ECO2023 - Fall 2008 Midterm 1

ECO2023 Fall 2008 - Professor M Rush ECO 2023 FALL 2008 MIDTERM 1 Read all instructions on this page On the scantron bubble sheet please enter 1

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Unformatted text preview: Professor: M. Rush ECO 2023 FALL 2008 MIDTERM 1 Read all instructions on this page On the scantron bubble sheet, please enter: 1. Your name and initials 2. Your UF ID number 3. Special Code: 11 4. Test code: A 5. Sign your name on the back of the bubble sheet. This test is governed by UF’s academic honesty code. It is intended to have 36 multiple choice questions. Please check to be sure your copy has all 36. If you do not answer a question, you will not get credit for that question. For each question, choose the best answer. ♦ The next is important: Unless you are specifically told otherwise, on this test do not assume that demand or supply is either perfectly elastic or perfectly inelastic. Do not ask questions of me or the TA’s; in the interest of fairness I have instructed them not to answer any questions during the exam. I have become increasingly concerned that some students are at a real disadvantage because they are unwilling to ask questions during the exam while others ask a lot of questions. Hence, to level the playing field, I have decided to eliminate all questions during the test. I don’t like this policy, but it seems the fairest policy. TURN OFF ALL CELL PHONES AND OTHER COMMUNICATION DEVICES You may not use a cell phone, a Blackberry, or any other sort of device that allows for communication as your calculator. You will have 60 minutes to complete the exam and bubble in all your answers. This time includes completing the extra credit question if you choose to answer it. When the TAs say that time is up, you must hand in your exam. We will not give extra time to finish bubbling in the answers, so be sure you are done when the 60 minutes are up. Of course, you may hand in your test at any time before the 60 minutes are up. An answer key will be posted on the class web page at about 10 PM this evening. The test scores will be on the Exam 1 Feedback class web page within a few days. Check if the test code and UF ID number you bubbled‐in are correct now. Also check to be sure your name is correct—do it now. I have heard a rumor that the ability to correctly record these had been mastered by a few students at FSU as well as a couple of accounting and journalism students. I will investigate these rumors but in the meanwhile, ECO 2023 MIDTERM 1 FALL 2008 CHECK YOUR TEST CODE AND UF ID NUMBER. IF YOU GET EITHER OF THESE WRONG, YOU WILL LOSE 5 POINTS!!!! After the scores are posted, if you do not understand why one answer is correct and another is wrong, email me. After the scores are posted, if you think your posted score is incorrect, email the grader at [email protected] and ask him to check an answer. (Do not email me; I will not respond nor will I forward your email.) You have one week after the curved score is posted to request a grade check. After a week, the score will not be changed. If the web reports what you bubbled in for each question and you ask the grader to check an answer because you believe you bubbled in something other that what is reported and the reported answer on the web is correct, you will lose 1 additional question. EXTRA CREDIT QUESTION INSTRUCTIONS There is an extra credit question on the last page. You can earn up to 3 points added to this exam’s test score. If you choose to answer the extra credit question, be sure to follow all the instructions on the page with the extra credit question and provide all the required information. DO IT LEGIBLY IF WE CANNOT READ YOUR NAME AND/OR UF ID, YOU WILL NOT GET ANY EXTRA CREDIT! When you hand in your test, you must hand in the extra credit page. You may copy your answer to the extra credit question in the space below. I will announce in class when the extra credit questions are graded and will post the grades on the class page but it will take a two or three weeks. Do not email me, the grader, or the email address for questions about when the extra credit will graded. I will announce this in class. THERE IS NO APPEAL ABOUT THE GRADE—IT IS WHAT IT IS. 2 ECO 2023 MIDTERM 1 FALL 2008 1) Purses are a normal good. If people’s incomes decrease, then the equilibrium price of a purse ____ and the equilibrium quantity ____. A) rises; increases B) rises; decreases C) falls; increases D) falls; decreases 2) (This question is partially out‐of‐the‐book.) Suppose the supply of lakefront property is perfectly inelastic. If the demand for this property increases, then the equilibrium price of an acre of the lakefront land ____ and the equilibrium quantity ____. A) rises; increases B) does not change; decreases C) falls; decreases D) rises; does not change E) rises; decreases 3) The demand for corn is inelastic. Suppose a drought decreases the supply of corn so that the price of corn rises. As a result the total revenue received by corn farmers ____. A) increases B) does not change C) decreases D) None of the above answers is correct because information is needed about the change in the equilibrium quantity. 