ECN100 MT2 F09 Key Parman

ECN100 MT2 F09 Key Parman - Ecn 100 - Intermediate...

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Ecn 100 - Intermediate Microeconomic Theory University of California - Davis November 13, 2009 Instructor: John Parman Midterm 2 - Solutions You have until 11:50am to complete this exam. Be certain to put your name, id number and section on both the exam and your scantron sheet and fill in test form A on the scantron. Answer all multiple choice questions on your scantron sheet. Choose the single best answer for each question; if you fill in multiple answers for a question you will be marked wrong. Answer the long answer questions directly on the exam. You must show your work for full credit. Answers may be left as fractions. Please place a box around final answers when appropriate. Good luck! Name: ID Number: Section: SECTION I: MULTIPLE CHOICE (60 points) 1. Suppose that pizza is an ordinary good for both Alex and Betsy. If Alex’s demand for pizza is more inelastic than Betsy’s, a one percent increase in the price of pizza: (a) Will lead to a greater percentage decrease in pizza purchased for Alex than for Betsy. (b) Will lead to a greater percentage decrease in pizza purchased for Betsy than for Alex. (c) Will lead to an increase in pizza purchased for both Alex and Betsy. (d) Will have the same affect on the pizza purchased by both Alex and Betsy. (b) If Betsy has more elastic demand, then the quantity she purchases is more responsive to price. Her quantity will drop by more than Alex’s does. 2. Suppose that the market for candy has a negatively sloped linear demand curve and a posi- tively sloped linear supply curve. A quantity tax placed on consumers will: (a) Generate a deadweight loss at least as large as the revenue generated from the tax. (b) Generate a deadweight loss smaller than the revenue generated from the tax. (c) Generate a deadweight loss equal to the revenue generated from the tax. (d) Not enough information. (d) At small levels of the tax, the deadweight loss will likely be smaller than the tax revenue. However, the deadweight loss will continue to increase as the tax goes up while the tax revenue will eventually start to fall. At some point, deadweight loss will be greater than the tax revenue. 3. Suppose that computers are made using machines and workers and the production technology is convex and monotonic. If 4 workers and 8 machines can produce 10 computers and 8 workers and 4 machines can also produce 10 computers, then 6 workers and 7 machines can produce: (a) Exactly 10 computers. (b) At least 10 computers. (c) Less than 10 computers. (d) Not enough information.
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2 Midterm 2 - Solutions (b) The fact that the production technology is convex tells us that 6 workers and 6 machines will produce at least 10 computers. Because the technology is also monotonic, increasing the number of machines from 6 to 7 will either leave output unchanged or increase it. 4. The demand for wheat bread is likely to be:
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This note was uploaded on 10/22/2010 for the course ECN 100 taught by Professor Parman during the Fall '08 term at UC Davis.

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ECN100 MT2 F09 Key Parman - Ecn 100 - Intermediate...

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