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EC101A1Midterm1version2

EC101A1Midterm1version2 - Boston University Version 0 2 EC...

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Unformatted text preview: Boston University Version 0 2 EC 101 Introductory Microeconomic Analysis Professor Todd Idson Midterm #1, Spring 2009 Instructions: Mark on your scantron the letter of the choice that best completes the statement or answers the question. Please fill in your ID and NAME information on the scantron (be sure to write this information in the boxes AND fill in the bubbles). Also (VERY IMPORTANT) be sure to mark the Version of the exam (listed in the upper right-hand portion of the first page) - please use 01 through 04 and be sure to also fill in the bubbles. There are 50 questions on the exam, each question counting for 2 points. You may keep the exam and use it as scrap paper. I. If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the a. demand for marijuana is inelastic. b. supply for marijuana is inelastic. c. demand for marijuana is elastic. d. supply for marijuana is elastic. Figure 6-8 price ofgasoline P3 81 P2 price ceiling Pl Q3 Q1 quantity of gasoline 2. Refer to Figure 6-8. When the price ceiling applies in this market and the supply curve for gasoline shifts from $1 to $2, a. a surplus will occur at the new market price of P2. b. the market price will increase to P3. 0. the market price will stay at P]. d. a shortage will occur at the new market price of P2. 3. Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth, a. Alice's income elasticity of demand for banana splits is 0. Alice's demand for banana splits is perfectly inelastic. Alice's price elasticity of demand for banana splits is 1. None of the above answers is correct. 9-9.0“ 4. Suppose that when the price of corn is $2 per bushel, farmers can sell 10 million bushels. When the price of corn is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? a. The demand for corn is price inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers. b. The demand for corn is price elastic, and so an increase in the price of corn will increase the total revenue of corn farmers. c. The demand for corn is income inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers. d. The demand for corn is income elastic, and so an increase in the price of corn will increase the total revenue of corn farmers. Figure 5-2 Quantity 5. Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand? a. D2 b. D1 c. D3 d. All of the above are equally elastic. Table 5-2 The following table shows a portion of the demand schedule for a particular good at various levels of income. Quantity Demanded Quantity Demanded Quantity Demanded Price Income $5 000 Income = $7,500 Income = $10,000 4 — __ _— .— _ — . Refer to Table 5-2. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000? 2 4 10 12 a. 0.41 b. 0.00 c. 1.00 d. 2.45 . Refer to Table 5-2. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20? a. 1.80 b. 1.33 c. 0.56 d. 0.75 Which of the following statements about the effects of rent control is correct? a. The short-run effect of rent control is a relatively small shortage of apartments, and the long-run effect of rent control is a larger shortage of apartments. b. The effects of rent control are very noticeable to the public in the short run because the primary effects of rent control occur very quickly. c. The short-run effect of rent control is a surplus of apartments, and the long—run effect of rent control is a shortage of apartments. (1. In the long run, rent control leads to a shortage of apartments and an improvement in the quality of available apartments. 10. ll. 12. 13. Figure 6-9 ”NW-RMOQOONO 10 20 30 40 so 60 7o 80 quantity Refer to Figure 6-9. The burden of the tax on buyers is a. $2 per unit. b. $3 per unit. 0. $1.50 per unit. d. $1 per unit. Refer to Figure 6-9. The burden of the tax on sellers is a. $1.50 per unit. b. $1 per unit. c. $3 per unit. d. $2 per unit. Refer to Figure 6-9. Suppose the same supply and demand curves apply and a tax of the same amount per unit as shown here is imposed. Now, however, the sellers of the good, rather than the buyers, are required to pay the tax to the government. Now, relative to the case depicted in the figure, a. the burden on buyers will be larger and the burden on sellers will be smaller. b. the burden on buyers will be the same and the burden on sellers will be the same. 0. . the burden on buyers will be smaller and the burden on sellers will be larger. (1. The relative burdens in the two cases cannot be determined without further information. Refer to Figure 6-9. How much tax revenue does this tax generate for the government? a. $150 b. $180 0. $250 d. $300 What would happen to the equilibrium price and quantity of coffee if the wages of coffee—bean pickers fell and the price of tea fell? a. Quantity would rise and the effect on price would be ambiguous. b. Quantity would fall and the effect on price would be ambiguous. c. Price would fall and the effect on quantity would be ambiguous. (1. Price would rise and the effect on quantity would be ambiguous. 14. Suppose that quantity demanded rises by 10% as a result of a 15% decrease in price. The price elasticity of demand for this good is a. elastic and equal to 0.67. b. inelastic and equal to 0.67. c. inelastic and equal to 1.50. d elastic and equal to 1.50. Figure 2-4 IOLZVlel’S 10 20 30 4O 50 60 70 80 90100111- brushes 15. Refer to Figure 2-4. Efficient production is represented by which point(s)? a. A, B, C b. A, B c. C d. A, B, D 16. Refer to Figure 2-4. The opportunity cost of this economy moving from point A to point B is a. 10 toothbrushes. b. 10 toasters. c. 0 toasters. d. 20 toasters. 