4) All points on the PPF itself are production efficient. Only one point on the PPF itself is allocatively efficient. A) Both sentences are correct. B) The first sentence is correct; the second sentence is incorrect. C) The first sentence is incorrect; the second sentence is correct. D) Both sentences are incorrect 5) A nation produces gumballs and machines. At one point on the PPF the nation can produce 100 machines and 90 gumballs. At another point it can produce 140 machines and 80 gumballs. Between these two points, what is the opportunity cost of gaining 1 gumball? A) 1.0 machine per gumball B) 0.25 gumball per machine C) 1.1 machine per gumball D) 4.0 machines per gumball E) 0.9 machine per gumball 3 ECO 2023 MIDTERM 1 FALL 2008 6) When the amount of pizza produced is the allocatively efficient quantity, then the total surplus from pizza is ____ and the deadweight loss is ____. A) maximized; equal to zero B) maximized; maximized C) equal to zero; equal to zero D) More information about the price is needed to answer the question. 7) The most any consumer is willing to pay for another purse is $60. Currently the price of a purse is $40, and the lowest price for which any producer will sell another purse is $10. The total surplus to society of another purse is A) $60. B) $30. C) $20. D) $10 E) $50. 8) Suppose the number of home builders decreases. As a result the equilibrium price of a new home ____ and the equilibrium quantity ____. A) rises; increases B) rises; decreases C) falls; increases D) falls; decreases 9) Corn is used to produce ethanol. Suppose the number of companies producing ethanol increases. As a result the equilibrium price of a bushel of corn ____ and the equilibrium quantity ____. A) falls; decreases B) falls; increases C) falls; does not change D) rises; decreases E) rises; increases 4 ECO 2023 MIDTERM 1 FALL 2008 10) In the above figure, what is the total amount of tax revenue collected by the government? A) $600 million B) $800 million C) $100 million D) $200 million E) $400 million 11) In the above figure, what is the amount of deadweight loss after the tax is imposed? A) $0 B) $400 million C) $200 million D) $100 million E) It is impossible to determine. 12) If the demand curve for a good is horizontal, then if a tax is levied on this product, the incidence of the tax is A) split between the buyers and the sellers but not evenly so that either the buyer or the seller pays more. B) split evenly between the buyers and the sellers. C) paid entirely by buyers. D) paid entirely by sellers. 5 ECO 2023 MIDTERM 1 FALL 2008 13) Older people use more pharmaceutical drugs than do younger people. Suppose the population is growing older. Also suppose that the cost of producing drugs rises. As a result, the equilibrium price of drugs ____ and the equilibrium quantity ____. A) rises; probably changes but more information is needed to determine if it increases, decreases, or does not change B) falls; increases C) rises; does not change D) does not change; probably changes but more information is needed to determine if it increases, decreases, or does not change E) rises; decreases 14) Older people use more pharmaceutical drugs than do younger people. Suppose the population is growing older. Also suppose that the cost of producing drugs rises. Finally suppose the effect from the change in cost is larger than the effect from the aging of the population. As a result, the equilibrium price of drugs ____ and the equilibrium quantity ____. A) rises; probably changes but more information is needed to determine if it increases, decreases, or does not change B) falls; increases C) rises; does not change D) does not change; probably changes but more information is needed to determine if it increases, decreases, or does not change E) rises; decreases Point A B C D E Production chocolate bars 0 10 20 30 40 Production cans of cola 100 90 70 40 0 15) The above table shows production points on Sweet‐Tooth Land’s production possibilities frontier. The production of 15 chocolate bars and 70 cans of cola is A) not attainable. B) production efficient but not on the PPF itself. C) production efficient and on the PPF itself. D) inefficient. E) None of the above answers is correct because more information is needed to answer the question. 6 ECO 2023 MIDTERM 1 FALL 2008 16) Suppose Sony is considering lowering the price of its LCD televisions. Sony believes that if does so, its total revenue from sales of LCD televisions will increase. Based on this, Sony believes that A) the demand for its LCD televisions is elastic B) the demand for its LCD televisions is unit elastic. C) the demand for its LCD televisions is inelastic. D) the income elasticity of demand for its LCD televisions is negative. E) the income elasticity of demand for its LCD televisions is positive. 17) If both producers and consumers come to believe that a good’s price will rise in the future, then at the present, the equilibrium price ____ A) does not change. B) rises. C) falls. D) cannot be predicted. 18) Suppose that the government believes the price of water is too high and therefore imposes a price ceiling. The price ceiling depicted in the above figure results in i. a shortage of 50 thousand gallons of water. ii. producer surplus decreasing from $24 thousand to $6 thousand. iii. a deadweight loss of $16 thousand. A) only i is correct. B) only ii is correct. C) only iii is correct. D) Both i and ii are correct E) Both i and iii are correct. 7 ECO 2023 MIDTERM 1 FALL 2008 19) The principle of increasing opportunity cost leads to A) a production possibilities frontier (PPF) that is bowed inward toward the origin. B) a production possibilities frontier (PPF) that is bowed outward away from the origin. C) an inward shift of the production possibilities frontier (PPF). D) an outward shift of the production possibilities frontier (PPF). 