Micro_Midterm_Two_Spring__2008_Ver_A_-_M

Micro_Midterm_Two_Spring__2008_Ver_A_-_M - Midterm Exam 2...

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Unformatted text preview: Midterm Exam 2 Version A Principles of Microeconomics Penn State ECON 002 Midterm Exam Two — Spring 2008 Clair Smith LAST NAME: It ’ FIRST NAME: LAST 4 DIGITS OF YOUR PSU STUDENT ID: _ _ _ __ Instructions: Neatly write your name and other info on both this exam and the scantron form. Write and fill in the appropriate bubbles for PSU ID, SEC. NO, and TEST VERSION on the scantron form. PART I Multiple Choice Section (25 questions, 3 points each) Choose the best answer and mark your answer choice clearly in pencil on the answer sheet. You may make any notes you wish on the test questions, but credit will be given only for readable answers on the answer sheet. PART II Graphs and Short Answer Write your answer or draw your graph neatly in the space provided. Make sure you address all parts of the question. Points vary and are indicated in each question. When you are finished, bring both this exam and your scantron sheet to the front of the room with your PSU id card. You have 50 minutes to complete this exam. You may thumb through the corners to ensure that your exam contains 6 sheets of paper, but please do not open the exam until you are instructed to begin. When you do open your exam, you should find 25 multiple choice questions, double—sided on pages numbered 2-6, and the 3 graph / short answer questions printed single-sided on pages numbered 7—9. Good Luck. PART I an. Multiple Choice Section (25 questions, 3 points each) Which of the following activities causes a positive externality? a. a homeowner who keeps a well—maintained lawn and garden that improves the beauty of the neighborhood b. vaccinating children against measles which not only protects children but also prevents the spread of the disease c. hiring a security guard to visibly patrol your property in an exclusive neighborhood with other homes in close proximity d. all of the above What are property rights? a. the right to do anything one desires with a piece of property b. the bundle of rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it ' c. a legal document verifying ownership of a natural resource d. a legal document verifying ownership of physical assets In “Downeaster Alexa," Billy Joel describes the plight of a fisherman facing declining fish populations in open waters. This is a result of a. increasing marginal costs. b. an increase in the supply of fish. c. the prisoner’s dilemma. d. the tragedy of the commons. (l 4. Burma produces one kilo of rice using less labor, land, and other resources than any L5. other country. It therefore has a. an absolute advantage in rice production. b. a comparative advantage in rice production. c. both an absolute and a comparative advantage in rice production. (:1. an absolute advantage but a comparative disadvantage in rice production. Which of the following best illustrates the free-rider problem? a. Since no one owns elephants and elephants are valued for their hide, meat and ivory, elephants can be hunted to extinction. b. All three homeowners in a quiet cul-de-sac have expressed the desirability of security lighting in the common parking area. One of the homeowners installs the lighting and asks you (another one of the homeowners) to contribute toward the cost. You choose not to contribute. c. If my neighbors professionally landscape their yards, it is likely that the market value of my property will increase. d. For every purchase of a $30 fare card, you are entitled to five free bus rides. l2 6. The Coase Theorem says that a. a free market equilibrium is always the best. b. if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities. c. assigning property rights is the only things the government should do in a market economy. d. government intervention is always needed if externalities are present. b 7. Suppose that the following chart shows the marginal utility valuations that President Spanier assigns to additional quantities of Penn State bottle openers and Grilled Stickies. If Spanier has a budget of $8 to spend on these two goods, how many of each should he buy to maximize his total utility? Bottle openers are $1 and Grilled Stickies are $2. He should buy 3 bottle openers and 5 grilled stickies. He should buy 2 bottle openers and 3 grilled stickies. He should buy 0 bottle openers and 4 grilled stickies. He should buy 4 bottle openers and 6 grilled stickies. 9.09793 (2 8. Dumping is a. the loss associated with a tariff. b. giving up free trade, in essence, dumping it. c. selling a product in foreign country at a price below the domestic price. (:1. exporting only low-quality goods. { 1 9. The demand for a good rises as income rises. It follows that income elasticity of demand for this good is than zero, and this good is a(n) good. a. less; normal b. less; inferior c. greater; normal 01. greater; inferior £S 10. A local restaurant offers an “all you can eat" ribs special. You pay $14.95 and then you can eat as many servings as you desire at no additional money cost. It would follow that you would stop eating ribs when a. your marginal utility from eating another serving is zero. b. your total utility derived from all of the servings combined just equals $14.95. c. your marginal utility derived from another serving equals $14.95. d. it is physically impossible for you to ingest another rib. A 1 1. If Penn State could increase tuition and still increase revenue, we know that a. demand is relatively inelastic b. demand is relatively elastic c. demand is unit elastic c. demand is perfectly elastic A 12. One reason that Dr. Sturges sued candymaker Bridgman rather than working out a private solution regarding the noise from Bridgman’s equipment was a. the relevant property rights were not well—defined. b. transaction costs were high. c. the railroad would not agree to a settlement. (:1. the doctor’s work was more important than the work of the candymaker. 