Midterm Examination 1 _ECN 1A , Fall 2010_KEY

# Midterm Examination 1 _ECN 1A , Fall 2010_KEY - Midterm...

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Page 1 of 10 Midterm Examination 1, Fall, 2010, B. Modjtahedi Question 1 Which of the following is the correct economic definition of scarcity? A. People do not have enough money to buy all the goods they want to buy. B. Firms do not have enough time to produce all the goods people want to buy. C. Scarcity happens occasionally when the amount of total production falls short of what people want to buy. D. Scarcity means human material wants are unlimited but resources to satisfy them are limited. E. None of the above. Question 2 Californians are thinking of producing more of their electricity using renewable sources of energy such as wind, sun, or wood. This is an example of answering which of the economic questions? A. What? B. How? C. For whom? D. All of the above. E. None of the above. Question 3 Your city charges each household a fixed monthly fee of \$50 for water regardless of how much water it consumes, plus a price of \$1 per gallon of water. According to the theory of rational economic behavior, how many gallons of water would a typical household consume in a month under this scheme? A. It would consume up to the point where the marginal benefit of the last gallon consumed equals \$50. B. It would consume up to the point where the marginal benefit of the last gallon consumed equals \$51. C. It would consume up to the point where the marginal benefit of the last gallon consumed equals \$49. D. It would consume up to the point where the marginal benefit of the last gallon consumed equals \$1. E. None of the above. Question 4 A man in a country is suffering from a kidney stone. A surgeon in the same country has the expertise to operate on this man. According to the criteria we have discussed in the class, which of the following statements is true about the current situation for sure ? A. Currently an underproduction of this medical service is taking place, because the marginal benefit of this surgery to the patient far exceeds its marginal cost. B. Currently an underproduction of this medical service is taking place, because the surgery will be a Pareto improvement. C. Currently an underproduction of this medical service is taking place, because a Pareto improvement is not possible. D. We cannot judge about Pareto improvement in this case without further information. E. None of the above.

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Page 2 of 10 Question 5 A used car dealer has spent \$600 to buy a used car and \$300 to fix it. He has also spent \$100 worth of time and effort to find the seller of this used car. A customer is offering \$1,100 for the car. Another customer is offering \$1,200. However, the used car dealer is thinking of selling the car to his brother in law. What is the marginal cost of selling the car to the brother in law? A. \$900. B. \$1,000. C. \$1,100 D. \$1,200 E. None of the above. Question 6 You move into a newly built house. You need to pay a one-time connection fee of \$100 to your local electric utility company to connect your house to the grid. After that you need to pay \$50 per month of service charge plus \$0.01 per kilowatt hour of electricity consumed. With respect to your
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Midterm Examination 1 _ECN 1A , Fall 2010_KEY - Midterm...

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