17. Long lines a. and discrimination according to seller bias are both inefficient rationing mechanisms because the good does not necessarily go to the buyer who values it most highly. b. are an inefficient rationing mechanism because they waste buyers’ time, and discrimination according to seller bias is an inefficient rationing mechanism because the good does not necessarily go to the buyer who values it most highly. c. and discrimination according to seller bias are both inefficient rationing mechanisms because they both waste buyers’ time. d. are an inefficient rationing mechanism because the good does not necessarily go to the buyer who values it most highly, and discrimination according to seller bias is an inefficient rationing mechanism because it wastes buyers’ time. 18. 19. 20. The market for diamond rings is closely linked to the market for high-quality diamonds. If a large quantity of high-quality diamonds enters the market, then a. the demand curve for diamond rings will shift right, which will create a surplus at the current price. That will decrease price, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity. b. the supply curve for diamond rings will shift right, which will create a surplus at the current price. That will decrease price, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity. 0. the supply curve for diamond rings will shift right, which will create a shortage at the current price. That will increase price, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity. d. the demand curve for diamond rings will shift right, which will create a shortage at the current price. That will increase price, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity. Which of the following could be the cross-price elasticity of demand for two goods that are complements? a. 1.4 b. 0 c. -l .3 d. 0.2 Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $5 0 per ticket to $30 per ticket, then a. the demand curve will shift upward by $20, and the price paid by buyers will decrease by less than $20. b. the supply curve will shift downward by $20, and the effective price received by sellers will increase by $20. 0. the demand curve will shift upward by $20, and the price paid by buyers will decrease by $20. d. the supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20. 21. 22. 23. 24. 25. Table 3-5 Assume that England and Spain can switch between producing cheese and producing bread at a constant rate. Number of Units to Make 1 Unit of Produced in 40 Hours “"- 5 Refer to Table 3-5. England has a comparative advantage in the production of a. neither good and Spain has a comparative advantage in the production of both goods. b. bread and Spain has a comparative advantage in the production of cheese. c. cheese and Spain has a comparative advantage in the production of bread. d. both goods and Spain has a comparative advantage in the production of neither good. Refer to Table 3-5. At which of the following prices would both England and Spain gain from trade with each other? a. 16 units of bread for 24 units of cheese b. 16 units of bread for 48 units of cheese c. 16 units of bread for 16 units of cheese (1. England and Spain could not both gain from trade with each other at any price. Refer to Table 3-5. England should export a. cheese and import bread. b. neither good and import both goods. c. bread and import cheese. d. both goods and import neither good. Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent of their land, then a. wheat farmers would experience an increase in their total revenue. b. the demand for wheat would decrease. c. consumers of wheat would buy more wheat. (1. Wheat farmers would suffer a reduction in their total revenue. When we move upward and to the left along a linear, downward—sloping demand curve, price elasticity of demand a. always becomes smaller. b. always becomes larger. c. first becomes larger, then smaller. d. first becomes smaller, then larger. 26. The demand for salt is inelastic and the supply of salt is elastic. The demand for caviar is elastic and the supply of caviar is inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt and a tax of $1 per pound is levied on the buyers of caviar. We would expect that most of the burden of these taxes will fall on a. buyers of salt and the sellers of caviar. b. buyers of salt and the buyers of caviar. c. sellers of salt and the sellers of caviar. 01. sellers of salt and the buyers of‘caviar. 27. If a price ceiling is not binding, then a. the equilibrium price is below the price ceiling. b. it has no legal enforcement mechanism. c. the equilibrium price is above the price ceiling. d. More than one of the above is correct. Figure 4-8 45 40 35 __T_—l""r"' 30 25 20 IS 10 [00 200 300 400 500 600 700 800 quantig: 28. Refer to Figure 4-8. At a price of $35, a. there would be a surplus of 600 units. b. there would be a surplus of 200 units. 0. there would be a surplus of 400 units. (1. there would be a shortage of 400 units. 29. 30. 31. 32. Table 4-8 — An Increase in Supply A Decrease in Supply An Increase in Demand _-_ A Decrease in Demand ——_ Refer to Table 4—8. Which space represents an increase in equilibrium price and an indeterminate change in equilibrium quantity? a. D b. B c. C d. A Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because a. buyers tend to be much more sensitive to a change in price when given more time to react. b. buyers will have substantially more real income over a ten-year period. c. the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline. d. buyers tend to be much less sensitive to a change in price when given more time to react. When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, a. the price elasticity of demand for good A is 0.67, and an increase in price will result in a decrease in total revenue for good A. b. the price elasticity of demand for good A is 0.67, and an increase in price will result in an increase in total revenue for good A. c. the price elasticity of demand for good A is 1.50, and an increase in price will result in a decrease in total revenue for good A. - d. the price elasticity of demand for good A is 1.50, and an increase in price will result in an increase in total revenue for good A. You are in charge of the local city-owned golf course. You need to increase the revenue generated by the golf course in order to meet expenses. The mayor advises you to decrease the price of a round of golf. The city manager recommends increasing the price of a round of golf. You realize that a. both the mayor and the city manager think that demand is inelastic. b. the mayor thinks demand is inelastic, and the city manager thinks demand is elastic. c. the mayor thinks demand is elastic, and the city manager thinks demand is inelastic. d. both the mayor and the city manager think that demand is elastic. F igure 4-14 Panel (a) Panel (b) Q6 06' quart/fly Q6' Q6 quantity Panel (c) Panel (d) Qe Qe' quantity QC, Qe qmmlily 33. Refer to Figure 4-14. Which of the four panels represents the market for cars as a result of the adoption of new technology on assembly lines? a. Panel (b) b. Panel (a) c. Panel (c) d. Panel (d) 34. Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation? a. Consumers have experienced an increase in income and beef-production technology has improved. b. The demand curve for beef must be positively sloped. c. New medical evidence has been released that indicates a negative correlation between a person’s beef consumption and his or her longevity. d. The price of chicken has risen and the price of steak sauce has fallen. 10 35. 36. 37. 38. Table 6-2 Price Quantity Quantity Demanded Supplied IE.— 75 50 150 225 __ _.- Refer to Table 6-2. Which of the following statements is correct? a. A price ceiling set at $5 will be binding and will result in a shortage of 50 units. b. A price ceiling set at $5 will be binding and will result in a shortage of 75 units. 0. A price ceiling set at $5 will be binding and will result in a shortage of 125 units. d. A price ceiling set at $5 will not be binding. 300 375 99 What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages? a. Quantity will rise and the effect on price is ambiguous. b. Price will rise and the effect on quantity is ambiguous. c. Price will fall and the effect on quantity is ambiguous. d. Quantity will fall and the effect on price is ambiguous. Suppose that 50 candy bars are demanded at a particular price. If the price of candy bars rises from that price by 4 percent, the number of candy bars demanded falls to 46. Using the point elasticity of demand approach (i.e., not the midpoint method) to calculate the price elasticity of demand, it follows that the a. demand for candy bars in this price range is elastic. b. demand for candy bars in this price range is inelastic. c. demand for candy bars in this price range is unit elastic. d. price elasticity of demand for candy bars in this price range is 0. Suppose buyers of computers and printers regard those two goods as complements. Then an increase in the price of computers will cause a. a decrease in the supply of printers and a decrease in the quantity demanded of printers. b. a decrease in the demand for printers and a decrease in the quantity supplied of printers. c. an increase in the equilibrium price of printers and a decrease in the equilibrium quantity of printers. d. a decrease in the equilibrium price of printers and an increase in the equilibrium quantity of printers. 11 39. 40. 41. 42. Figure 2-10 batteries bagels Refer to Figure 2-10. Which of the following events would explain the shift of the production possibilities frontier from A to B? a. The economy experienced a technological advance in the production of batteries. b. The economy’s citizens developed an enhanced taste for batteries. c. More labor became available in the economy. d. More capital became available in the economy. You lose your job and, as a result, you buy fewer romance novels. This shows that you consider romance novels to be a(n) a. complementary good. b. inferior good. 0. luxury good. d. normal good. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a a. 40 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 0.4 percent decrease in the quantity demanded. The demand for Werthers brand candy is likely a. elastic because there are many close substitutes for Werthers. b. inelastic because it is usually eaten quickly, making the relevant time horizon short. 0. elastic because Werthers are regarded as a necessity by many people. d. elastic because candy is expensive relative to other snacks. 12 43. Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle. Which of the following statements is correct? a. The effective price received by sellers is $0.20 per bottle less than it was before the tax. b. Eighty percent of the burden of the tax falls on buyers. 0. This tax causes the supply curve for liquor to shift upward by $1.00 at each quantity of hquon d. All of the above are correct. Scenario 5-4 Suppose the government is concerned about firms in the United States importing illegal caviar. As a result, the government increases border patrols to catch illegal shipments. US. Customs agents perform DNA testing on the caviar to determine if it comes from endangered species of fish. If so, the government destroys the caviar. 44. Refer to Scenario 5—4. What would we expect to observe in the caviar market? a. Total revenues to caviar firms will increase if the demand for caviar is inelastic. b. Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is inelastic. c. Equilibrium prices and quantities will increase. d. All of the above are correct. 5 Quantity Quantity Demanded Supplied Table 4- Price 45. Refer to Table 4—5. If the price were $4, a a. surplus of 25 units would exist and price would tend to fall. b. shortage of 25 units would exist and price would tend to rise. 0. surplus of 15 units would exist and price would tend to fall. (1. shortage of 40 units would exist and price would tend to rise. 46. Refer to Table 4—5. The equilibrium price and quantity, respectively, are a. $12 and 30. b. $2 and 50. 0. $6 and 30. d. $6 and 60. 13 47. 48. 49. 50. Which of the following would likely increase in response to a decrease in the price of ironing boards? a. the quantity of irons demanded at ...
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