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e1_1110_f2014

Econ 1110-INTRODUCTORY MICROECONOMICS
PRELIM #1-Wissink-F2014-October 9
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.

“X” the SECTION you regularly attend (that is where you will pick up your prelim):
Lamichhane, Sujan (sl2563)
____ DIS 230 M 10:10AM - 11:00AM GSH G22
____ DIS 231 M 11:15AM - 12:05PM GSH G22
____ DIS 232 M 12:20PM - 01:10PM GSH G22
Hu, Malin (mh975)
____ DIS 233 M 11:15AM - 12:05PM RCK 112
____ DIS 234 M 12:20PM - 01:10PM RCK 112
____ DIS 235 M 01:25PM - 02:15PM RCK 112
Walker, Caroline (cmw258)
____ DIS 236 T 10:10AM - 11:00AM RCK 122
____ DIS 237 T 11:15AM - 12:05PM RCK 122
____ DIS 238 T 12:20PM - 01:10PM RCK 122
Wang, Xiaolu (xw377)
____ DIS 239 W 10:10AM - 11:00AM MRL 107
____ DIS 240 W 11:15AM - 12:05PM MRL 107
____ DIS 241 W 12:20PM - 01:10PM MRL 107
Fieldhouse, Andrew (ajf263)
____ DIS 242 W 11:15AM - 12:05PM URH 202
____ DIS 243 W 12:20PM - 01:10PM URH 202
____ DIS 244 W 01:25PM - 02:15PM URH 202

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: _____________________ .

B. Eli has an absolute advantage in the production of both goods. Workers can produce any linear combination of their extreme values. Peyton has an absolute advantage in the production of footballs. Eli has a comparative advantage in the production of helmets. D. Betty has the comparative advantage over Abe in Mugs. C. Chris has the absolute advantage in Mugs and the absolute advantage in Hats.e1_1110_f2014 Part I: Multiple Choice. Two friends. Betty. Eli and Peyton would be unable to mutually benefit based on the theory of comparative advantage. Ed forgot to record how many hours each worker actually worked. CIRCLE the letter for your answer. Abe. came up with the data in the table. It reports the maximum number of mugs and hats that each worker can make. D. They both work eight hours per day. and 6 minutes to make a football. Abe has the comparative advantage over everyone in Hats. Chris has the comparative advantage over Dave in Hats. Do them ALL. and 12 minutes to make a football. C. Ed. E. _____________________________________________ 1. B. Given this information. Eli and Peyton. 2. It takes Peyton 10 minutes to make a helmet. It takes Eli 30 minutes to make a helmet. which one of the following statements is TRUE? A. Abe has the comparative advantage over everyone in Mugs. Chris and Dave work for Ed and make only mugs and hats. Mugs Hats 30 10 Abe 20 30 Betty 40 40 Chris 15 20 Dave . decide to open up a football store. the boss. E. Which one of the following statements is TRUE? A. Peyton has a comparative advantage in the production of helmets.

A rise in the price of honey. assuming that tea is a normal good? A. the supply will fall.4F + 2J + 17G. The variable F represents the price of apples. The variable F represents the price of Halloween candy bars. A rise in the price of coffee. You accurately predict that the A. B. D. the quantity supplied will rise. J the price of Halloween candy bars and G the price of peanuts. An increase in income of the average Londoner. the quantity supplied will rise. Which one of the following will decrease the demand for tea in London. A natural disaster destroys half of the tea crop. C. D. price of roller-blades will increase. C. Drinking tea is a popular every-morning activity in London. The variable F represents the price of price of sugar used to make candy bars. Which one of the following is the most plausible statement? A. price of roller-blades will decrease. An increase in magazine pictures showing a popular musician like Adele drinking tea. The market for roller-blades is unregulated and is presently characterized by excess supply. C. E. price of roller-blades will increase. B. J represents the price of Halloween costumes and G is the price of Halloween candy bars.3. J represents the number of kids in the market and G is the price of peanuts (a substitute for candy). the quantity supplied will fall. and the quantity demanded will fall. and the quantity demanded will rise. a popular substitute for tea. and the quantity demanded will rise. . price of roller-blades will decrease. The variable F represents the price of apples (a substitute for candy). J represents the number of firms in the market and G is income. E. price of roller-blades will decrease. J is income and G is the price of Halloween candy bars. and the quantity demanded will fall. and demand will rise 4. the quantity supplied will fall. The variable F represents the price of Halloween candy bars. a popular complement with tea. D. A careless research assistant has presented his professor with the following unlabeled equation representing the market demand function for Halloween candy bars: QD = 300 . 5. E. B.

