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midterm2

# midterm2 - YORK UNIVERSITY DEPARTMENT OF ECONOMICS...

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YORK UNIVERSITY DEPARTMENT OF ECONOMICS ECON1000B:Principles of Microeconomics Midterm Test #2 ; November 5, 2010 Time Allowed : 60 Minutes This total marks in this test are 50. The test is divided into two parts: Part I - problem format - is worth 40 marks (80% of the total marks of 50) Part II - Explanations- is worth 10 marks (20% of the total mark of 50) Show your work where applicable . YOU MUST USE PEN INSTEAD OF PENCIL Print your name and student number clearly on the front of the exam and on any loose pages. Name: _______________________________________ (Family Name) (Given Name) Student # : ______________________ There are 7 pages to the exam. - 1/7 -

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ECON1000B. Midterm Test #2: November 5, 2010 Part I: Place your answers (and work where necessary) in the space provided. Clearly label all axes, curves, and points. 1. Elasticity (12 marks) a) What is the percentage change in price that causes quantity to increase by 6% when price elasticity of demand is – 0.75 (0.75 in absolute value)? (1 mark) 1 mark = -8% (must be negative) from something like –0.75 = 6%/% P b) What is the point elasticity of demand (to two decimals) for Bus Tickets if an increase in Price from \$72 to \$87 per Ticket decreases Quantity Demanded from 1,600 to 1,000 Passengers? (2 marks)? 1 mark: correct set up of either the numerator or denominator of equation = something like (-600)/1,600)/(15/72) or – 37.5%/20.83% 1 mark: correct answer = - 1.8 c) What is the arc elasticity of demand (to two decimals) for Bus Tickets if a decrease in Price from \$79.5 to \$64.5 per Ticket increases Quantity Demanded from 1,300 to 1,900 Passengers? (2 marks)? 1 mark: set up either numerator or denominator of equation correctly, i.e., understand that it is a ratio of change to average = @ (+600/1,600)/(15/72) or – 37.5%/20.83% 1 mark: = -1.8 d) Suppose that the Demand function for Bus Tickets is P = 112 – 0.025Q. What is point elasticity at P = \$72 to two decimals? (2 marks) 1 mark: Q = 1,600 from \$72 = 112 – 0.025Q => Q = (112 – 72)/0.025 1 mark: elasticity = - 1.8 e) What is Total Revenue from Bus Tickets when the change in total revenue is zero and Demand is P = 112 – 0.025Q? (2 marks) 1 mark: recognition that P = 56 or Q = 2,240 1 mark: TR = \$125,440 from 56 *2,240 f) Is Demand inelastic, unit elastic, or elastic between Po an P 1 in the diagram to the right? Briefly explain (No mark without an explanation). (1 mark) Po Qo P 1 Q 1 1 mark: inelastic because %ChangeP > %Change Q or to right of midpoint of linear demand g) What type of good is commodity X if its income elasticity is –1.25? (1 mark) 1 mark: inferior good - 2/7 -
ECON1000B. Midterm Test #2: November 5, 2010 2. Per Unit Tax: Diagrammatic (8 marks)

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midterm2 - YORK UNIVERSITY DEPARTMENT OF ECONOMICS...

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