese, and flour in naan. If flour price falls, supply curve
would shift to right, and the eq price would fall, naan quantity rises.

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 Principles of Economics (Econ 100) Quiz-1, 6th October,
2021

Roll Number: ___________________________

When naan becomes cheaper, cheese which is a complement to naan, sees a rise in demand, and the
DC shifts to the right. This increases both price and quantity of cheese. So fall in flour price is the
correct option.

Students should see that as milk is an ingredient in cheese, the fall in the price of milk leads to an
increase in the supply of cheese. This leads to a decrease in the price of cream cheese, so eliminate
this option.

Question-4 [15]

Consider the market for hamburgers using S&D. Show the effect of each of the following on

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 Principles of Economics (Econ 100) Quiz-1, 6th October,
2021

Roll Number: ___________________________

equilibrium price and quantity of each of the following: (explain what shifts and why). Draw well-
labelled separate graphs. [15]
a. Opening new pizza parlors
b. A decrease in the price of hamburgers
c. New hamburger chains open up

a. Pizza is a substitute. The supply curve shifts right and demand is the same in pizza market, so
price falls and q rises. When P of pizza falls, the demand for burgers falls. So the D curve for
burgers shifts leftwards, S same, so price of burgers rises and its quantity falls.

If someone says, no change mark it incorrect

b. Movement along the curve, downwards, to a higher quantity demanded.

c. Supply increases, P falls as demand same. So higher Q and lower P

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