0 13. Which of the following is the best example of a pure public good? a Penn State white out t—shirt the Pennsylvania Turnpike a fireworks display a concert in the Bryce Jordan Center 9.0.62» (4 14. Would it be economically efficient to reduce the level of crime to zero? a. Yes, because crime is a plague on law—abiding citizens. b. Yes, because the MC of crime prevention decreases as crime decreases. c. No, because some people steal to feed their families. d. No, because crime prevention is costly, and beyond some point the MC may exceed the MB. 0 15. If someone enjoys the benefits of national defense but never pays any taxes to” support it, that person is known in economics as a a. free loader. b. tax evader. c. free rider. d. homeless person. [9 16. The price elasticity of demand (elasticity) for Diet Coke with Lime is, in absolute value, smaller than the elasticity for all carbonated beverages. larger than the elasticity for all carbonated beverages. neither larger nor smaller than the elasticity for any other type of soda. the same as the elasticity for all carbonated beverages. $19.5?” it. 17. If the-price of Canyon Pizza goes up 20% and the quantity demanded goes down 50%, then the price elasticity of demand is equal to a. — 2.5 b. - 0.4 c. + 0.4 d. + 2.5 O 18. The substitution effect of a decrease in the price of peaches (while the nominal price 2 K 19. When there is a positive externality, the private benefit of other goods stays the same) describes a. the ability of consumers to buy more of everything because they are effectively richer . b. the inability of consumers to buy everything they used to because they are effectively poorer . c. the tendancy to consume more peaches because they are relatively cheaper than before. d. the tendancy to consume fewer peaches because they are relatively more expensive than before. the social benefit from consuming the good. is less than is greater than is equal to could be greater than, less than, or equal to 9.0.593 A 20. Imposing a tan'ff a. does all of the following. b. leads to higher prices for domestic consumers. c. hurts foreign producers. d. generates higher prices and revenues for domestic producers of the taxed good. J 21. The infant industry argument for protectionism holds that a. some strategic industries such as the jet fighter plane industry must be protected so that there will be adequate supplies of crucial resources in case they are needed for national defense. b. domestic producers in high-wage countries must be protected from foreign competitors in low-wage countries to level the playing field. c. domestic producers must be protected so that domestic currency does not flow to people in foreign countries. d. domestic producers will be better able to compete in world markets in the future if they are given time to achieve significant economies of scale. & 22. The economic incidence of a tax rests on a. whomever the tax is initially levied. b. the government, because they bear the opportunity cost of taxation. c. the activity being taxed. cl. whomever bears the ultimate burden of the tax. The chart below summarizes the results of a 1995 study on the demand for alcoholic beverages reported in the textbook. Use this information to answer the two questions that follow. -O.23 0.31 0.15 Price elastici of demand for beer Cross~ rice elastici of demand between beer & wine Cross-price elasticitgf demand between beer & s irits Income elastici of demand for beer Income elastici of demand for wine Income elastici of demand for s irits ()1 O . 3 1 . N) p-a Z 23. According to the chart above, which drink or drinks are inferior goods? 3. beer only b. wine only c. spirits only (i. both wine and spirits b 24. According to'the chart above, which of the following is correct characterization of the price elasticity of demand for beer? a. perfectly inelastic b. inelastic c. elastic d. unit elastic 0 25. My neighbor has a large satellite dish on his roof that blocks sunlight into my house. Since I enjoy the sun, I talk to him and I agree to pay him $200 and he switches to basic cable and takes down the satellite dish. We reached this agreement because a. the satellite dish was a positive externality b. I used bartering to convince him to switch c. The Coase Theorem applies in this case. d. property rights here are not clearly defined. ...
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This note was uploaded on 05/04/2008 for the course ECON 002 taught by Professor Mcleod,markpehlivan,ayseozg during the Spring '08 term at Pennsylvania State University, University Park.

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Micro_Midterm_Two_Spring__2008_Ver_A_-_M - Midterm Exam 2...

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