Download ECON 101 KONG Midterm 2 CMP Review Session

ECON 101 KONG
Midterm 2
CMP Review Solutions
Presented by Benji Huang
Based on the discussions in class, argue whether a price
ceiling on rent is going to help the tenants. (2 points)
With the absence of search activity and black market,
the consumer surplus is going to be higher when the
government imposed an effective rent ceiling. However,
in a market with an effective price ceiling, search
activity and black market are likely to happen and are
going to reduce the consumer surplus to a level which
could be lower than the market equilibrium. So renters
could be worse off.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
Consider the market for coffees. Suppose the market demand
and supply curves are as given below. Price is the price per unit
in cents. Quantity refers to units of coffee per month.
Demand: P = 60 – 4Qd
Supply: P = 2Qs
a. Compute the equilibrium price and quantity. (1 point)
Q* = 10, P* = 20
b. Now suppose the government imposes a tax of 6 cents per unit
of coffee on the buyers. What is the new equilibrium price and
quantity? (2 points) Q = 9, P = 18 but consumer pays 18+6 = 24
c. Compute the (per unit) tax burden on the consumer and
producer. (1 point)
Tax burden on consumer = 24-20 = 4
Tax burden on firm = 20-18 = 2
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
An effective rent ceiling
A) increases consumer surplus.
B) increases producer surplus.
C) creates a deadweight loss.
D) decreases the supply of housing.
E) increases the supply of housing.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
If the price of a good is not affected by a tax, then
A) supply is perfectly elastic.
B) demand is perfectly elastic.
C) the elasticity of supply is greater than elasticity of
demand.
D) demand is unit elastic.
E) supply is unit elastic.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
The burden of the tax on buyers is greater the more
(1)elastic is demand
(2)inelastic is demand
(3)elastic is supply
(4) inelastic is supply
A) (2) only
B) (1) and (3)
C) (1) and (4)
D) (2) and (3)
E) (2) and (4)
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
Suppose your province raises the provincial sales tax
by 1 percent. You predict that the prices of taxed
goods (including the tax) will
A) rise by 1 percent.
B) rise by more than 1 percent.
C) rise by an amount between zero and 1 percent.
D) not change at all.
E) fall by an amount between zero and 1 percent.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
The seller pays most of a tax if demand is relatively
elastic because
A) the buyer can easily substitute to other markets.
B) the seller can easily substitute to other markets.
C) the government forces the seller to bear the burden
of the tax.
D) there is a black market for this good.
E) the seller cannot easily substitute to other goods.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
Marc bought a new car last year for $10,000. He can
now sell the car for $8,500. To buy this year's model of
the same car he would have to pay $11,000. What is
the one-year amount of economic depreciation?
A) $2,500
B) $1,500
C) $1,000
D) $10,000
E) $3,500
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
What is the maximum value of the HerfindahlHirschman Index?
A) 1
B) 1,000,000
C) 100,000
D) 10,000
E) 1,000
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
Table above gives the supply and demand schedules for teenage labour in
Genoa City. In an unregulated market,
A) there is no teenage unemployment and the wage rate is $6 per hour.
B) there is no teenage unemployment and the wage rate is $5 per hour.
C) teenage unemployment is 400 hours and the wage rate is $6 per hour.
D) teenage unemployment is 400 hours and the wage rate is $5 per hour.
E) the minimum wage is $7 per hour.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
Table above gives the supply and demand schedules for teenage
labour in Genoa City. Suppose the Genoa City Council sets a
minimum wage of $6 per hour. Teenage unemployment is
A) 800 hours.
B) 600 hours.
C) 400 hours.
D) 200 hours.
E) zero hours.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
If MC is rising then ATC must be
A) rising.
B) falling.
C) above MC.
D) below MC.
E) none of the above.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
Firm A can produce a unit of output with 10 hours
of labour and 5 units of capital. Firm B can
produce a unit of output with 5 hours of labour and
10 units of capital. Firm C can produce a unit of
output with 10 hours of labour and 10 units of
capital. If the prices of labour and material are $10
and $5, respectively which firm is technologically
efficient?
A) A
B) B
C) C
D) A and B
E) A and C
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
Marginal product
A) is always positive.
B) is the slope of the total product curve.
C) is always zero.
D) lies between zero and one.
E) equals average product minus total product.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
When the marginal product of labour is less than the
average product of labour,
A) the average product of labour is increasing.
B) the marginal product of labour is increasing.
C) the total product curve is negatively sloped.
D) the firm is experiencing diminishing marginal returns.
E) None of the above.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
Which one of the following statements is false?
A) The average total cost curve and average variable cost
curve are U-shaped.
B) The gap between the average total cost curve and the
average variable cost curve equals marginal cost.
C) The gap between the average total cost curve and the
average variable cost curve narrows as output increases.
D) The marginal cost curve intersects the average variable
cost curve at minimum average variable cost.
E) The marginal cost curve intersects the average total cost
curve at minimum average total cost.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
As soon as diminishing returns set in, a firm's
A) marginal product increases.
B) average fixed cost decreases.
C) marginal cost decreases.
D) marginal cost increases.
E) total cost decreases.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong
Explain why, for a given level of output, the average
total cost in the short run cannot be lower than the
average total costs in the long run. (2 points)
Since capital is fixed in the short run, the firm can
only increase output by getting more workers even
though it might be less cost effective. But in the long
run, everything is variable. If the firm substitutes
some of the workers with capital, then the only reason
for the firm to do so is the cost will be lower by
switching to capital. If not, the firm can always use
the same production method in the short run.
Question taken from 2013 sample midterm 2
Reproduced with permission from Wai Ching Kong