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ECO 304K: INTRODUCTION TO MICROECONOMICS Unique # 33645 Fall 2009 Prof. Wiseman Answers to Practice Questions for Midterm 1 1. The demand curve is vertical, the supply curve is horizontal. Their intersection show the equilibrium price and quantity. 2. Elastic: luxuries, goods with good substitutes, goods that take up a large part of the budget. Inelastic: necessities, goods with lots of complements, goods that take up a small part of the budget. Also, demand tends to be more elastic in the long run than in the short run. 3. Quantity sold falls. The price buyers pay rises. The price sellers keep may rise, fall, or stay the same. 4. 10% 1.72 = 17.2%. 20% / 1.72 = 11.6%. 5. 32% / 50% = 0.64 < 1, so supply is inelastic. 6. Demand is inelastic. 7. P* = \$14, Q* = 4. Buyers’ profits = \$32, sellers’ profits = \$8. 8. Buyers’ price = \$18, sellers’ price = \$13, quantity = 3. Buyers’ share is 80%, sellers’ share is 20%. Buyers’ profits = \$18, sellers’ profits = \$4.50, and government revenue = \$15.

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Unformatted text preview: Deadweight loss = \$2.50. 9. Same as Question 8. 10. .80 11. Inelastic 12. lower than last year 13. P=\$2, Q=6 14. P=\$5, Q=3 15. \$12 16. \$7 17. P=\$5, Q=3 18. \$7 19. P=\$18, Q=20 20. price falls by \$4. 21. Q falls 10% 2 = 20%, so revenue falls by about 10%. 22. Q rises 10% 1/2 = 5%, so revenue falls by about 5%. 23. The price of helmets rises, and the quantity falls. The price and quantity of insurance both rise. 24. \$40 25. 3 26. Ed's demand for labor curve looks like a stairway with horizontal line segments one unit long at heights of \$400, \$300, \$200, \$60, \$40, and \$20. 27. \$12 28. shortage of 28 units. 29. 25% 30. It falls by about 20%. 31. Price rises, the effect on quantity is indeterminate. 32. No change. 33. It doesn’t matter. 34. Surplus. 35. 75% 36. \$12,500 37. \$25,000 38. b 39. 0.5 40. d 41. b 42. P* = \$20,100, Q* = 1000 43. No effect. 44. It falls by \$5.1 million....
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