Download S2017 Makeup Prelim 1

873995295
Econ 1110-INTRODUCTORY MICROECONOMICS
MAKEUP Wissink-S2017-March 8-PRELIM#1
PRINT YOUR NAME: _______________________________________________________________
YOUR NetId:______________________ YOUR STUDENT NUMBER:________________________________
INSTRUCTIONS and EXAM TAKING POLICY:
There are two sections in this exam. Answer all questions.
Part I: 16 multiple choice questions @ 3.5 points each
Part II: 2 problem @ 22 points each
TOTAL POINTS = 100, TOTAL TIME = 90 minutes.
NO QUESTIONS CAN BE ASKED DURING THE EXAM ABOUT EXAM CONTENT: If you
need to use the restroom, or you need a pencil or scratch paper, or some other supply that we might have,
raise your hand and wait for the proctor to come to you. Only one person can be out of the examination
room at a time, and the proctor will hold onto your exam papers while you are out at the restroom.
NO CELL PHONES, NO IPODS OR SIMILAR DEVICES WITH CALCULATOR “APPS”.
NO GRAPHING CALCULATORS.
NO BOOKS. NO NOTES. NO HELP SHEETS.
NO TALKING TO EACH OTHER.
Check the SECTION you regularly attend (that is where you will pick up your prelim):
One more time, please…
PRINT YOUR NAME: ____________________________________
YOUR NetId: _____________
YOUR STUDENT NUMBER: ____________________________
GRADING
MC (out 56 points)=___________________
Q1 (out of 22 points)=_________________
Q2 (out of 22 points)=_________________
TOTAL SCORE: _____________________
873995295
Part I: Multiple Choice. Do them ALL.
CIRCLE the letter for your answer.
_____________________________________________
1. Which one of the following sentences is a normative statement?
A. Congress and the president should increase taxes on employed
persons in order to provide more health care to the poor.
B. The unemployment rate was 3% when Obama took office and
now it is 9%.
C. On average Americans pay $18,000 a year for health insurance.
D. In the last 5 years 500,000 additional children have lost health
care coverage.
E. The price elasticity of cigarettes is -2.8.
2. The figure with “wine” and “cars” shows the production
possibility frontier for an economy that produces only those two
goods. Which one of the following statements is true?
A. As we go from point A to point E, the marginal
opportunity cost of wine increases.
B. This production possibility frontier exhibits constant
marginal opportunity costs.
C. If resources were being used efficiently, we could
attain point C.
D. An output mix between point A and point E would be
best since it is a balance of wine and cars.
E. As we go from point A to point E, the marginal
opportunity cost of cars increases.
3. Robert and Danny produce two goods, basketballs and
baseballs. Each of them works eight hours per day. In any given
hour Danny can make 4 basketballs or 4 baseballs or any linear
combination of the two. In any given hour Robert can make 2
basketballs or 1 baseball or any linear combination of the two.
Which one of the following statements is true?
A. Danny has a comparative advantage in the production of
basketballs.
B. Robert has both an absolute and comparative advantage in
making basketballs.
C. Robert has a comparative advantage in the production of
basketballs.
D. Robert has a comparative advantage in nothing.
E. Danny and Robert would be unable to mutually benefit based
on the theory of comparative advantage.
4. A careless research assistant has presented his professor with
the following unlabeled equation representing the market for candy
bars: Q=300-12F+4J. The professor then spends numerous hours
trying to figure out what the equation represents. Which one of the
following is a plausible best guess?
A. It is a supply function where F represents the price of candy
bars.
B. It is a demand function where J represents consumer income
and candy bars are normal goods.
C. It is a supply function where J represents the cost of the candy
bar ingredients.
D. It is a demand function where J represents the price of candy
bars.
E. It is a demand function where F represents the price of a candy
bar substitute.
5. Which one of the following will increase the supply of popcorn
sold at baseball stadiums this summer?
A. A decrease in the price of hot pretzels, a substitute in
consumption.
