Mid1W07 - v1 Name February 14, 2007 First Midterm...

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Unformatted text preview: v1 Name February 14, 2007 First Midterm Examination Economics 101 Unless a question explicitly says otherwise, assume that all supply curves slope upward and all demand curves slope downward. True/False. Mark box A for True and box B for False. Each correct answer adds 2 points to your score. Each blank answer gives you 1 point. 1. Consider an economy producing both corn and cotton. A reduction in the production of corn corresponds to an inward shift of the PPF for this economy. 2. Assume gasoline and bus rides are substitute goods. It would therefore be the case that an increase in the price of gasoline would shift the demand curve for bus rides. 3. An increase in the price of hotdogs at the ballpark will lead to a decrease in demand for hotdogs. 4. A technological innovation in the production of coal is represented by a downward shift of the supply curve for coal. 5. When demand is price inelastic, the price elasticity of demand will be less than one in absolute value. decreases with a decrease in supply. 6. If demand is perfectly elastic, then consumers' expenditure 7. The result of a price floor in the market for good X is always to increase the price of good X. Page # 8. In the case of a binding price floor, consumer surplus is defined as the difference between quantity supplied and quantity demanded at that price. 9. A consumer is maximizing utility when the marginal utilities are equal for all of the goods consumed. 10. A binding price ceiling reduces both consumer and producer surplus. Multiple Choice. Mark the box corresponding to the best answer. Each correct answer adds 5 points to your score. Each blank answer gives you 1 point. 11. ___ Consider the following graph showing the PPF for Taco Giant. Currently, Taco Giant is producing 200 nachos and 160 taco shells. What is the per unit opportunity cost of increasing nacho production from its current level to 400? Taco Shells 160 200 400 Nachos (a) 65 taco shells per nacho (b) 3.077 taco shells per nacho (c) it can only be determined if we know the price of each good (d) 0.325 taco shells per nacho (e) 0.325 nachos per taco shell 12. Page # The market for pomegranate juice shown in the graph below is currently in equilibrium. Suppose that the FDA announces that pomegranate juice helps prevent many types of cancer, leading to an increase in demand of 30 units. At the same time, harvest. P ($) 7 6 5 4 3 2 1 (a) $5 and (b) $6 and (c) $6 and (d) $7 and (e) $3 and 40 25 55 4O 4O units units units units units _-__.. _-__'.____— —————I—————— I I I I I. I I I I |. I I I I l. l I I I ___—L————-L—-——J————-I———— _____ a hurricane destroys 30 units of the pomegranate The new equilibrium price and quantity will be: Page # if the government what is the resulting tax In the market for microwaves shown below, imposes a $20 per unit tax, revenue? 13. _—————————l——————- _ _ _ _ _ _ _ . _ _ J _ — _ _ _ _ _ _ _ L _ _ _ _ _ _ _ _ _ _ 125 150 100 ))))) ((((( Page # l4. ___ The graph below represents the market for leafy greens in Ann Arbor. The city of Ann Arbor wants to encourage residents to eat leafy greens. The city grants a subsidy for leafy greens of $0.50 per pound. As a result of the subsidy, equilibrium consumption will increase by __ and the new price consumers pay will be P (EB/lb) ; I . E s 1.25 - it 1 I .75~r .5 .2577 M}.-W i D 25 50 75 100 125 Leafy greens (lbs) (a) 0 lbs; $0.25 (b) 25 lbs; $0.50 (c) 0 lbs; $1.25 (d) 50 lbs; $0.25 (e) 25 lbs; $1.00 15. 16. Page # Suppose the government believes the market for cigarettes is represented by D1 and S in the graph below. The government decides to impose a $2 per pack tax on cigarettes. After imposing the tax, the government realizes the demand curve is instead represented by D2. How do the results of the tax change if the demand curve is D2 and not D1? Price ($) The The The The The (DQOU'QJ In an effort to reduce could impose a price the price of healthcare will be revenue will be floor; (a) (b) ceiling; (c) ceiling; (d) floor; (e) lower; lower; pay falls by get rises by pay rises by get falls by the price of D1 D2 I I I I I I I I I ,_ I I I I l. I I I I I. I I I I Quantity UnHHons) tax revenue is smaller. price consumers price producers price consumers price producers more . more . more . more . healthcare, the government If this price control is binding, and the producer’s than when there is no priCe control. higher lower lower; higher higher; lower ceiling; higher; higher 6 17. The graph below illustrates the market for coffee beans. Page # Suppose the government introduces a price ceiling to reduce the consumption of coffee beans to 8 million tons per year. After the price ceiling, producer surplus dollars. P (Dollars per ton) :40." f 30‘ ' decrease; decrease; increase; decrease; increase; 120 million 40 15 45 90 million million million million 0( will __ by __ Nfifibhtgneperyeafi Page # 18. Suppose there are two types of consumers; Type A and Type B. There are 100 Type A consumers and 50 Type B consumers. The table below shows the demand and supply schedules for hamburgers. What is the equilibrium price of a hamburger? Demand for Supply of Hamburgers Hamburgers TypeA TypeB 4 6 4 5 3 4 2 3 2 (a) $1 (b) $2 (C) $3 (d) $4 (e) $5 Page # 19. The graph below depicts the effect of a tax on good X. Which of the following areas represents the decrease in consumer surplus due to the tax? P1 /'S+mx 0 Q Q. Q (a) B+C+D (b) D+G (C) B+E+C+F (d) A+B+C (e) A+B+E 20. ___ Suppose the demand curve for beer is perfectly inelastic. When the supply is more price elastic, the deadweight loss due to a tax is __ and the loss in supplier revenue due to a tax is __ compared to when supply is more price inelastic. (a) smaller; larger (b) larger; smaller (c) smaller; the same (d) the same; larger (e) the same; the same Page # 10 21. ___ In the initial equilibrium in the market for CDs, 80 CDs are sold at a price of $12 each. After imposing a subsidy the price consumers pay falls to $8. The demand for CBS is unit elastic between $12 and $8 (using the midpoint formula). The quantity of CDs demanded at a price of $8 is ? (a) 120 (b) 90 (c) 100 (d) 110 (e) 130 22. ___ Consider the PPF for an economy shown below. At point A on the PPF, the sacrifice of Butter necessary to produce another Gun is __ and the sacrifice of Guns necessary to produce another unit of Butter is , compared to at point B. Butter (a) larger; smaller (b) smaller; larger (c) larger; larger (d) smaller; smaller (e) larger; the same Page # ll 23. Consider the costs to society of increasing the level of protection from terrorism, that is, security in the economy. The line in the graph below represents which of the following costs? ......J Costs ($) .' a I J V4,”...w Level of Protection (a) the total cost to society as a function of the level of protection from terrorism (b) the cost to society of the loss of civil liberties as a function of the level of protection from terrorism (c) the cost to society of a terrorist attack as a function of the level of protection from terrorism (d) the cost to society of implementing measures to prevent a terrorist attack (e) the cost to society of reduced production as a function of the level of protection from terrorism Page # 12 24. ___ Consider a PPF representing the tradeoff between your gradepoint (measured numerically to two decimal points) and the hours of sleep that you get per day. Suppose the per unit opportunity cost of your gradepoint is increasing. The "increasing" aspect of the opportunity cost means that: (a) in order to get a higher gradepoint you must sacrifice some sleep. (b) if you get better study habits, both your gradepoint and your hours of sleep could increase. (c) you cannot increase both your gradepoint and the hours of sleep that you get. (d) the higher your gradepoint is, the larger the sacrifice of sleep required to raise your GPA by .01. (e) more than one of the above is correct 25. Consider the market for ethanol. An increase in the number of producers results in: (a) an increase in both the demand and the supply of ethanol. (b) an increase in the demand and a decrease in the supply of ethanol. (c) an increase in the quantity demanded and an increase in the supply of ethanol. (d) a decrease in the demand and an increase in the quantity supplied of ethanol. (e) a decrease in both the demand and the supply of ethanol. 26. Suppose the supply of corn is perfectly inelastic. At the same time that more farmers plant corn, new ethanol producers require corn for ethanol production. Which of the following must be the result of these two simultaneous shifts in the market for corn? an increase in the equilibrium quantity of corn sold a decrease in the equilibrium quantity of corn sold an increase in the equilibrium price of corn a decrease in the equilibrium price of corn more than one of the above (DO—.069) 27. 28. Page # 13 When we discussed the impact on equilibrium price and quantity from a decrease in supply in lecture, the example that we used was: (a) potato farmers destroying crops to increase their revenue. (b) California frosts damaging orange crops. (c) hotel chains downsizing to increase rates. (d) beer producers changing their recipe as a result of higher barley prices. (e) lumber producers debating the wisdom of increased preservation. Consider the following data for the market demand and supply curves for gasoline, where price is dollars and quantity is measured in gallons. How large a tax (per gallon) would exactly reduce equilibrium consumption to 26 gallons? Quantity Quantity Demanded Supplied (a) $8 (b) $2 (c) $6 (d) $4 (e) $14 29. 30. Page A local hotdog stand increases the price of a hotdog by 10%. a result of this price increase, 12% fewer hotdogs are sold. Compare this hotdog seller's revenue before and after the price increase. After the price increase, revenue: #14 As (a) definitely increases. (b) definitely decreases. (c) definitely stays the same. (d) could increase or decrease. (e) could stay the same or increase. In the case of perfectly inelastic supply, a per unit subsidy: (a) leads to a decrease in pD of exactly the amount of the subsidy. (b) leads to an increase in p5 of exactly the amount of the subsidy. (c) leads to an decrease in ps and an increase in pD, with the exact amount depending on the price elasticity of demand. (d) leads to an increase in ps and a decrease in pD, with the exact amount depending on the price elasticity of demand. (e) leads to no change in either pD or p9v 31. Consider the two linear demand curves below, D1 and D2. Page # 15 At point A in the graph, which of the following comparisons is correct? Price (33) 20 A D1 20 Quantity (a) On D1 and on D2 demand is price inelastic. (b) On D1 demand is unit elastic and on D2 demand is price inelastic. (c) On D1 demand is price elastic and on D2 demand is price inelastic. (d) On D1 and on D2 demand is price elastic. (e) On D1 demand is price inelastic and on D2 demand is price elastic. First Midterm Examination Economics 101 February 14, 2007 Answer Key — Version 1 Number Answer 1 False 2 True 3 False 4 True 5 True 6 True 7 False 8 False 9 False 10 False 11 D 12 D 13 E l4 B 15 D 16 C 17 D 18 D 19 A 20 E 21 A 22 B 23 C 24 D 25 C 26 A 27 A 28 C 29 B 30 B 31 D ...
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This note was uploaded on 08/09/2008 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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Mid1W07 - v1 Name February 14, 2007 First Midterm...

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