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ECON207 Practice Midterm
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1.
If you put $1,000 in a savings account at an interest rate of 10 percent, how much money will you have in
one year?
A.
$1,200
B.
$909
C.
$950
D.
$1,100
2.
Which of the following is an implicit cost of going to college?
A.
Tuition
B.
Cost of books and supplies
C.
Room and board
D.
Foregone wages
3.
Suppose the interest rate is 5 percent, the expected growth rate of the firm is 2 percent, and the firm is
expected to continue forever. If current profits are $1,000, what is the value of the firm?
A.
$31,000
B.
$30,000
C.
$26,500
D.
$35,000
4.
A decrease in quantity demanded is represented by a
A. rightward shift of the demand curve.
B. leftward shift of the demand curve.
C. rightward shift of the supply curve.
D. movement downward and to the right along the demand curve.
E. movement upward and to the left along the demand curve.
5.
In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P. The full
economic price under a price ceiling of $3 is
A.
6.
B.
7.
C.
8.
D.
9.
6.
Assume that the price elasticity of demand is -2 for a certain firm's product. If the firm raises price, the
firm's managers can expect total revenue to:
A.
decrease.
B.
increase.
C.
remain constant.
D.
either increase or remain constant, depending upon the size of the price increase.
7.
The price of a good will fall if
A. supply of the good decreases.
B. demand for the good remains constant.
C. demand for the good increases.
D. supply of the good remains constant.
E. supply of the good increases.
8.
In an unregulated housing market with no rent ceiling, the rent is determined by the
A.
landlords only.
B.
government only.
C.
tenants only.
D.
landlords, tenants, and the government.
E.
market.
9. Which of the following is a correct statement about the own-price elasticity of demand?
A. Demand tends to be more elastic in the short-term than in the long-term.
B. Demand tends to be more inelastic for goods that comprise a larger share of a consumer's budget.
C. Demand tends to be more inelastic as more substitutes are available.
D. All of the responses are correct.
E. None of the response is correct.
10.Daisy and Donald live in a community with rent ceilings. Both are looking for an apartment to rent. Daisy has a
job paying $10 per hour and Donald has a job paying $8 per hour. Both value an apartment equally. What is the
most likely outcome?
A.Daisy will find the apartment.
B.Donald will find the apartment.
C.Donald will spend more time than Daisy searching for an apartment.
D.Both of them will spend the same amount of time searching for an apartment.
E.Daisy will spend more time than Donald searching for an apartment.
11.
Suppose the demand function is Qxd = 100 - 8Px + 6Py - M. If Px = $4, Py = $2, and M = $10, what is
the cross-price elasticity of good x with respect to the price of good y?
A.
0.17
B.
0.38
C.
0.21
D.
0.04
12.
A situation where a consumer says he does not know his preference ordering for bundles X and Y would
violate the property of:
A.
more is better.
B.
completeness.
C.
substitutability.
D.
complementarity.
13.
Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4
and the price of capital is $2, then in order to minimize costs the firm should use:
A.
more capital and less labor.
B.
more labor and less capital.
C.
three times more capital than labor.
D.
none of the answers are correct.
14.
Suppose the production function is Q = min{K, 2L}. How much output is produced when 4 units of labor
and 9 units of capital are employed?
A.
2
B.
4
C.
8
D.
9
15.
Which of the following is true about where a profit-maximizing monopoly will produce on a linear
demand curve when it has positive marginal costs?
A. It will produce output on the inelastic portion of the demand curve.
B. It will produce output where MR < 0.
C. It will produce output where MR = 0.
D. It will produce output on the elastic portion of the demand curve.
Numerical Question:
The demand for Wanderlust Travel Services (X) is estimated to be Qx = 22,000 - 2.5Px + 4Py - 1M + 1.5Ax,
where Ax represents the amount of advertising spent on X and the other variables have their usual interpretations.
Suppose the price of good X is $450, good Y sells for $40, the company utilizes 3,000 units of advertising, and
consumer income is $20,000.
a. Calculate the own price elasticity of demand at these values of prices, income, and advertising.
b. Is demand elastic, inelastic, or unitary elastic?
c. How will your answers to parts a and b change if the price of Y increases to $50?
Graphic Question:
While at a discount shoe store, a customer asked a clerk, "I see that your shoes are ‘buy one, get one free limit one free pair per customer.' Will you sell me one pair for half-price?" The clerk answered, "I can't do
that." Assuming the consumer has $200 to spend on shoes (X) or all other goods (Y), and that shoes cost
$100 per pair, Illustrate the consumer's opportunity set with the "buy one, get one free" deal and with a 50
percent discount, and draw the consumer’s indifferent curves to show why the consumer prefer the halfprice deal instead of buy one, get one free?
Short Answer:
In a recent speech, the premier of your province announced: “One of the biggest causes of juvenile delinquency in
this province is the high rate of unemployment among 16 to 19 year olds. The low wages offered by employers in
the province have given fewer teenagers the incentive to find summer employment. Instead of working all summer,
the way we used to, today’s teenagers slack off and cause trouble. To address this problem, I propose to raise the
province’s minimum wage by $1.50 per hour. This will give teens the proper incentive to go out and find
meaningful employment when they are not in school.” Evaluate the premier’s plan to reduce juvenile delinquency.