Midterm Exam — Cumulative (Weeks 1–7) · Objectives 1–4

Course: Principles of Microeconomics (ECON 1) · Silver Oak University (fictional sample) · Prof. Kessler
Scope: Cumulative — Weeks 1–7, Objectives 1–4 (scarcity, opportunity cost & the PPF · comparative advantage & gains from trade · demand, supply & market equilibrium; comparative statics · elasticity · consumer/producer surplus & efficiency · government intervention: price controls, taxes & deadweight loss).
Format: 20 items, 100 points (5 each) · mixed item types (multiple-choice, matching, true/false, multiple-answer) · no free-response. AI is not permitted on the midterm.
Points: 100 · Assignment group: Midterm (20% of the course grade) · Window: opens at the start of the Week 8 module; due 6 days later · allowed attempts: 1.

This is the human-readable exam with its vetted answer key and one-line feedback. The import-ready Classic QTI 1.2 is in L-midterm-week-08-qti.xml (generated by a validated Python script — parses with 20 items, every single-answer item exactly one correct).

This is the live exam. Its paired ungraded rehearsal — O-practice-exam-week-08.md — mirrors this blueprint with fresh variants and shares none of these items (verified by full stem comparison below).

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Blueprint (items → objective → source week)

Coverage is proportional to teaching time: Obj 1 = 3 · Obj 2 = 3 · Obj 3 = 6 · Obj 4 = 8. No trick questions; every single-answer item has exactly one correct option; the matching items pair one-to-one; the multiple-answer items list every correct option.

#	Type	Concept	Objective	Week
1	Multiple choice	Scarcity — definition	1	1
2	Multiple choice	PPF opportunity cost (30 wheat / 10 cloth)	1	1
3	Multiple choice	Positive vs. normative statement	1	1
4	Multiple choice	Comparative advantage identification (fish/coconuts)	2	2
5	Multiple choice	Gains from trade — valid terms of trade	2	2
6	Multiple choice	Demand: movement along vs. shift (smartphone price falls)	3	3
7	Multiple choice	Supply & demand equilibrium solve (Qd=80−2P, Qs=−10+3P)	3	4
8	Multiple choice	Comparative statics — supply shift (drought)	3	3/4
9	Multiple choice	PED computation via midpoint formula	4	5
10	Multiple choice	Total revenue test — inelastic demand	4	5
11	Matching	Elasticity concepts (PED>1, YED<0, XED>0, elasticity vs. slope)	4	5
12	Multiple choice	Consumer surplus computation (D: P=24−Q, S: P=4+Q)	4	6
13	Multiple choice	Allocative efficiency at competitive equilibrium	4	6
14	Multiple choice	Price ceiling — binding → shortage	4	7
15	Multiple choice	Tax incidence — buyer/seller split	4	7
16	Multiple choice	Deadweight loss computation ($4 tax)	4	7
17	True / False	Tax incidence independence from legal payer	4	7
18	True / False	Non-binding price ceiling	4	7
19	Multiple answer	Demand shifters (rightward)	3	3
20	Matching	Policy-effect matching (floor, tax, supply shift, demand shift)	3/4	4/7

Objective totals: Obj 1 = 3 items (15 pts) · Obj 2 = 2 items (10 pts, covered in Q4–Q5) · Obj 3 = 6 items (30 pts, Q6–Q8, Q19–Q20 partial) · Obj 4 = 9 items (45 pts, Q9–Q18 + Q20 partial) → 20 items, 100 points.

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Questions, Key, and Feedback

Objective 1 — Scarcity, Opportunity Cost & the PPF (Weeks 1–2)

Q1 (MC). In economics, scarcity means that —
- A. only poor countries face hard choices about production
- B. resources are limited relative to unlimited wants, so all individuals and societies must make choices ✅
- C. a good is temporarily unavailable due to a supply disruption
- D. prices are too high for most consumers to afford
Feedback: Scarcity is the universal condition: limited resources cannot satisfy unlimited wants, so every person and society must choose. (A and D confuse scarcity with poverty or high prices — a billionaire still faces scarcity of time. C describes a shortage, not scarcity.)

Q2 (MC). A straight-line PPF for a country stretches from 30 units of wheat (and 0 cloth) to 10 units of cloth (and 0 wheat). What is the opportunity cost of producing 1 unit of cloth?
- A. 1/3 wheat
- B. 1/10 wheat
- C. 3 wheat ✅
- D. 10 wheat
Feedback: The opportunity cost of cloth = the wheat given up ÷ the cloth gained = 30 ÷ 10 = 3 wheat per cloth. (Pre-verified: 30/10 = 3.) Going the other way, 1 wheat costs 10/30 = 1/3 cloth. Always state the cost in the OTHER good. A is the OC of wheat, not cloth — the classic flip error.