B. A decrease in the price of popcorn popping oil, an input.
C. An increase in the price of un-popped corn kernels, an input.
D. An increase in the price of popcorn.
E. An increase in the income of baseball fans.
6. Consider the market for Greek style yogurt. Recent TV
advertisements for Greek yogurt during broadcasts of the 2016 Rio
Summer Olympics have been very successful in making people
like the stuff. At the same time new technology in the dairy
industry dramatically lowers the cost of raw milk sold to people
who make yogurt products. Which one of the following statements
is correct concerning the Greek style yogurt market?
A. Equilibrium price might increase or might decrease and
equilibrium quantity might also increase or decrease as a
consequence of these events.
B. Both equilibrium price and equilibrium quantity will decrease
as a consequence of these events.
C. Equilibrium price will increase and equilibrium quantity will
decrease as a consequence of these events.
D. Both equilibrium price and equilibrium quantity will increase
as a consequence of these events.
E. Equilibrium quantity will definitely increase but we don’t
know what will happen to equilibrium price as a consequence
of these events.
7. Four sellers are in the market willing to sell their tickets to see
the NCAA Final Four Basketball Championships. Suppose the
following reservation selling price for each person:
Jerry’s=$1,100, David’s=$550, Mary’s=$675 and Gina’s=$850.
If the current market price of a ticket is $800, what is the total
producers’ surplus over these four people in this situation?
A.
B.
C.
D.
E.
$2325
$-25
$1,225
$375
$325
8. International migration is a politically sensitive topic at the
moment. Much of the discussion is centered around the effect of
migrants on local labor markets. Suppose country Y decides to
relax its quotas on the number of migrants allowed to enter country
Y each year. Suppose that the only effect that migrants have is to
increase the amount of labor supply in the economy. Which one of
the following predictions is most correct?
A. The equilibrium market price of labor (wages) will definitely
increase and the equilibrium quantity traded (employment)
could go up or down.
B. Wages will definitely decrease and employment will definitely
increase.
C. Both wages and employment will definitely decrease.
D. Both wages and employment will definitely increase.
E. Employment will definitely increase but wages could go up or
down.
9. The graph represents the Ithaca market for
chocolate this spring. Q is number of pounds.
$ is price per pound. What is the value of
producers’ surplus at the market equilibrium?
A.
B.
C.
D.
E.
$zero
$infinite
$1800
$900
$450
Price
($/milkshakes)
$1.25
$1.50
$1.75
$2.00
$2.25
$2.50
$2.75
$3.00
$3.25
Quantity
Demanded
(milkshakes)
4000
3500
3000
2500
2000
1500
1000
500
0
Quantity
Supplied
(milkshakes)
1000
1100
1200
1300
1400
1500
1600
1700
1800
10. Consider the supply and demand schedules for milkshakes.
Locals complain that there are too many milkshakes vendors on the
Ithaca Heights boardwalk. The local government therefore
imposes a quota on the number of milkshakes stalls allowed on the
boardwalk per day. They do this by issuing 10 “permits” which
allows the owner of the permit to set up and sell milkshakes on the
boardwalk. Given that each milkshakes stall can produce 100
milkshakes per day, what price will milkshakes sell for after the
permit policy goes into effect?
A.
B.
C.
D.
E.
$1.25
$1.50
$2.00
$2.50
$2.75
11. The graph represents the Ithaca market for
chocolate this spring. Q is number of pounds.
$ is price per pound. Suppose the government
imposes a price ceiling of $20 per pound.
The consequence of this is that
A. there will be a surplus of 40 pounds of
chocolate.
B. there will be a shortage of 30 pounds of
chocolate.
C. there will be a dead weight loss of $200
D. there will be a surplus of 30 pounds of
chocolate.
E. nothing happens, since the price ceiling is not binding.
12. A change in the price of wine from $6 to $8 per bottle changes
the quantity demanded from 14 to 10 bottles per month. Using the
midpoint arc formula, and taking the absolute value, the own price
elasticity of demand in this part of the demand curve is
approximately equal to
A.
B.
C.
D.
E.
1.
2/4.
4/2.
7/6.
6/7.