E. C. use the POINT formula to calculate the exact own price elasticity of demand at the market equilibrium. C.00 $1. Equilibrium price will definitely increase but we don’t know what will happen to equilibrium quantity as a consequence of these events. It is equal to Price ($/cup) $0.50 $4.500 Quantity Demanded (cups) 400 350 300 250 200 150 100 50 0 Quantity Supplied (cups) 25 50 75 100 125 150 175 200 225 .00 $3.00 $4. D.0002 -2. -1 -2 -5.000 -0.50 $2. Recent TV advertisements for “everything Fall and pumpkin flavored” have been very successful in making people flock towards pumpkin flavored “this” and pumpkin flavored “that”.00 $2.50 A. E. Equilibrium price might increase or might decrease and equilibrium quantity might also increase or decrease as a consequence of these events. Equilibrium price will increase and equilibrium quantity will decrease as a consequence of these events. At the same time an early frost has killed off 17% of the pumpkin crop.6. 7. The table below shows the daily demand and supply information for coffee at Rusty’s in the lobby of Uris Hall.50 $1. Both equilibrium price and equilibrium quantity will increase as a consequence of these events. D. Both equilibrium price and equilibrium quantity will decrease as a consequence of these events. B. At the market equilibrium. Consider the market for pumpkins.50 $3. Which one of the following statements is TRUE concerning the pumpkin market this fall? A. B.

They ask for your advice. Imposes a price ceiling of $85 per pizza. The market for takeaway pizza is perfectly competitive. 9. A binding price ceiling in the takeaway pizza market will generate black-market pricing. even the poor pizza maker. Which one of the following statements related to the question above would be considered NORMATIVE? A. This action creates excess supply of 120 pizzas which the Denver government will have to buy. This action creates excess supply of 120 pizzas which the Denver government will have to buy. B. D.8. Impose a price floor of $45 per pizza. This action creates excess demand of 60 pizzas. D. C. E. Takeaway pizza makers should be subsidized so everybody. can earn a living income. E. The table below shows weekly demand and supply information for the takeaway pizza market in Denver. Denver’s city council wants to support the incomes of its local takeaway pizza suppliers. Some people will win and others will lose if we place a price floor on the takeaway pizza market. This action has no effect since the price ceiling is not binding. This action creates excess demand of 120 pizzas. Impose a price floor of $85 per pizza. Impose a price ceiling of $85 per pizza. B. The supply curve for takeaway pizza in Denver is upward sloping. Which one of the suggestions below is the right advice for Denver’s goal? Price ($/Pizza) $25 $35 $45 $55 $65 $75 $85 $95 $105 Quantity Demanded (Pizza) 300 240 200 180 140 110 70 30 0 Quantity Supplied (Pizza) 0 10 40 80 140 160 190 210 240 A. . C. Impose a price floor of $85 per pizza.

” D. In terms of absolute value. D. decrease your price because then you will sell more and your revenues will increase!” 11.” E. . She is thinking about raising her prices by 1%. “Look. increasing your price by 1% from the current price will increase your revenue.10. C. Rhys’s=$550 and Bryn’s=$890. Mary knows she faces a linear and downward sloping demand curve for pottery she makes. what is the total consumers’ surplus over these three people in this market situation? A. B. A. B. the fewer substitutes in consumption available. you tell her. E. If the current market price is $650. the longer the time frame used for the market period. you must first focus on costs. A. “No. the own price elasticity of demand is smaller. In order to increase revenues. C. you’re already maximizing revenue so do not change a thing. D. you’re thinking about this incorrectly.2. E. “Look.” C. She correctly estimates that the own-price elasticity of demand for her pottery is currently -1. $590 $490 $350 -$590 $615 12. the flatter the slope of the demand curve as graphed. She asks for your advice.” B. She wishes to maximize the revenue she makes from selling her pottery at the Ithaca Farmers Market. “Sorry. If you are correct.000. you have not given me enough information to know how to help you. “Yes. the more narrowly we define the market. Suppose the following marginal-willingness-to-pay figures: Odie’s=$1. Three buyers are in the market willing to pay the following for tickets to the first hockey game of the winter. the more substitutes in consumption available.