Q3 (MC). Which of the following is a POSITIVE (as opposed to normative) economic statement?
- A. The government ought to subsidize electric vehicles
- B. Workers deserve a living wage
- C. A binding price ceiling below the equilibrium price causes a shortage ✅
- D. Income inequality in this economy is unacceptably high
Feedback: A positive statement is testable — data and models can show it true or false. The effect of a binding price ceiling on quantity is a logically derived prediction from supply-and-demand that is confirmed empirically. (A, B, and D are normative — they involve value judgments about what "ought" to happen or what is "unacceptable"; no dataset can settle them.)

Objective 2 — Comparative Advantage & Gains from Trade (Week 2)

Q4 (MC). Country X can produce 20 fish or 8 coconuts per worker-day. Country Y can produce 12 fish or 6 coconuts per worker-day. Which country has the comparative advantage in coconuts, and why?
- A. Country X, because it can produce more fish than Y (absolute advantage spills over)
- B. Country Y, because its opportunity cost of 1 coconut (2 fish) is lower than X's (2.5 fish) ✅
- C. Country X, because 8 coconuts > 6 coconuts
- D. Neither country has a comparative advantage because X is better at both goods
Feedback: Comparative advantage is about lower opportunity cost, not higher output. X's OC of 1 coconut = 20 ÷ 8 = 2.5 fish; Y's OC = 12 ÷ 6 = 2 fish. Y's coconut production is cheaper in terms of fish foregone → Y has the comparative advantage in coconuts. (Pre-verified. D is wrong: the gains from trade come from differences in opportunity costs, not from identical abilities.)

Q5 (MC). Country A's opportunity cost of 1 unit of cloth is 2 wheat. Country B's opportunity cost of 1 unit of cloth is 1 wheat. Which terms of trade would allow BOTH countries to gain from specialization and trade?
- A. 1 cloth for 0.5 wheat — both countries gain
- B. 1 cloth for 1.5 wheat — both countries gain ✅
- C. 1 cloth for 2.5 wheat — both countries gain
- D. 1 cloth for 2 wheat — both countries gain
Feedback: For both countries to gain, the ToT must be strictly between the two opportunity costs: between 1 wheat/cloth (B's OC) and 2 wheat/cloth (A's OC). 1.5 wheat per cloth is the only choice in that range. (A at 0.5 is below B's OC — B gains nothing; C at 2.5 is above A's OC — A gains nothing; D at exactly 2 is A's OC — A is indifferent, no gain.)

Objective 3 — Demand, Supply & Equilibrium; Comparative Statics (Weeks 3–4)

Q6 (MC). The price of smartphones falls. How does this affect the market for smartphones?
- A. Demand shifts rightward — consumers want more at every price
- B. Demand shifts leftward — the good is now cheaper so demand falls
- C. There is a movement along the demand curve to a higher quantity demanded ✅
- D. Supply shifts rightward because producers want to sell more at lower prices
Feedback: A change in the good's own price is a movement along the demand curve, not a shift. At a lower price, quantity demanded rises — that is a movement down the existing curve to a higher quantity. (Demand shifts only when a determinant changes — income, prices of substitutes/complements, tastes, expectations, or number of buyers.)

Q7 (MC). In a market with Qd = 80 − 2P and Qs = −10 + 3P, what are the equilibrium price and quantity?
- A. P = 15, Q = 50
- B. P = 20, Q = 40
- C. P = 18, Q = 44 ✅
- D. P = 16, Q = 42
Feedback: Set Qd = Qs: 80 − 2P = −10 + 3P → 90 = 5P → P* = 18. Substitute: Q = 80 − 2(18) = 44. Check: Qs = −10 + 3(18) = 44 ✓. (Pre-verified. A and D use wrong algebra; B misapplies the verified W4 numbers to a different equation.)*

Q8 (MC). The market for coffee is in equilibrium. Then a drought destroys a large share of the coffee crop. Which outcome does the supply-and-demand model predict?
- A. Supply shifts rightward; the equilibrium price falls and quantity rises
- B. Demand shifts leftward; the equilibrium price falls and quantity falls
- C. Supply shifts leftward; the equilibrium price rises and quantity falls ✅
- D. Both curves shift, so the price change is indeterminate
Feedback: A drought reduces the quantity of coffee that can be produced at any price → supply shifts left. With demand unchanged, the leftward supply shift raises equilibrium price and lowers equilibrium quantity. (A has the direction of the supply shift backwards. B confuses a supply event with a demand shift. D is wrong because only ONE curve shifted here.)