13. Consider the demand and supply graphs for X, Y and Z as
illustrated. The government plans to place a tax of $t/unit on one
of these markets. In which market would this tax raise the most
revenue?
A.
B.
C.
D.
E.
Market X
Market Y
Market Z
We do not have enough information to know.
The same amount of revenue would be raised in each market.
14. Consider the demand and supply graphs for X, Y and Z as
illustrated above. The government plans to place a tax of $t/unit
on one of these markets and wants the economic price incidence of
the tax to fall completely on the suppliers. Which market should
they tax?
A.
B.
C.
D.
E.
Market X
Market Y
Market Z
We do not have enough information to know.
The economic price incidence of the tax will be the same in
each market.
15. The table below shows the linear daily demand and linear
daily supply information for the ice cream market on the Zootopia,
NY boardwalk. At the market equilibrium, use the point formula
to calculate the own price elasticity of demand at the market
equilibrium price. It is equal to
Price ($/Ice
Cream)
$1.25
$1.50
$1.75
$2.00
$2.25
$2.50
$2.75
$3.00
$3.25
A.
B.
C.
D.
E.
Quantity
Demanded
(Ice Creams)
4000
3500
3000
2500
2000
1500
1000
500
0
Quantity
Supplied
(Ice Creams)
1000
1100
1200
1300
1400
1500
1600
1700
1800
-1.00
-3.33
-8.33
-2000
-0.30
16. Consider a storeowner who is not concerned with profits but
instead wants to maximize her total revenue. The demand curve
for her product is downward sloping and linear. She is thinking
about increasing her price by 1% to get more revenue. She
correctly estimates that the own-price elasticity of demand is
currently -0.7. She asks for your advice. If you are correct, you
tell her,
A. “Yes, increasing your price by 1% from the current price will
increase your revenue.”
B. “Sorry, you have not given me enough information to know
how to help you.”
C. “Look, you’re thinking about this incorrectly. In order to
increase revenues, you must first focus on costs.”
D. “Look, you’re already maximizing revenue so do not change a
thing.”
E. “No, decrease your price because then you will sell more and
your revenues will increase!”
KEEP GOING!
873995295
Part II: Make sure you read and do ALL parts of each question. Show as much work as
possible. TRY to get started on every question. Show us something. Write legibly and
remember to label all graphs and axes in diagrams.
1. Suppose the monthly supply and demand for apartments in Ithaca are described by the
following equations:
Demand: QD = 1,600 - 4P and Supply: QS = -200 + 2P
a. Graph the demand and supply curves as we did in class. Make your graph BIG enough to
play around with for the rest of the problem. For full credit you must label intercept values
on the vertical and horizontal axes.
b. Determine the equilibrium price and quantity of apartments in Ithaca and label values on
your graph.
c. Indicate on your graph, and then calculate values for consumers’ and producers’ surplus at
the market equilibrium.
d. Suppose the Ithaca Housing Commission sets a price ceiling of $200/month and aggressively
(and successfully) monitors the market to make sure there is no black market activity of any
kind. Calculate the new quantity traded and new price under this regulation. Show on your
graph. In what sense is the market in, or not in, equilibrium? For full credit be quantitatively
specific (i.e., give us numbers) and show on your graph.
e. Considering demanders and suppliers in this market, who “wins” and who “loses” as a
consequence of this policy? Briefly defend your position and include proper reference to
various surplus measures and the notion of dead weight loss.
PLEASE DRAW YOUR GRAPH ON THE NEXT PAGE.
ANSWER SPACE
2. Momma Bear, Poppa Bear and Baby Bear make two goods: beds and porridge. In a week’s
time Poppa Bear can make 15 beds and no porridge, or 5 bowls of porridge and no beds, or any
linear combination. Baby Bear can make 3 beds and no porridge, or 3 bowls of porridge and no
beds, or any linear combination. Momma Bear is different. She can make 12 beds and no
porridge, 8 beds and 8 bowls of porridge, or any linear combination between these two points.
She can also make 8 beds and 8 bowls of porridge and no beds and 12 bowls of porridge, or any
linear combination between these two points.
