real mid 1 answer keys

# real mid 1 answer keys - Midterm 1 Fall 2010 Econ 1102-032...

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Midterm 1 Fall 2010 Econ 1102-032 Name: ____________________________ Section #:_____________(1 extra credit)_ TA Name: (1 extra credit) NO programmable calculators, NO cell phones NO notes, NO collaboration with other students Time limit: 70 minutes For full credit, graphs must be completely labeled and math work shown. If necessary, round answers to 2 decimal places or leave them in fractional form. Be sure to justify your answers clearly and precisely for full credit, even if question does not explicitly ask for justification. Follow directions carefully. The value of the problems adds up to 107 points. There is a cap of 100 on your grade. Rambling or incoherent responses will be penalized even if correct. ‘Illustrate’ means you should draw a picture. Label your graphs. Take your time. Take it easy. Don’t over think the questions and have fun.

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1102-032 Fall 2010 Midterm 1 Page 2 of 11 Part 1 (24 pts) Answer all of the following questions Must show equations and values used for full credit. 1. (2 pts) Define ‘Competitive Equilibrium’: Price and quantity s.t. Q D = Q S 2. (2 pts) State the ‘First Welfare Theorem ‘(FWT): Competitive Equilibrium (CE) is efficient 3. (2 pts) Suppose that demand for houses is Q d =30-3P and supply of houses is Q s =P-2. What is the competitive equilibrium? 30-3p=p-2 <=> 4p=32 p*=8, q*=6 4. (2 pts) Illustrate the equilibrium for this economy. Clearly label your diagram and the competitive equilibrium you calculated above. P D 5. (3 pts) What is the price elasticity of demand for house if prices decrease from \$10 to \$5? PED= 15 0 15 + 0 × 5 + 10 5 10 = 3 = 3 Where (p1,q1)=(10,0) (p2,q2)=(5,15) 6. (1 pt) Is the demand for houses elastic or inelastic? Elastic!! 8 6 2 30 10 0 D S e* cs ps
1102-032 Fall 2010 Midterm 1 Page 3 of 11 7. (3 pts) Also Illustrate and calculate consumer’s, producer’s and total surplus. For illustration, refer to the answer in (4) CS=2 × 6 × .5= 6 PS=6 × 6 × .5= 18 TS=6+18= 24 8. (2 pts) Is this total surplus in question (7) efficient? Justify your answer. Yes, it is efficient by the FWT in (2) On your diagram above, indicate which line shifts, and in which direction, under the following two scenarios: 9. (2 pts) People (Consumers) expect that house prices will go up next year. 10. (2 pts) Prices for brick and lumber which are major materials for building a house decrease. 11.

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## This note was uploaded on 10/05/2011 for the course ECON 1102 taught by Professor Someguy during the Fall '07 term at Minnesota.

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real mid 1 answer keys - Midterm 1 Fall 2010 Econ 1102-032...

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