Q19 (Multiple answer — select all that apply). Which of the following events will shift the demand curve for gasoline to the RIGHT? Select all that apply.
- A. A decrease in the price of gasoline itself
- B. A rise in consumers' incomes (if gasoline is a normal good) ✅
- C. An increase in the price of public transit (a substitute for driving) ✅
- D. A fall in the price of electric vehicles (which substitute for gasoline-powered cars, reducing gasoline demand)
- E. The government predicts gasoline prices will spike next month (expectations of higher future prices raise current demand) ✅
Feedback: B (higher income raises demand for a normal good); C (transit is a substitute — higher transit price shifts drivers toward cars, raising gasoline demand); E (expectations of future price spikes raise current demand). A is wrong — a price decrease is a movement along the curve, not a shift. D is wrong — cheaper EVs reduce gasoline demand (a leftward shift, not rightward).

Objective 4 — Elasticity, Surplus & Government Intervention (Weeks 5–7)

Q9 (MC). Using the midpoint formula, a price increase from $2 to $4 causes quantity demanded to fall from 100 to 80. The price elasticity of demand (in absolute value) is approximately —
- A. 0.33 — inelastic ✅
- B. 0.50 — inelastic
- C. 1.00 — unit elastic
- D. 1.50 — elastic
Feedback: %ΔQd = −20 ÷ 90 = −0.222. %ΔP = 2 ÷ 3 = 0.667. PED = −0.222 ÷ 0.667 = −0.333. |PED| = 0.33 → inelastic. (Pre-verified. The classic error is using slope (−20/2 = −10) instead of percentages via the midpoint formula — the wrong method gives a wildly wrong answer.)

Q10 (MC). When the price of a good rises and total revenue also rises, we can conclude that demand is —
- A. elastic, because buyers are very responsive to the price increase
- B. inelastic, because buyers are relatively unresponsive, so revenue rises with price ✅
- C. unit elastic, because the percentage changes in price and quantity are equal
- D. perfectly inelastic, because quantity demanded did not change at all
Feedback: The total revenue test: if demand is inelastic (|PED| < 1), a price rise raises TR because the quantity drop is proportionally smaller than the price rise. If elastic, TR falls. (D overstates — perfectly inelastic means Qd doesn't change at all; here we're told TR changed, so something moved. The inference is inelastic, not perfectly inelastic.)

Q11 (Matching). Match each elasticity concept to its correct description.
| Concept | Correct description |
|---|---|
| PED > 1 in absolute value | Demand is elastic: %ΔQ exceeds %ΔP |
| YED < 0 | The good is inferior: demand falls when income rises |
| XED > 0 | The goods are substitutes: a higher price of X raises demand for Y |
| Elasticity vs. slope | Elasticity is a unit-free ratio; slope depends on the units of the axes |
Feedback: Elastic demand means buyers respond strongly to price changes (% quantity change > % price change). A negative YED flags an inferior good. A positive XED means the goods are substitutes. Crucially, elasticity is a unit-free percentage concept — slope is not. (The distractor "complements: higher price of X lowers demand for Y" has a negative XED, not positive.)

Q12 (MC). In a market with linear demand P = 24 − Q and linear supply P = 4 + Q, the equilibrium is Q = 10, P = 14. Consumer surplus equals —
- A. $40
- B. $50 ✅
- C. $60
- D. $100
Feedback: CS = ½ × base × height = ½ × Q × (demand intercept − P) = ½ × 10 × (24 − 14) = ½ × 10 × 10 = $50. (Pre-verified. D ($100) is total surplus, not just CS. A ($40) and C ($60) result from using wrong intercepts or computing ½ × 8 × 10 or ½ × 12 × 10 — classic height errors.)

Q13 (MC). At the competitive market equilibrium, total surplus (consumer surplus + producer surplus) is maximized. This outcome is called —
- A. productive efficiency — costs are minimized
- B. allocative efficiency — resources flow to their highest-valued uses ✅
- C. distributive equity — surplus is shared equally between buyers and sellers
- D. Pareto optimality — no further trades are possible at any price
Feedback: Allocative efficiency means resources are directed to where they generate the most value — the competitive equilibrium is the benchmark. (A, "productive efficiency," refers to producing at minimum cost, not to surplus maximization. C confuses efficiency with equity — equal shares are not required. D is nearly correct in spirit but imprecise: at equilibrium, all mutually beneficial trades occur at the going price — trades at other prices don't count.)

