Exam Econ101 2 Version 1
Economics 101
Midterm 2
Professor Serrano-Pardial
November 14, 2007
Student Name: _____________________ ID#: ______________________ Discussion #: ________
DO NOT BEGIN WORKING UNTIL YOU ARE TOLD TO DO SO. READ THESE
INSTRUCTIONS FIRST!
The exam consists of 33 multiple-choice questions. Please fill out the scantron with a #2 pencil. You
have 70 minutes to complete the exam. Please leave enough time to fill out the scantron carefully and
accurately.
1. Print your last name, first name, and middle initial in the spaces market Last name, First Name,
and MI. Fill in the corresponding bubbles below.
2. Print your student identification number in the spaces marked Identification Number. Fill in the
bubbles below as well.
3. Write the discussion section number for which you are officially registered under Special Codes
spaces ABC, and fill in the bubbles. Discussion sections numbers are as follows:
Aris Avgousti
363
365
367
370
374
F 2:25pm
F 3:30pm
F 8:50am
R 4:35pm
R 3:30pm
Chen-Yu Li
357
359
372
373
F 11:00am
F 12:05am
R 4:35pm
R 2:25pm
Hiroaki Miyamoto
356
358
366
369
371
F 11:00am
F 12:05pm
F 8:50am
F 7:45am
F 9:55am
Jiao Shi
362
364
F 2:25pm
F 3:30pm
4. After filling your discussion section number in the Special Codes spaces ABC, please put the
version number of the exam in the Special Codes space D. The version number can be found in the
page header.
This is a close-book, close-note exam. You can use a non-graphic calculator if you need. If you have a
question during the exam, stay seated, and please raise your hand. All answer sheets must be turned in as
you leave the exam.
Think carefully before you answer each question. Good luck!
Econ101 Exam 2 Version 1
Use the following graph to answer the next two questions.
P
S
Unit Tax
= 14
S
Pd=28
P*=20
D
Q*
Q
1.
In the market depicted by the graph, an excise tax of $14 has been levied on sellers. Before the tax,
the equilibrium price was P*, and the after-tax price paid by consumers is Pd = 28. The tax
effectively paid by sellers per unit is
a) $8
b ) $6
c) $10
d) $14
e) There is not enough information to determine it.
2.
Suppose the tax decreases the quantity traded by 10 units, what is the dead weight loss from the tax?
a) 140
b) 120
c) 84
d ) 70
e) There is not enough information to determine it.
3. The rate at which a consumer must give up good x1 to get one more x2 (or quantity of x1 that he must
give up in order to get one more unit of x2) is equal to
a) P2 / P1.
b) P 1 / P 2 .
c) MU2 / MU1.
d) MU1 / MU2.
e) None of the above
Econ101 Exam 2 Version 1
The following graph shows the market of cars. Use the graph to answer the following two questions.
P
S
FG
P*
A
B
World Price + Tariff
D
C
E
World Price
D
20
40
55
70
100
Q
4. What is the government revenue from tariff?
a) B + C
b) B + C + D + E
c) C+ D
d) F + G
e) C
5. Suppose the government wants to control trade with an import quota instead. What is the import
quota equivalent to the tariff?
a) 35
b) 20
c) 15
d) 80
e) 30
6. If John chooses a combination of books and CDs that is on his budget line. At this combination the
marginal rate of substitution of books in place of CDs, which means MU(book)/MU(CD), is 0.5, the
price of a book is $9, and the price of CD is $3, then John:
a) is maximizing total utility.
b) should consume more books and fewer CDs to maximize total utility.
c) should consume fewer books and more CDs to maximize total utility.
d) may or may not be maximizing total utility.
e) experiences books and CDs as perfect complements.
Econ101 Exam 2 Version 1
7. An excise tax is levied on beer producers. Which of the following statements is false?
a) The after-tax price that beer producers receive is lower than before the tax.
b) The price that beer consumers pay is lower than before the tax.
c) The after-tax price that beer producers receive remains the same if the demand for beer is
perfectly inelastic.
d) The after-tax price that beer producers receive remains the same if the supply of beer is perfectly
elastic.
e) The equilibrium quantity of beer bought is not increased.
