Midterm_1-1

# Midterm_1-1 - Name: _ 02/12/2010 Form 1 Exam 1 Directions:...

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Name: __________________________ 02/12/2010 Form 1 Exam 1 Directions: Please choose the best answer for each question. There is no penalty for wrong answers. Thus, if you do not know the answer, it will not hurt you to guess. 1. Suppose Professor Haider on his way to class stops at Starbucks for coffee and a scone. Being very hungry and short on time he is willing to pay up to \$6.00 for a scone. Behind him in line there is a student who enjoys scones, but would only be willing to pay \$1.00 for a scone. Suppose the price of a scone \$2.00 and that the only potential buyers for scones are Professor Haider and the student. Total consumer surplus will be: A) \$4.00 B) \$2.00 C) \$5.00 D) \$3.00 2. Consider a competitive market for Ramen noodles ( an inferior good). Suppose that consumer incomes increase. In the new equilibrium A) price will decrease and quantity will increase. B) price will increase and quantity will decrease. C) price and quantity will increase. D) price and quantity will decrease. 3. A price floor set above the equilibrium price will A) create a shortage. B) will improve efficiency. C) create a surplus. D) have no effect.

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Use the following to answer questions 4-7: Figure: Market for Milk 4. (Figure: Market for Milk) Suppose a price floor is set at P 3 . Which of the following is true? A) The deadweight loss will be c+e. B) Q 2 units will be will be sold. C) Consumer Surplus will be equal to a. D) None of the above. 5. (Figure: Market for Milk) Suppose the market is in equilibrium (there are no price or quantity controls). What is the total surplus from this market? A) a+b+c+d+e+f B) a+b+c C) c+e D) d+e+f 6. (Figure: Market for Milk) Suppose that the market is initially in equilibrium with a price of P 2 . There is an increase in production costs which shifts supply to the left resulting in a new price of P 1 . What is the change in consumer surplus as a result of this change? A) c+e. B) b+c. C) a.. D) a+b+c. Page 2
7. (Figure: Market for Milk) Suppose the government imposes a quota of Q 1 . Deadweight loss will be equal to A) a+b+c+d+e+f. B)

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## This note was uploaded on 12/05/2011 for the course ISP 209 taught by Professor Sherrill during the Fall '07 term at Michigan State University.

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Midterm_1-1 - Name: _ 02/12/2010 Form 1 Exam 1 Directions:...

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