Exam1_w09_v1_key

Exam1_w09_v1_key - \ Vet/‘30 o n I PART I - MULTIPLE...

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Unformatted text preview: \ Vet/‘30 o n I PART I - MULTIPLE CHOICE PROBLEMS Read each of the following questions carefully and circle the letter of the one best answer. Note that diagrams are often helpful in determining the correct answer. mnyawmm cw; 2m: Raincoat: 1) Using the figure to the right. As Rainclouds Inc. moves downward along its production possibilities frontier, illustrated in the figure above, the opportunity cost of an umbrella . A) decreases (3 depends on the initial quantity produced C increases remains the same 0 Umbrellas 'Wfl‘kflln 2) Suppose we observe that both the equilibrium price of digital cameras and the equilibrium quantity of digital cameras have increased. Which of the following events could be responsible for this? Technological advances in digital camera production. Consumers’ preferences changed in favor of digital cameras. The price of 35mm cameras fell. D) Workers who make digital cameras received a pay raise. 3) In one day, Brad can change the oil on 20 cars or the tires on 30 cars. In one day, Angelina can change the oil on 30 cars or the tires on 45 cars. Angelina and Brad can gain from trade if Angelina changes the and Brad changes the . A) tires; oil B) oil; oil - oil; tires W They can’t gain from trade 4) All grapefruit juice producers have decided to blend tangerine juice with the grapefruit juice. This blend results in a higher cost of production, but studies show that consumers prefer the taste of the blend to straight grapefruit juice. What will happen to the equilibrium price and quantity of the new “blended” grapefruit juice? A) Price and quantity will both increase. B) Price will decrease but quantity will increase. C) The effect on price is uncertain, but quantity will increase. @Price will increase, but the effect on quantity is uncertain. 5) If a 5 percent increase in the price of good A leads to a 4 percent decrease in the quantity demanded for good B, then __. A) the goods are substitutes only one good is a normal good @ the goods are complements both goods are normal goods 6) As Mary’s income increases by 20 percent, her demand for tickets to National Hockey League games increases by 10 percent. Mary’s demand for tickets is income _; for Mary, hockey tickets are __ good. : elastic; a normal 5) inelastic; a normal C) elastic; an inferior D) inelastic; an inferior E S" i 2.50 ,3 E 1.25 D o 350 750 Quantity (magazine: per day) 7) The figure illustrates the demand for magazines. Newsagents will maximize their total revenue when they _. A) sell less than 350 magazines sell exactly 350 magazines sell more than 350, but less than 750 magazines D) sell exactly 750 magazines 8) In the market for music CDs, the producer surplus will definitely decrease if . A) an effective price floor is introduced an effective price ceiling is introduced the market price of a CD player decreases D) the population increases 9) Suppose that a sales tax is imposed on a good, but the price consumers pay does not change. Such a situation will occur if the the good is _. @ demand for; perfectly elastic ) demand for; unit elastic C) supply of; perfectly elastic D) demand for; perfectly inelastic 10) All else equal, the more price elastic the supply, the is the amount of the tax on the good that the __ pays. @larger; buyer ) smaller; buyer C) larger; seller D) both B) and C) are true .N Ln 0 Price (dollars per bugle) N 8 l .50 1.00 O l 0 20 30 Quantity (bugles per hour) 11) The figure illustrates the market for bagels. If the number of bagels produced is cut from 20 to 10 an hour, the price will be per bagel and consumer surplus is A) $2.00, $7.50 B $1.00 $2.50 @ $2.00 $2.50 ) $1.00 $5.00 12) Because most agricultural products have an inelastic demand, a poor harvest in an unregulated market will __ farm revenue. A) decrease B) not change C unable to determine increase 13) If there is a crackdown on buyers of marijuana, then the market (or "street") price of marijuana will __ and the equilibrium quantity will A) rise; increase B) rise; decrease C fall; increase all; decrease 14) If tea and coffee are substitutes, the cross price elasticity of coffee with respect to the price of tea will be _ and a decrease in the price of tea will __ the demand for coffee. A) positive; increase B) negative; decrease negative; increase @ positive; decrease 15) Apple juice and applesauce are substitutes in production. If the price of apple juice rises, then the price of apple sauce and the quantity of apple sauce . ‘ @ rises; falls ) falls; rises C) is indeterminate; rises D) is indeterminate; falls PART II - SHORT ANSWER QUESTIONS 1. (24 points) Use the following monthly supply and demand equations for rental apartments in Davis. Q: P - 200 Qd= 1000 — P a) (6 points) What is the equilibrium price and quantity of housing? 4/7/ Q* .«[00 b) (6 points) If the government imposes a price ceiling of $400, how many apartments are rented? Is there a shortage or surplus? If so, how much? c) (6 points) Graph the above scenario in the space below. Be sure to label the demand and supply curves, price ceiling, consumer and producer surplus and dead weight loss. c) (6 points) Calculate the Consumer Surplus before and after the price ceiling. Are consumers better or worse off? *ZCSberore 30/: 15400-400 +WCSafterflO_/€ Q/l' 100.200) + (#00 .100) .‘r 2/ Consumers arorse off (circle one) 2. (16 points) The government recently decided to eliminate farm subsidies to corn farmers. Specifically, the government will no longer pay farmers $1 per bushel of corn produced. Additionally, the Food and Drug Administration (FDA) announced in a study last week that com may cause cancer. Assume farmers can store corn for long periods of time. a) (6 points) Graph this situation in the space below. Be sure to clearly label the entire graph and show any changes in supply and demand. *0: @m‘ b) (1 pt). What effect did the elimination of the subsidy have on demand in the corn market? (circle one) @ Demandt Demandl, ($0 Effect > b) (1 pt). What effect did the elimination of the subsidy have on supply in the corn market? (circle one) @ Supply 1‘ No Effect c) (1 pt). What effect did the FDA study have on demand in the corn market? (circle one) 60 Demandt No Effect c) (1 pt). What effect did the FDA study have on supply in the corn market? (circle one) @ Supply? Suppl“ d) (6 pts). What is the overall effect of these two scenarios on the market for corn (circle one response for price and one for quantity) @ Price: Increase Decrease @ Quantity: Increase Indeterminate ...
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Exam1_w09_v1_key - \ Vet/‘30 o n I PART I - MULTIPLE...

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