8. Johns caf pays its workers $60 per day and sells coffee $2 per print. Now suppose during the
holiday season the price of coffee increases to $4. What happens to the labor demand during the
holiday season?
a) The demand for labor decreases.
b) The demand for labor increases.
c) The quantity demanded of labor increases but the demand for labor curve does not shift.
d) The quantity demanded of labor decreases but the demand for labor curve does not shift.
e) None of the above.
9. If a person supplies more hours of labor in response to a wage increase, then
a) the substitution effect is greater than the income effect.
b) the income effect is greater than the substitution effect.
c) the income effect equals the substitution effect.
d) the person is not maximizing utility.
e) Leisure is an inferior good.
Quantity of cheese
20
B
10
A
D
C
0
10
20
Quantity of wine
Use the figure above to answer the next four questions (on the next page).
Econ101 Exam 2 Version 1
10. Suppose that John has $100 to spend on cheese and wines. Initially, cheese cost $5 and wine costs
$10 each. Then, the price of wine decreases to $5 per bottle, with no other changes. From the graph,
the John will choose to purchase:
a) more wine and less cheese.
b) more wine and more cheese.
c) more wine and doesnt change the amount of cheese.
d) less wine and less cheese.
e) less wine and more cheese.
11. Suppose that Johns income is doubled, but the prices of both goods are also doubled. What would
happen to his budget line?
a) The budget line shifts leftward and the slope changes.
b) The budget line shifts rightward and the slope changes.
c) The budget line shifts leftward and the slope does not change.
d) The budget line shifts rightward and the slope does not change.
e) None of the above.
12. What is the MRS of wine with respect to cheese at point B?
a)
b)
c)
d)
e)
1
2
4
0.5
None of the above
13. If Johns income at point C is 5 then the price of cheese is _______ and the price of wine is
________
a)
b)
c)
d)
e)
2; 4
2; 2
4; 0.25
1; 2
0.5; 0.5
14. Which of the following will NOT cause an increase in demand for good 1?
a) a change in consumers' taste for good 1
b) an increase in income if good 1 is a normal good
c) a change in the price of good 1
d) a decrease in income if good 1 is an inferior good
e) a decrease in the price of good 2, which consumers regard as a substitute for 1
Econ101 Exam 2 Version 1
15. If you spent your entire income, you could afford either 3 units of x and 9 units of y or 9 units of x
and 3 units of y. If you spent your entire income on x, how many units of x could you buy?
a) 21
b) 16
c) 12
d) There is not enough information to determine the number of x.
e) None of the above.
Use the following graph to answer the next two questions. The graph illustrates the choice problem of an
individual called Jim who consumes movies and steak, given some fixed income.
Steak
D
A
B
C
Movie
16. When the price of movies decreases, Jims consumption changes from A to B. Which of the
following movements is the substitution effect?
a) Moving from A to C.
b) Moving from A to D.
c) Moving from B to D.
d) Moving from C to B.
e) None of the above.
17. When the price of movies increases back, Jims consumption changes from B to A. Which of the
following movements is the income effect?
a) Moving from B to C.
b) Moving from B to D.
c) Moving from C to A.
d) Moving from D to A.
e) None of the above.
Econ101 Exam 2 Version 1
The following graph shows the costs of a firm that produces cupcakes in a perfectly competitive market.
Use the graph to answer the next four questions.
Price
Marginal Cost
Average Total Cost
.