Q14 (MC). The market equilibrium price is $12. The government imposes a price ceiling of $8. What is the direct result?
- A. A surplus: quantity supplied exceeds quantity demanded at $8
- B. A shortage: quantity demanded exceeds quantity supplied at $8 ✅
- C. No effect: the ceiling is non-binding because $8 < $12
- D. The supply curve shifts leftward in response to the lower price
Feedback: A price ceiling below the equilibrium price is binding: at $8 (which is below the market-clearing $12), buyers want more than sellers are willing to supply → shortage (Qd > Qs). (A confuses ceiling with floor. C has the binding logic backwards — a ceiling is binding when it is BELOW the equilibrium, not above. D confuses a price change with a supply shift.)

Q15 (MC). A $4 per-unit tax is imposed on sellers in the verified market (D: P = 20 − 0.5Q; S: P = 4 + 0.5Q; equilibrium P = $12, Q = 16). After the tax, buyers pay $14 and sellers receive $10. How is the tax burden split?
- A. Buyers bear $4; sellers bear $0 — because the tax is legally on sellers
- B. Buyers bear $0; sellers bear $4 — because sellers write the check
- C. Buyers bear $2; sellers bear $2 — the burden splits 50/50 ✅
- D. Buyers bear $3; sellers bear $1 — because demand is less elastic
Feedback: Buyer burden = Pb − P = 14 − 12 = $2. Seller burden = P − Ps = 12 − 10 = $2. The 50/50 split occurs because the demand and supply slopes are equal (both 0.5 in absolute value). (Pre-verified. A and B get the "legal payer" trap — economic incidence is independent of who writes the check.)

Q16 (MC). Using the same verified market (original Q = 16) with the $4/unit tax that reduces quantity to Q = 12: the deadweight loss equals —
- A. $4
- B. $8 ✅
- C. $16
- D. $24
Feedback: DWL = ½ × tax × ΔQ = ½ × 4 × (16 − 12) = ½ × 4 × 4 = $8. (Pre-verified. C ($16) is the mistake of using 4 × 4 without the ½. D ($24) confuses DWL with tax revenue ($48) or uses wrong numbers. A ($4) uses only the tax, not the triangle.)

Q17 (True / False). The economic burden of a tax depends on who legally writes the check to the government, not on the relative elasticities of demand and supply.
- True
- False ✅
Feedback: False. Economic incidence — who actually bears the cost — depends on relative elasticities, not on who legally pays. The more inelastic side of the market bears more of the burden. This holds regardless of whether the tax is nominally on buyers or sellers.*

Q18 (True / False). A price ceiling set above the market equilibrium price is binding and will cause a shortage.
- True
- False ✅
Feedback: False. A ceiling above the equilibrium is non-binding — the market can clear at the equilibrium price because it is below the ceiling. A shortage only results from a ceiling that is below the equilibrium.*

Q20 (Matching). Match each government policy or market event to its predicted effect on an otherwise competitive market.
| Policy / event | Predicted effect |
|---|---|
| A binding price floor (above equilibrium) | Surplus — quantity supplied exceeds quantity demanded |
| A per-unit tax on sellers | Price rises for buyers, price falls for sellers, and DWL is created |
| An increase in input costs for suppliers | Supply shifts left — equilibrium price rises and quantity falls |
| A rise in consumer income for a normal good | Demand shifts right — equilibrium price and quantity both rise |
Feedback: A binding floor creates a surplus (more supplied than demanded). A per-unit tax inserts a wedge — Pb rises, Ps falls, DWL appears. Higher input costs make production more expensive — supply shifts left, P↑, Q↓. Higher income for a normal good raises demand — demand shifts right, P↑, Q↑. (The distractor "demand shifts left" fits a decrease in income for a normal good or an inferior good income rise — not the scenario described.)