20) When an economy produces more computers and fewer typewriters, it is directly answering the ____ question. A) “what” B) “how” C) “why” D) “for whom” 21) Pizza and soda are complements for consumers and soda falls in price. As a result the equilibrium price of a pizza ____ and the equilibrium quantity ____. A) rises; decreases B) rises; increases C) falls; decreases D) falls; increases 22) Blue jeans are a normal good and people’s incomes rise. As a result, the equilibrium price of a pair of blue jeans ___ and the equilibrium quantity ____. A) rises; decreases B) rises; increases C) falls; decreases D) falls; increases 23) Consider the market for hot dogs. If the government imposes a tax on hot dogs, A) there will be a loss of consumer surplus. B) there will be a gain of producer surplus. C) deadweight loss will be minimized. D) the marginal social cost and marginal social benefit of hot dogs both decrease. E) None of the above answers is correct 8 ECO 2023 MIDTERM 1 FALL 2008 24) A point inside a production possibilities frontier A) could indicate that resources are misallocated. B) is more efficient than a point on the production possibilities frontier. C) reflects the fact that more technology needs to be developed to fully employ all resources. D) implies that too much labor and not enough capital is being used. 25) Suppose the equilibrium wage is $10 per hour. A minimum wage is a ____ and it will change employment if it is set at ____. A) price floor; $12 per hour B) price floor; $8 per hour C) price ceiling; $8 per hour D) price ceiling; $12 per hour 26) (This is an out‐of‐the‐book question) Which of the following is an example in which “the big tradeoff” can occur? A) the government redistributes income from the rich to the poor B) Ford increases the price of a pickup truck C) a basketball player signs a $5 million contract D) a college lowers tuition Price (dollars per unit) 10 8 6 4 2 D 10 20 30 40 50 60 Quantity (units) 27) The figure above illustrates a linear demand curve. In the range from $4 to $2, the price elasticity of demand is equal to A) 0.20. B) 0.43. C) 2.33. D) 5.00. E) None of the above answers is correct. 9 ECO 2023 MIDTERM 1 FALL 2008 28) A price floor set above the equilibrium price results in A) a surplus. B) a shortage. C) a rightward shift of the demand curve. D) a rightward shift of the supply curve. E) None of the above answers is correct. 29) In general, as the consumption of a good or service increases, the marginal social benefit from consuming that good or service A) increases. B) decreases. C) stays the same. D) at first increases and then decreases. 30) The cost of producing turnips rises. The larger the price elasticity of demand, the A) greater the increase in the price of a turnip. B) smaller the increase in the price of a turnip. C) smaller the decrease in the quantity of turnips consumed. D) None of the above answers are correct. 31) The price elasticity of demand for pizza is 1.5. A 6 percent increase in the price of pizza decreases the quantity demanded by ____ percent. A) 4.0 B) 9.0 C) 4.5 D) 1.5 E) None of the above answers is correct. 32) The wage paid to automobile assembly workers rises. As a result the equilibrium price of an automobile ____ and the equilibrium quantity ____. A) rises; increases B) rises; decreases C) falls; increases D) falls; decreases 10 ECO 2023 MIDTERM 1 FALL 2008 Price (dollars per pizza) S Price (dollars per pizza) S D2 D1 D1 D2 Quantity (pizzas per month) Figure A Price (dollars per pizza) Quantity (pizzas per month) Figure B S2 S1 Price (dollars per pizza) S1 S2 D D Quantity (pizzas per month) Figure C Quantity (pizzas per month) Figure D 33) The above figure shows the market for pizza. The price of the cheese used to make pizza rises. Which panel shows the effect of the rise in the price of cheese? A) Figure A. B) Figure B. C) Figure C. D) Figure D 34) (This is an out‐of‐the book question.) If the government outlaws the sale of tacos, then the equilibrium price of tacos will ____ and the equilibrium quantity will ____. A) rise; decrease B) not change; decrease C) fall; decrease D) fall; not change E) probably change but in an ambiguous direction; decrease 11 ECO 2023 MIDTERM 1 FALL 2008 35) After the scores are posted, if you have a question about your test score, email the grader at [email protected] and the director is so stupid (HINT: Be SURE to answer this question because you’ll get credit for any answer.) A) he climbed over a barbed wire fence to see what was on the other side. B) he takes 2 hours to watch 60 minutes. C) he tried to drown a fish. 12 ECO 2023 MIDTERM 1 FALL 2008 EXTRA CREDIT QUESTION _____________________________ (Name) PRINT your name and UF ID in the spaces above. YOU MUST WRITE ___________________________ (UF ID) YOUR NAME AND UF ID LEGIBLY TO RECEIVE CREDIT FOR THIS QUESTION. When you have answered the question, hand in this page and ONLY THIS PAGE. Keep the rest of the test to help you study for the final exam. 1. Draw a diagram showing the market for hot dogs. Show the effect of a decrease in income if hot dogs are an inferior good. 13 ...
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This note was uploaded on 09/25/2010 for the course ENC 2023 taught by Professor Rush during the Summer '10 term at University of Florida.

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