A
B
C
G
O
Average Variable Cost
D
HJ
E
Price
I
F
Quantity
K
18. In the short run, the firm will choose to produce:
a) H cupcakes
b) J cupcakes
c) K cupcakes
d) zero cupcakes
e) Cannot tell from the given information
19. The Total Cost for the firm is given by the area:
a) ADEB
b) ADFC
c) ADJO
d) BEJO
e) CFJO
20. The fixed cost for the firm is given by the area:
a) ADEB
b) ADFC
c) ADJO
d) BEJO
e) CFJO
Econ101 Exam 2 Version 1
21. In the long run, assuming that the firm stays in the market, it will produce a quantity
a) that is between 0 and H cupcakes.
b) that is exactly H cupcakes.
c) that is between H and J cupcakes.
d) that is exactly J cupcakes
e) that is between J and K cupcakes
22. The local market for beer is characterized by supply p = 10+Qs and demand is p=100-2 Qd. The
municipal government wants to limit the amount of alcohol consumed, and institutes a quota of 20
units. What is the quota rent?
a) $20
b) $40
c) $10
d) $30
e) $70
23. T-ball produces tennis balls in a perfectly competitive market. When T-ball produces 900,000
balls its average total cost is $1. When it produces 1,000,000 balls its average total cost is $1.10.
What is the marginal cost of the one millionth ball produced?
a) $100,000
b) $200,000
c) $1.10
d) $0.10
e) $2
24. If a firm buys its labor in a competitive market, then a short-run increase in the price of the firms
output will cause the firm to
a) offer a higher wage.
b) hire fewer workers.
c) hire more workers.
d) offer a lower wage.
e) None of the above.
Econ101 Exam 2 Version 1
25. Two identical twins that just graduated from college with the same GPA and degree were hired
yesterday by two different firms to work on the assembly line. Both firms produce the same type of
shoes and serve the same market. One of the twins earns a 25% percent higher wage. According to
the marginal productivity theory of income distribution this happens because:
a)
b)
c)
d)
e)
One of the twins is being discriminated.
Compensating differentials.
Differences in human capital.
Differences in the marginal product of labor between the twins.
Market power.
Use the following information to answer the next three questions:
S-ball produces soccer balls in a perfectly competitive market. The firms total cost is given by
TC=100+5q+5q2. The marginal cost of the firm is MC=5+10q.
26. The fixed cost for S-ball is
a) 5
b) 10
c) 5/q+10
d) 100+5q
e) 100
27. If the firm produces 5 soccer balls, then its variable cost will be equal to
a) $5
b) $15
c) $25
d) $150
e) $250
28. In the short run the market price is $25, which is above the shut-down price. The firm will choose to
produce
a) 2 soccer balls
b) 3 soccer balls
c) 4 soccer balls
d) 5 soccer balls
e) 255 soccer balls
Econ101 Exam 2 Version 1
29. A perfectly competitive firm will have positive profit if
a) the market price is above the minimum average variable cost
b) the market price is above the minimum average total cost
c) the market price is between the minimum average variable cost and minimum average total cost
d) the market price is higher than minimum average fixed cost
e) the market is at its long run equilibrium
30. The marginal product of labor is the:
a) maximum output attainable with fixed factors when labor is the only variable factor.
b) output level above which the slope of the total product curve falls
c) output level above which the rate of total product per unit of labor falls
d) output level above shut down point
e) change in output resulting from a one-unit increase in labor
Use the information below to answer the next two question.
Suppose that MPL=100-4L the wage rate is $16 per hour and the price of the product is determined by
total market supply and market demand. Market supply is Q=1000P; market demand is Q=4000-1000P
31. Find the profit-maximizing quantity of labor of the firm
a) 2
b) 12
c) 21
d) 16
e) 23
32. If right now, the government imposes a tax on this product. Suppose the wage rate remains at $16 in
the short run, the firm will
a) hires more workers; because the market price goes up
b) hires more workers; labor supply increases
c) hires less workers; because the real price that the producer earns goes down.
d) hires less workers; labor supply decreases
e) Neither above
33. In the short run, a competitive firm has a marginal product of labor, MPL = 5L-0.5. The output price
is $10 per unit and the wage is $7 per hour. The short-run labor demand curve for the firm is
a) 5 L-0.5.
b) 15 L-0.5.
c) 35 L-0.5.
d) 50 L-0.5.
e) None of the above.