Exam1_w09_v2_key

Exam1_w09_v2_key - Vera on 2 PART I MULTIPLE CHOICE...

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Unformatted text preview: ( Vera on 2. 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. :7 ma. a ’Nwmirmrwfikm, was“. 1) Using the figure to the right. As Rainclouds Inc. moves upwarward along its production possibilities frontier, illustrated in the figure above, the pportunity cost of an umbrella _. @decreases depends on the initial quantity produced C) increases D) remains the same 0 Umbrellas ' ’n-aa-nt asemwea. 2) Suppose we observe that both the equilibrium price of digital cameras and the equilibrium quantity of digital cameras have decreased. Which of the following events could be responsible for this? A) Technological advances in digital camera production. Consumers’ preferences changed in favor of digital cameras. The price of 35mm cameras fell. 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 40 cars. Angelina and Brad can gain from trade if Angelina changes the and Brad changes the . A) tires; oil oil; oil oil; tires 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. The effect on price is uncertain, but quantitquill 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 increase in the quantity emanded for good B, then . A) the goods are substitutes only one good is a normal good C) the goods are complements D) 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 30 percent. Mary’s demand for tickets is income ; for Mary, hockey ickets are good. elastic; a normal ) inelastic; a normal C) elastic; an inferior D) inelastic; an inferior Price (dollars per magazine) N o- o l .25 D 0 350 750 Quantin (magazines 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 C) sell more than 350, but less than 750 magazines sell exactly 750 magazines an effective price floor is introduced : an effective price ceiling is introduced C) the market price of a CD player decreases D) the population increases n the market for music CDs, the consumer surplus will definitely decrease if . 9) Suppose that a sales tax is imposed on a good, but the price producers receive does not change. Such a situation will occur if the the good is . A) demand for; perfectly elastic demand for; unit elastic C) supply of; perfectly elastic demand for; perfectly inelastic 10) All else equal, the less price elastic the supply, the is the amount of the tax on the good that the pays. A) larger; buyer B) smaller; buyer larger; seller @ both B) and C) are true .N‘ Ln 0 .N o 0 Price (dollars per bugle) 1.50 1.00 0 l 0 20 30 Quantity (bagles per hour) 11) The figure illustrates the market for bagels. If the number of bagels produced is increased from 20 » surplus is . (Mo/J) to 30 per hour and the bagel shop wants no waste, the price will be per bagel and consumer i“ U ‘S U \ ) A) $2.00, $7.50 [841ng 1 (’3 fix B) $1.00 $30.00 Com“? 0‘ 30 C) $2.00 $2.50 V 5 \ 00 L( D) $1.00$15.00 3 ‘ 5° 03*“; 12) Because most agricultural products have an inelastic demand, an unusually good harvest in an unregulated market will farm revenue. @ decrease ) not change C) unable to determine D) increase 13) If there is a crackdown on sellers of marijuana, then the market (or "street") price of marijuana will and the equilibrium quantity will A rise; increase rise; decrease ) fall; increase D) fall; 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 increase in the price of tea will _.__ the demand for coffee. positive; increase 3 ) negative; decrease C negative; increase D) 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 B) 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. Q5= P - 200 Qd= 1000 - P a) (6 points) What is the equilibrium price and quantity of housing? 4’3 Q* £400 {5 13* (200 b) (6 points) If the government imposes a price ceiling of $500, how many apartments are rented? Is there a shortage or surplus? If so, how much? 4' 0’ Q $00 . t 300 \r 7/ There is /Surplus of housing (circle one) V ’1/ Q o/surplus 100 c) (6 points) Graph the above scenario in the space below. Be sure to label the demand and supply curves, price ceiling, consumer and producer surplus dead weight loss. fimyluunlu, mmgm-Iln-I MMQEEMA EQQME fill IEII IIIII III III III IIII III Ifll A L ... O o -I .. c) (6 points) Calculate the Producer Surplus before and after the price ceiling. Are producers better or worse off? l’ (2’ PS before K I/2— "400 ' “00 +$PSafter V‘a’k I/L. 500.300 *v 7, Producers are better/.ff (circle one) I 4 2. (16 points) The government recently decided to increase farm subsidies to corn farmers. Specifically, the government will pay farmers and additional $1 per bushel of corn produced. Additionally, the Food and Drug Administration (FDA) announced in a study last week that com may help cure 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. P b) (1 pt). What effect did the increase in the subsid have on dem in the corn market? (circle one) @ Demand 1 Demand J, No Effec b) (1 pt). What effect did the increase in the subsid have on supply in the corn market? (circle one) @ upply 1 No Effect c) (1 pt). What effect did the A study have on demand in the corn market? (circle one) FD @ Demandl, No Effect c) (1 pt). What effect did the FDA study have on supply in the corn market? (circle one) @ Supply? Supplyl 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 Indeterminate I @ Quantity: Decrease Indeterminate ...
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Exam1_w09_v2_key - Vera on 2 PART I MULTIPLE CHOICE...

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