AK_mid2 - NAME: HAKAN YILMAZKUDAY MACROECONOMIC PRINCIPLES...

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1 NAME: HAKAN YILMAZKUDAY MACROECONOMIC PRINCIPLES (HONORS) - Econ 1901 Midterm Exam Please answer all the questions. Please read all the questions very carefully. Misreading a question is not an excuse. Total available points are 100. You have 80 minutes to complete this exam. Good luck! 1. (10 Points) Consider the following pairs of goods. For which of the two goods would you expect the demand to be more price elastic? Why? Explain your answer in details. a. water or diamonds b. insulin or nasal decongestant spray c. food in general or breakfast cereal d. gasoline over the course of a week or gasoline over the course of a year e. personal computers or IBM personal computers ANS: a. Diamonds are luxuries, and water is a necessity. Therefore, diamonds have the more elastic demand. b. Insulin has no close substitutes, but decongestant spray does. Therefore, nasal decongestant spray has the more elastic demand. c. Breakfast cereal has more substitutes than does food in general. Therefore, breakfast cereal has the more elastic demand. d. The longer the time period, the more elastic demand is. Therefore, gasoline over the course of a year has the more elastic demand. e. There are more substitutes for IBM personal computers than there are for personal computers. Therefore, IBM personal computers have the more elastic demand.
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2 2. (12 Points) You own a small town movie theatre. You currently charge $5 per ticket for everyone who comes to your movies. Your friend who took an economics course in college tells you that there may be a way to increase your total revenue. Given the demand curves shown, answer the following questions. Explain your answer in details. a. What is your current total revenue for both groups? b. The elasticity of demand is more elastic in which market? c. Which market has the more inelastic demand? d. What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is this elastic or inelastic? e. What is the elasticity of demand between $5 and $2 in the children's market? Is this elastic or inelastic? f.
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This note was uploaded on 03/24/2011 for the course ECON 1901 taught by Professor Yilmazkuday during the Spring '11 term at Temple.

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AK_mid2 - NAME: HAKAN YILMAZKUDAY MACROECONOMIC PRINCIPLES...

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