Midterm 2 Sample 2 Answers

Midterm 2 Sample 2 Answers - PRINCIPLES OF MICROECONOMICS...

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PRINCIPLES OF MICROECONOMICS Midterm Exam #2: Sample #2 Answers Duration: 2 Hours Non-programmable calculators only Answer all questions on this test paper INSTRUCTIONS: This examination consists of TWO PARTS for a total of 100 marks Part I 4 analytic/graphical questions for a total of 40% Part II 5 multiple choice questions worth 2 marks each for a total of 10%. Wrong answers will not be deducted from right in grading Part II. All questions are to be answered in the spaces provided in this question paper booklet Do not remove any pages or add any pages. No additional paper is supplied. The blank backs of pages may be used for rough work. Show your work where applicable. YOU MUST USE PEN INSTEAD OF PENCIL TO BE ELIGIBLE FOR REMARKING Print your name and student number clearly on the front of the exam and on any loose pages. Student Name: _______________________________________________________ (Family Name) (Given Name) Student Number : ___________________________________ There are 6 pages to the exam. - 1/6 -
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Principles of Economics: Midterm Test #2, Sample #2 Answers Part I Place your answers (and work where necessary) in the space provided. Clearly label all axes, curves, and points. 1. Elasticity (10 marks) a) What is the percentage change in price if quantity demanded decreases by 12% when price elasticity of demand is – 1.25 (1.25 in absolute value)? (1 mark) 1 mark: % change P= +9.6% from something like -1.25 = -12/%changeP (don’t worry about positive) b) What is the point elasticity of demand for Shimp if an incease in Price from $2.50/kilo to $2.70/kilo decreases Quantity demanded from 5,200 kilos to 4,550 kilos? (2 marks)? 1 mark: correct set up of either the numerator or denominator of equation = -12.5%/8% or something like (5200-4550)/5200/(2.50-2.70)/2.50 1 mark: correct answer = - 1.5625 (or 1.5625) c) What is the arc elasticity of demand for Shrimp if a decrease in Price from $2.70/kilo to $2.10/kilo increases Quantity demanded from 4,550 kilos to 5,450 kilos? (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 = something like+18% /-25% or (4,550-5,450)/5,000/(2.70 – 2.10)/2.40 1 mark: = -0.72 (or 0.72) d) Suppose that the typical consumer’s demand function for gasoline was P = 2.4 – 0.006q. What is point elasticity at P = 0.90? (2 marks) 1 mark: Q = 250 from (2.4 – 0.9)/0.006 1 mark: elasticity = -1/0.006 * 0.9/250 = -0.6 e) Suppose that P = 0.90 when P = 2.4 – 0.006q as in part c). If you wanted to increase total revenue (total sales) for this commodity, would you decrease, increase
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Midterm 2 Sample 2 Answers - PRINCIPLES OF MICROECONOMICS...

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