Mid1V1F10 - Name: _ First Midterm Examination Economics 101...

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Version 1 Page 1 Name: ___________________________________ First Midterm Examination Economics 101 October 13, 2010 This exam has 33 questions. Unless a question explicitly says otherwise, assume that all demand curves slope downward, 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. In the presence of a negative externality in the market for a good, a tax reduces both consumer and producer surplus in that market. 2. A company in a competitive market can increase its producer surplus by selling below the equilibrium price. 3. If there are risks associated with drilling for oil in the Gulf, economic analysis suggests drilling should be completely suspended until all of the risks are eliminated. 4. If demand is price inelastic, then a decrease in its price causes total expenditure on that good to decrease. 5. A PPF has a negative slope because of tradeoffs in the production process. 6. A competitive company’s producer surplus is maximized when it produces the level of output at which P=MC. 7. Mary is willing and able to pay at most $5 for her first bagel, $3 for her second bagel, and $1 for her third bagel. As she consumes more bagels, her total benefit from bagel consumption declines.
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Version 1 Page 2 8. If the marginal external benefit of a flu vaccine is always $20, then the marginal social benefit curve is drawn by shifting the marginal private benefit curve to the right by $20. 9. A technological advance in the production of cotton causes an increase in the supply of cotton. 10. When there is an increase in demand for a product, supply increases to adjust to a new equilibrium. 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. Consider the following demand and supply schedules for insulin pills, a life-saving drug. If the government decides to impose a $5 tax on each pill, then what is resulting price consumers pay for a pill? A) $25 B) $22.50 C) $30 D) $20 E) $15
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Version 1 Page 3 12. At the same time the government requires higher interest rates and down payments on mortgages to buy a house, the government builds new houses. If these two events happening at the same time cause the equilibrium quantity of houses purchased to decrease, then you know: A) the effect of the change in demand on the equilibrium price dominates the effect of the change in supply. B) the effect of the change in supply on the equilibrium quantity dominates the effect of the change in demand. C) the effect of the change in demand on the equilibrium quantity dominates the effect of the change in supply. D)
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Mid1V1F10 - Name: _ First Midterm Examination Economics 101...

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