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Unformatted text preview: ECON 0100 -- FIRST MIDTERM EXAM SPRING TERM 2084 NAME__________________________________________ TAs Name : (please circle) Samah Mazraani Yeol Yong Sung Short Answer Problems (25 points) 1. Assume competitive markets and use a demand and supply graph to answer the following: a. The consumption of coffee increases at the same time that coffee prices have increased. What event could cause this to happen? Is this observation inconsistent with a negatively sloped demand curve? (4) A study that reports coffee drinking helps lower blood pressure will shift the demand curve to the right. Equilibrium price and quantity will increase. It is consistent with a negatively sloped demand curve, the increase in demand caused price and quantity to increase because the demand curve moved up along the supply curve. b. The sales of flat screen TVs increase at the same time that their prices fall. What event could cause this to happen? Is this observation inconsistent with a positively sloped supply curve? (4) A positive technological change in flat screen TV production shifts the supply curve to the right. Equilibrium price falls and equilibrium quantity increases. It is consistent with a positively sloped supply curve; the increase in supply caused a movement along the demand curve resulting a fall in price and an increase in quantity. c. The government imposes a binding price floor in the milk market which was in competitive equilibrium. What will happen to the quantity of milk consumed, the price consumers pay and the value of consumer surplus as a result of the government policy? (4) As a result of an effective price floor PF> P 1 the quantity will fall to QF, the price consumers pay will increase to PF, and consumer surplus will decrease (by areas A and B. 68 and above A 60-67 B 52-59 C 45-51 D 44 and below F Quantity Price S D 2 D 1 Q 2 Q 1 P 1 P 2 Quantity Price D S 1 S 2 Q 1 P 1 P 2 Q 2 Quantity Price S D Q 1 P 1 PF QF A B 2. The graphs below illustrate the market for two goods, Good X and Good Y. Suppose an excise tax of equal dollar amount is imposed in each market. a. Illustrate for each market on the graphs below the impact of the tax. Identify the price that consumers will pay (PC) and the price sellers will receive (PS) after the identical tax is levied in each market. (5) An equivalent tax equal to the height of the red line in each market drives a wedge between the price buyers pay and the price sellers receive. b. Identify and label in each market the area that represents the tax revenue collected by the government. Identify and label in each market the area that represents the tax revenue collected by the government....
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This note was uploaded on 04/29/2008 for the course ECON 0100 taught by Professor Kenkel during the Spring '08 term at Pittsburgh.
- Spring '08