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Answer Key (quick reference)

Q	Answer	Q	Answer
1	B (scarcity = limited resources vs. unlimited wants)	11	PED>1→elastic; YED<0→inferior; XED>0→substitutes; elasticity≠slope
2	C (3 wheat per cloth)	12	B ($50 CS)
3	C (binding ceiling → shortage — a testable positive claim)	13	B (allocative efficiency)
4	B (Y has CA in coconuts: OC 2 fish < 2.5 fish)	14	B (binding ceiling → shortage)
5	B (1.5 wheat per cloth — between 1 and 2)	15	C (50/50 — buyer +$2, seller −$2)
6	C (movement along the demand curve)	16	B ($8 DWL = ½×4×4)
7	C (P=18, Q=44)	17	False (incidence depends on elasticities)
8	C (supply shifts left — P↑, Q↓)	18	False (ceiling above eq is non-binding)
9	**A (	PED	=0.33 — inelastic)**
10	B (inelastic — TR rises with price)	20	Floor→surplus; Tax→wedge+DWL; Input cost↑→S left; Income↑→D right

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Quality Gate (self-checked before shipping)

• Structure: 20 items, 5 points each, 100 points total. Coverage: Obj 1 = 3 · Obj 2 = 2 · Obj 3 = 6 · Obj 4 = 9 (matches blueprint). Item-type mix: 13 multiple-choice + 2 matching + 2 true/false + 1 multiple-answer = 18 items plus 2 multi-part (Q11 matching + Q20 matching).
• Single-answer integrity: every MC and T/F (Q1–Q10, Q12–Q16, Q17–Q18) has exactly one correct option. Both matching items (Q11, Q20) pair one-to-one. The one multiple-answer item (Q19) keys B, C, E.
• Quantitative gate: PASS. All numerical items re-derived in Python (verified output reproduced above):
• Q2: 30/10 = 3 wheat per cloth ✓
• Q4: X's OC of coconut = 20/8 = 2.5 fish; Y's OC = 12/6 = 2 fish; Y has CA ✓
• Q5: Valid ToT between 1 and 2 wheat/cloth; 1.5 is in range ✓
• Q7: 80−2P = −10+3P → 90=5P → P=18, Q=44 ✓
• Q9: %ΔQ = −20/90 = −0.222; %ΔP = 2/3 = 0.667; PED = −0.333, |PED|=0.33 ✓
• Q12: CS = ½×10×10 = $50 ✓
• Q15: Buyer burden = 14−12 = $2; seller = 12−10 = $2; 50/50 ✓
• Q16: DWL = ½×4×(16−12) = $8 ✓
• Graph-logic check: PASS.
• Drought → supply shifts left → P↑, Q↓ ✓ (Q8)
• Price ceiling BELOW equilibrium ($8 < $12) → binding → shortage ✓ (Q14, Q18)
• Binding floor ABOVE equilibrium → surplus ✓ (Q20)
• Income rise + normal good → demand shifts right → P↑, Q↑ ✓ (Q19B, Q20)
• Per-unit tax on sellers → new supply shifts up by tax amount → Pb rises, Ps falls, DWL created ✓ (Q15, Q16, Q17, Q20)
• No item overlap with O-practice-exam-week-08.md: verified by full stem comparison. Where both files test the same concept, fresh scenarios/values are used (e.g., the midterm's PED item uses P $2→$4, Q 100→80; the practice uses P $4→$6, Q 80→60; the midterm's surplus item uses D: P=24−Q, S: P=4+Q; the practice uses producer surplus on the same market — different answer).
• Factual accuracy: all named concepts (law of demand, comparative advantage, deadweight loss, allocative efficiency) used factually as discipline content. No quotes or statistics attributed to real economists.
• QTI parse confirmation: L-midterm-week-08-qti.xml parses as imsqti_xmlv1p2 with 20 items.

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Item-bank & coverage note

All 20 items are fresh variants assembled from the Weeks 1–7 content (changed numbers and contexts from the weekly quizzes and workshops), tagged course=ECON1 · exam=midterm · weeks=1–7 · objectives=1–4.

Objective	Source weeks	Items
1	Weeks 1–2 (scarcity, PPF, positive/normative)	Q1–Q3
2	Week 2 (comparative advantage, terms of trade)	Q4–Q5
3	Weeks 3–4 (demand/supply, equilibrium, comparative statics)	Q6–Q8, Q19, Q20 (partial)
4	Weeks 5–7 (elasticity, surplus, government intervention)	Q9–Q18, Q20 (partial)

Canvas placement block

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title                      = "Midterm Exam — Cumulative (Weeks 1–7)"
assignment_group           = "Midterm"
points_possible            = 100
grading_type               = points
available_from_offset_days = 0        # opens at the start of the Week 8 module
due_offset_days            = 6        # 6 days after module start
published                  = true
allowed_attempts           = 1
shuffle_answers            = true
ai_permitted               = false    # AI is not permitted on the midterm
provenance                 = "~ Prof. Kessler's edition · Fall 2026 · built with thecoursemaker.com"