MD_1_Econ_1_W06_Solutions

MD_1_Econ_1_W06_Solutions - DARTMOUTH COLLEGE ECONOMICS 1:...

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D ARTMOUTH C OLLEGE P ROFESSOR J ESSE G IUMMO E CONOMICS 1: P RICE S YSTEM W INTER 2006 A NSWERS : M IDTERM E XAM #1 W INTER 2006 P ART I: 10 M ULTIPLE -C HOICE Q UESTIONS (40 POINTS ) 1) Rising energy prices have increased the cost of manufacturing steel. What would we expect would be the outcome in the steel market? A) There would be a decrease in the quantity of steel supplied and demand for steel would decrease. B) There would be a decrease in the supply of steel and the quantity demanded would decrease. C) The price would rise causing the quantity supplied to fall. D) The price would fall causing the quantity demanded to increase. Answer B: Higher input costs cause a decrease in supply shifting the supply curve inward. There is no change in demand. The quantity demanded decreases as we move up the demand curve. 2) If demand for good X increases as the price of good Y increases, then good X is A) an inferior good B) a normal good C) unrelated to good Y D) a substitute of good Y E) a complement of good Y Answer D: The price of a good and demand for a substitute are directly related. 3) Which of the following would cause demand for a good to decrease? A) An increase in the price of the good. B) An increase in income. C) A decrease in number of consumers of the good. D) An increase in the price of a close substitute. Answer C: The number of consumers is a determinant of demand. Answer B was also accepted that demand could decrease when income increased if the good was inferior (although we could not say it would decrease if income increased)
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D ARTMOUTH C OLLEGE P ROFESSOR J ESSE G IUMMO E CONOMICS 1: P RICE S YSTEM W INTER 2006 4) The article “Why Costs and Benefits Must Influence Health and Safety Choices” refers 90/10 phenomenon” with respect to the cost of risk reduction. This phenomenon can be explained by: A) It is important to reduce the last 10% of the risk because they are responsible for 90% of the damages. B) The marginal cost of risk reduction rapidly increases for the last 10% of risk reduction. C) Over 90% of the health related costs are created by the activities of less than 10% of the population. D) Over 90% the resources devoted to the reduction of risk are spent on less than 10% of the high risk activities. Answer B: The 90/10 Phenomenon is the phenomenon that society spends 90% of its resources to achieve last 10% of risk reduction benefit. The reason that it is increasing expensive to achieve the last 10% of risk reduction benefits is that the marginal cost of risk reduction is rapidly increasing for th last 10% of the risk reduction. 5) Given the following demand and supply schedule for a good, what would likely be the outcome if the price were initially $5? Quantity Demanded
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This note was uploaded on 10/30/2008 for the course ECON 001 taught by Professor Zarnowski during the Spring '08 term at Dartmouth.

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MD_1_Econ_1_W06_Solutions - DARTMOUTH COLLEGE ECONOMICS 1:...

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