AP ECON 2300 Midterm Exam Review Questions– F2012
Instructor: Dr. David K. Lee
Please note that these listed questions are minimum (NOT Maximum) preparation for the
1. Demand curve: Qd=100-2P, Supply curve: Qs=20+P and tax = $2 per unit on supply
side. Compute the equilibrium before and after the tax and the amounts of consumer
and producer burdens.
2. Explain income and substitution effects and how these effects contribute the
downward sloping demand curve.
3. Explain the law of demand. Why does a demand curve slope downward? How is a
market demand curve derived from individual demand curves?
4. Explain the law of supply. Why does the supply curve slope upward? How is the
market supply curve derived from the supply curves of individual producers?
5. What are the determinants of demand? What happens to the demand curve when
each of these determinants changes? Distinguish between a change in demand and a
change in the quantity demanded, noting the cause(s) of each.
6. What effect will each of the following have on the demand for small automobiles such
as the Mini Cooper and Smart car?
a. Small automobiles become more fashionable.
b. The price of large automobiles rises (with the price of small autos remaining the
c. Income declines and small autos are an inferior good.
d. Consumers anticipate the price of small autos will greatly come down in the near
e. The price of gasoline substantially drops.
7. What effect will each of the following have on the supply of automobile tires?
a. A technological advance in the methods of producing tires.
b. A decline in the number of firms in the tire industry.
c. An increase in the price of rubber used in the production of tires.
d. The expectation that the equilibrium price of auto tires will be lower in the
future than it is currently.
e. A decline in the price of large tires used for semi-trucks and earth hauling rigs
(with no change in the price of auto tires).
f. The levying of a per-unit tax in each auto tire sold.
g. The granting of a 50-cent-per-unit subsidy for each auto tire produced.
8. Page 19 #6, and 7.
9. Budget constraint is given that: 10X +10X =102. A 50% tax rate applied to the
consumption of X ,1derive the budget constraint after tax, and show graphically the
Page 1 of 3 AP ECON 2300 Midterm Exam Review Questions– F2012
Instructor: Dr. David K. Lee
budget constraint before and after tax.
10.Budget constraint is given that: 10X +10X =100. A 50% tax rate applied to the
consumption of both X , a1d X , co2pute the equivalent income tax rate.
11.Budget constraint is given that: 10X +10X =110. 2 A 50% tax rate applied to the
consumption of X1 if X1 is consumed 5 or more quantity. Define the budget
constraint and show it graphically.
12.Budget constraint is given that: 10X +10X =100. A 20% tax rate is applied to the
consumption of X1 and a 50% subsidy rate is applied to the consumption of X2.
Define the budget constraint and show it