The dead weight loss from the soda tax will be zero since the sum of lost producers’ surplus and lost consumers’ surplus will go to the government as revenue. C. If we collect the tax revenue from the suppliers there will be no loss of consumers’ surplus due to the tax. Which one of the following statements is TRUE? A. Peanut butter is an inferior good. . B.000 loaves. Suppose a per-unit tax has just been placed on the market for carbonated soft drinks (also known as soda or pop).75. E. None of the above statements are true. Both C and E are true.13. From only this data. If we collect the tax revenue from suppliers there will be no dead weight loss. You track the sales for three weeks along with the corresponding prices. D. Both C and D are true. Assume nothing else is changing in the markets aside from what you see in the chart. C. B.23 D. 14. D. The unit of measurement is pounds. The cross price elasticity of demand for bread with respect to the price of peanut butter is about equal to +0. The own price elasticity of demand for apples equaled -1. C. 15. E. Buyers are using bread and peanut butters as substitutes in consumption. Which one of the following statements is TRUE? A. The own price elasticity of demand for apples equaled -0. The cross price elasticity of demand for apples with respect to grapes equaled 0. which one of the following is TRUE? Week 1 Week 2 Week 3 Quantity demanded of Apples 20 40 60 Price of Apples Price of Oranges Price of Grapes $8 $4 $8 $2 $2 $2 $1 $1 $5 A. None of the above are true. Dead weight loss will equal the sum of lost consumers’ and lost producers’ surplus.4. B. Demand and supply are typically shaped in this market.000 to 4.6 E. oranges and grapes. The cross price elasticity of demand for bread with respect to the price of peanut butter is about equal to +4. A 5 percent increase in the price of peanut butter causes the quantity of bread demanded to decrease from 5. You work at a fruit stand that sells apples.

D. . 1 1+2+3+4 2+3+4 3+4+5+6 Cannot be determined from the information given.16. Which of the areas in the figure above represent the change in consumers’ surplus as a result of an increase in supply? A. E. B. C.

explain? What quantity of tickets will actually be traded in this regulated market? Illustrate on your graph. c. Suppose there is an exogenous decrease in market supply.(Q/128) a. e. b. Find the equilibrium quantity (Q*) and price (P*) values and indicate them on your graph.000. Would this price floor be binding. That is to say if there is a shortage or surplus created by the policy it just sits there.000 seats are in circulation. Either show on your graph with comment OR calculate the values and comment. Show as much work as possible. Assume no black market or after-market activity. 1. producers’ and net social surplus before and after the price floor. Show us something. Do exactly the same for producers' surplus. Using the original supply and demand curves. Suppose there are 80. What is the value of consumers' surplus at the equilibrium? Illustrate consumers' surplus on your graph. Write legibly and remember to label all graphs and axes in diagrams. untraded. the supply curve for tickets is characterized by perfect inelasticity. Since the number of seats in the arena can't easily be expanded at short notice. ANSWERS . Describe one scenario that would result in this happening and suggest a reformulation of the model's equation or equations that would plausibly represent this exogenous event. The demand function for tickets is best characterized by: PD=1. d. Compare and contrast consumers’. TRY to get started on every question. Carefully graph and label the supply and demand curves. Assume the market for tickets is perfectly competitive and that all 80. LONDON in November.e1_1110_f2014 Part II: Make sure you read and do ALL parts of each question. f. Please indicate values at endpoints.000 seats available for sale for the BARCLAYS ATP WORLD TOUR FINALS in The O2 Arena. suppose the government imposes a price floor of $500 on this market.

ANSWERS .

e. (It is assumed that the time requirements per movie or TV interview remain the same regardless of the total time spent on the production of each). (Note: The time requirements remain constant irrespective of the quantity produced. who is doing how many of each? ANSWERS . Who has the comparative advantage in interviews? Defend your position. which can be allocated between the two activities.2. Angelina Brad 1 movie 20 hours 25 hours 1 TV interview 15 hours 10 hours a. Indicate the numerical value of endpoints. Angelina and Brad both produce movies and TV interviews with their time. f. movies are measured in units and TV interviews are measured in number of shows.) b. Graph the production possibilities frontier (PPF) for both Angelina and Brad (separately) clearly labeling the axes. What is Angelina's marginal opportunity cost of giving an extra TV interview? And for Brad? d. Diagrammatically illustrate the Joint PPF for Brad and Angelina assuming they allocate time based on the principle of comparative advantage. FOR ALL GRAPHS PLEASE PUT MOVIES ON THE VERTICAL AND INTERVIEWS ON THE HORIZONTAL. Indicate the numerical value of endpoints. The table shows time requirements to produce a movie and TV interviews by Angelina and Brad. What is Angelina's marginal opportunity cost of producing an extra movie? What is Brad's? c. The time input is measured in person-hours. Both Angelina and Brad have 100 hours of time available. If the total number of movies is 7 and the total number of interviews is 5.

