Mid2W10 - Name: _ Second Midterm Examination Economics 101...

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Version 1 Page 1 Name: __________________________ Second Midterm Examination Economics 101 March 17, 2010 This exam has 33 questions. Unless a question explicitly says otherwise, assume that all demand curves slope downward and all supply curves slope upward, and there are no externalities. True/False. Mark box A for True and box B for False. Each correct answer adds 2 points to your score. Each blank answer gives you 1 point. 1. If a firm's total cost in the long run to produce a quantity of 5 is $500 and the total cost in the long run to produce a quantity of 10 is $1000, then the firm has constant returns to scale over this range of output. 2. If a firm's fixed cost increases, then its breakeven price increases. 3. A firm's marginal cost curve is inversely related to its average cost curve. 4. When a firm's profit is positive, its producer surplus must be positive. 5. Most economists argue that utility cannot be measured and therefore cannot be maximized. 6. If the market price is less than a firm's average fixed cost, the firm should shut down.
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Version 1 Page 2 7. In the market for prohibited drugs, economists model this prohibition as a decrease in supply. 8. In a long-run equilibrium, for an industry that exhibits external diseconomies of scale, a permanent decrease in demand will result in lower average total cost for producers. 9. Using efficiency as a guide to pollution abatement policy, pollution should be reduced from its current level whenever it causes external costs. 10. A price ceiling is defined as binding if it causes the equilibrium quantity to increase.
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Version 1 Page 3 Multiple Choice. Mark the box corresponding to the best answer. Each correct answer adds 5 points to your score. Each blank answer gives you 1 point. 11. In the market for oranges, shown below, the government decides to set a price floor of $1.50 per pound of oranges and then purchase all of the resulting surplus. The government throws the oranges it buys into the ocean. What is the change in consumer surplus resulting from this price floor? S D P 1 0.50 0 1.50 A Quantity of oranges B E J C F D I GH LM K A) Loss of B + C + D B) Loss of B + C C) Gain of B + C + E + F + H D) Gain of B + E E) Loss of I 12. Torrey purchases both shoes and chocolate chip cookie dough with her monthly earnings. She gets more utility from the last pair of shoes consumed than from the last package of cookie dough consumed, implying that: (Note: fractional units can be consumed.) A) A pair of shoes is more expensive than a package of cookie dough. B) Her marginal utility from shoes is not diminishing. C) She buys more shoes than cookie dough. D) She spends more on shoes than on cookie dough. E) More than one of the above must be correct.
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Version 1 Page 4 13. Which of the following is not a reason some economists and policymakers would argue for price controls?
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This note was uploaded on 01/24/2012 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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Mid2W10 - Name: _ Second Midterm Examination Economics 101...

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