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110w10mid1key - B righam Young University Department o f E...

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Brigham Young University Department of Economics Economics 110 - Principles of Economics Professor Kerk Phillips - Winter Semester 2010 Midterm #1 2111 (Thu) - 2il2 (Fri) Testing Center This test is short answer and short essay. Write your answers in the space provided on this exam. The exam is closed book and closed notes. There is no time limit and you may use calculators; either those provided by the testing center or your own as long as it is not a programmable calculator. Read all questions carefully before answering. Section I Short Answer (5 points each) I. What is an income inferior good? What is its elasticity? An income inferior good is a good that is demanded less by a consumer when the consumer's income increases. The income elasticity of an income inferior good is always negative. 2. Explain the concept of a Giffen good. How often do we observe them? A Giffen good is a good that is demanded more by consumers as its own price increases. That is, a Giffen good has a positive elasticity of demand and defies the law of demand. They are observed very rarely, if ever. 3. Conceptually, what is consumer surplus? Illustrate it on demand curve diagram. Consumer surplus is the difference between what consumers are willing to pay to obtain a good and what consumers actually pay (the price) to obtain it. P I':>... ./ ...s t ~",SLJ~r $'Vf'plvs 4. List three things that would shift a supply curve to the right. -A decrease in the prevailing wage. -A decrease in the cost of other production inputs. -An improvement in technology. -Expectations of a drop in price. -Entrance of other suppliers into the market 5. Use diagrams to illustrate a perfectly elastic demand curve and a perfectly inelastic supply curve. ~ r fe~ d-I, r~~ (Arlff: S'vffly p i> --}) , -- rD}(' t> QIf Q. fer-~cH~ /",shc -1 Q Q del<"'l(/V'\J
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6. \\'hat is an indifference curve? Indifference curves are plotted on graphs that depict potential consumption bundles of two different goods, where the quantities of the two goods being consumed are measured respectively along the x and y axes.
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