ANSWERS .

closer to zero. 3 C Excess supply means we have more quantity supplied than quantity demanded. 10 E From the information we are given. A. not demand. Note that only Odie and Bryn buy. 2 C The MOC for making hats for each is: Abe=3. where the price is above the equilibrium level. then the demand for tea falls since now there is a smaller quantity demanded of its complement.67. Therefore. C is not correct because a natural disaster would decrease supply. consumers are less able to switch to other goods when the price of the good itself increases. Since 5/6 is less than 5 Peyton has the comparative advantage in making helmets while Eli has the comparative advantage in making footballs. only B involves judgment of this type. Only D is right for all three variables. 5 E If the price of honey increases. The rest are descriptive statements about the nature of the pizza market. 8 A The equilibrium price is $65. Peyton gives up 5/6 a football to make a helmet. This also means that a decrease in the price will cause an increase in the total revenue (% change in quantity outweighs % change in price – remember that revenue = p*q). 7 B Equilibrium price and quantity are $3 and 150.300=$590. B and D are not correct because these all lead to an increase in demand. So total benefit is 1. demand is more inelastic. This happens in the upper portion of the demand-supply "scissors". As a result of that. And make sure supply variables are not in the demand function.a. The invisible hand will ensure that the market works its way to an equilibrium. quantity supplied will decrease and quantity demanded will increase. Betty=.890-1. Eli has to give up 5 footballs to make a helmet. Normative economics is an approach that analyzes outcomes of economic systems and behavior and evaluates them with some judgmental or ethical component as to whether they are good/just or bad/unjust.75.300.000+890=1. Certainly. so CS=1. a price floor of $85 is binding. we know that the demand is currently price elastic. Therefore. This means that excess supply is 190-70=120. Eli has the absolute advantage in footballs and Peyton has the a. 9 B Positive (aka descriptive) economics is an approach to economics that seeks to understand behavior and the operation of systems without making judgments.ECON 1110 F2014 PRELIM 1 Answers to multiple choice questions 1 C Based on the information given. 4 D Look carefully at sign convention. Slope of the demand curve is (dQ D/dP)=100. which means price will decrease until it reaches the equilibrium level. This means that an increase in the price will cause a decrease in the total revenue (% change in quantity outweighs % change in price – remember that revenue = p*q). which causes excess supply. So elasticity is 100*(3/150)=2. You don’t have enough information to be able to assess absolute advantage so can’t know if A is true or not. 11 A Sort the willingness-to-pay numbers from highest to lowest. So in order to increase revenues from the status quo the storeowner needs to drop the price. Use this information to rule out B. 6 E This is an increase in demand (P*up Q*up) and a decrease in supply (P* up Q* down) so we know P* up but don’t know what happens to Q*. in helmets. D and E. Chris=1 and Dave=. the fewer substitutes in consumption available. 12 D When there are few substitutes in consumption available for a good.890 and what they pay is 650 each = 1. The quantity demanded is 70 while the quantity supplied is 190. .

The area (3 + 4 + 5 + 6) doesn’t represent anything related to consumer surplus.The area (1 + 2 + 3 + 4) represents the consumer surplus in the new case (Q1.75.13 B Use weeks 1 and 2 to get (-20/30)/(4/6)=-1 and weeks 1 and 3 to get (40/80)/(4/6)=0. 16 C The area (1) represents the consumer surplus in the original case (Q0. the change in consumer surplus is shown by the area (2 + 3 + 4). So. 15 E.P1). 14 E The cross price elasticity would be: negative 4. . There is something flawed in A-D. one way or the other.4 indicating that peanut butter and bread are complements in consumption.P0). Can’t use weeks 2 and 3 (choice D) since both apple price AND grape price changes.