NOTE: For full credit you need to include on your graphs numerical values at end points
and numerical values at any “kink” points. Also remember to label your axes!
a. Draw each bear’s individual PPF. Put beds on the vertical axis. Put bowls of porridge on the
horizontal axis.
b. Who has the absolute advantage in making bowls of porridge? Defend your position.
c. Between Baby Bear and Poppa Bear, who has the comparative advantage in the production
of porridge? Defend your position.
d. The Bear family wants to determine the efficient joint production possibilities frontier.
Putting beds on the vertical axis and bowls of porridge on the horizontal axis, sketch out the
efficient joint production possibilities frontier.
e. If the Bear Family is efficiently making 12 bowls of porridge, how many beds are they
making? Explicitly tell us how many units of each activity each bear is doing.
ANSWER SPACE
ANSWER SPACE
WISSINK
ANSWERS Econ 1110 S2017 PRELIM 1 MAKEUP
1 A
This is the only answer that involves making a judgment about the “right” thing to do. The other answers are all
“positive” predictions that do not address the appropriateness of the policy
2 E
The absolute value of the slope represents the opportunity cost of making cars in terms of wine. So at Point A, the
opportunity cost of making cars is less than that at Point E. Therefore, the opportunity cost of making wines At Point
A is greater than that at Point E. The opportunity cost changes along the curve since the slope changes. Any point to
the right of PPF is not feasible. We don’t know where along the PPF is best because we don’t know the preference
of the economy.
3 C
Danny has an absolute advantage in both basketball and baseballs. The opportunity cost of make one basketball is 1
baseball for Danny, and ½ baseball for Robert. So Robert has a comparative advantage in making basketballs. They
would be mutually benefit if they specialize and trade.
4 B
If candy bars are a normal good, then demand should increase with income meaning the coefficient on J should be
positive which it is. A implies a downward sloping supply curve while D represents an upward sloping demand
curve. E implies that a substitute has a negative cross price elasticity of demand while C implies a supply function
which is increasing in costs.
5 B
Price change of popcorn itself won’t change supply and it only changes quantity supplied. Popcorn popping oil and
un-popped corn kernels are production inputs. Decrease (increase) in production cost will increase (decrease) supply
of popcorn. Pretzels are substitute for popcorns. The price change of substitutes only changes demand, not supply.
Same for an income change.
6 E
Both the demand curve and supply curve shift to the right. It is trivial from the graph that the equilibrium quantity
will definitely increase, but the equilibrium price will depend on the relative size of the shifts between demand and
supply.
7 D
Only David and Mary will sell their tickets. Producers’ surplus=$(800-550)+$(800-675)=$375
8 B
The increase in supply shifts the supply curve to the right. This moves the equilibrium point down the demand curve
so that wages fall and employment increases.
9 D
You take the area under the market price of $30 and above the supply curve, and use the area of a triangle which is
half the base times the height, so ½*60*30 = 30*30=900.
10 E
The quota is 1000 (=10*100) ice creams per day. The demand price for this quantity is $2.75 while the supply price
is $1.25.
11 C
With the price ceiling, quantity demanded is 80 and quantity supply is 40. Thus there will be a shortage of 40. The
quantity sold will be min{40, 80}=40 pound of chocolate. The DWL=1/2*(40-20)*(60-40)=$200
12 D
Set it up as %change in quantity demanded divided by %change in price. [(14-10)/12] / [(6-8)/7] =14/12=7/6
13 B
Market Y because after imposing the tax, the equilibrium quantity in both Market X and Z will decrease, while it
won’t change in Market Y.
14 C
Market Z since demand is infinitely elastic, demanders refuse to pay any of the epi so suppliers get stuck with it all.
In market X there would be sharing, in market Y the demanders pay it all since demand is completely inelastic.
15 B
Equilibrium price and quantity are $2.50 and 1500. Slope of the demand curve as (dQ/dP)=-2000. So elasticity is 2000*(2.50/1500)=-3.33.
16 A
From the information we are given, we know that the demand is currently price Inelastic. This means that an
increase in the price will cause an INCREASE in the total revenue.