ECON1210 Intorductory Microeconomics

University of Hong Kong

PAST Midterm Examination (2020 Spring)
Time allowed: 60 minutes (+ 10 minutes of grace period)

This version of the exam paper is for the following student only:

> > Ka-fu WONG (UID=1234567890) < <

SCORING: One point for correct answer(s) in each question.

• For multiple choice questions, points will be deducted for wrong answers depending on the number of
choices given in the question. When there are n choices, 1/(n − 1) point will be deducted for wrong
answer, such that picking an answer randomly will yield zero expected points. For example, when there
are 5 choices, 1/4 (i.e., 0.25) point will be deducted for wrong answer.
• For short-answer questions, one point is awarded if all answers within the question are correct, zero
otherwise.

NO CHEATING PLEASE!! This is an open book test. But, you should not be working in a group or
consulting any human during the test. To prevent cheating, each student is given a unique version of the test.

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1. My university ID number is [ Answer01 = 1234567890 ].
2. Let the market demand curve be P = 59 − 4.8Q and the supply curve be P = 9 + 4.2Q. The equilibrium
quantity is [ Answer02A = 5.56 ]. The equilibrium price is [ Answer02B = 32.33 ].
3. Continue from the last question. At the market equilibrium, the consumer surplus is [ Answer03A =
74.07 ], the producer surplus is [ Answer03B = 64.81 ].
4. The Hong Kong government hires seven workers to pick up the rubbish left on the beach after the
celebration of Mid-Autumn festival in the three districts: “Hong Kong Island”, “Kowloon” and “New
Territories”. The major decision is the allocation of the workers among the three districts, so as to
maximize the amount of rubbish collected. The following table shows the amount (kgs) of rubbish that
will be collected in a district as a function of the number of workers deployed in the corresponding
district. For instance, when 2 workers are sent to New Territories, a total of 369 kgs of rubbish will be
collected there.

Number of Workers Hong Kong Island Kowloon New Territories

1 171 171 200
2 306 304 369
3 414 421 500
4 496 508 621
5 542 592 725
6 567 673 779
7 589 720 793

To maximize the amount of rubbish collected, the Government should allocate [ Answer04A = 2.00
] workers to Hong Kong Island, [ Answer04B = 2.00 ] to Kowloon, and [ Answer04C = 3.00 ] to
New Territories.
5. Shirley is deciding whether to hold onto 100000 HKD in her bank account, or to buy stocks, bonds, or
real estate that will yield her earnings, interest, or rent (that pay her some amount each year, less costs).
The yield on stocks is 0.04 dollars per dollar invested, per year; the yield on bonds is 0.05 dollars per
dollar, per year; and the yield on real estate is 0.03 dollars per dollar, per year. Shirley’s opportunity
cost of putting all of her money in bonds is [ Answer05 = 4000.00 ] HKD per year.
6. John is thinking of going to a concert that will last one and a half hours. During this one and a half
hours, he could have tutored a student at $120 per hour. Alternatively, he could have used the same
time to work as a research assistant instead and earn a total of $75. He enjoys the tutoring job and
research assistant job just enough that he is willing to do either job for free. If the price of the concert
ticket is $200, his opportunity cost of going to the concert is [ Answer06 = 380.00 ].
7. Cindy would like to attend a two-hour Japanese lesson which cost her $210 dollars. If she does not
attend the lesson, she can teach yoga class with an hourly wage of $80. Or play “overcooked”, a video
game, for two hours with a total of $200 enjoyment. Assume there are no extra costs for the above
events. Cindy should attend the Japanese lesson if her benefit from the Japanese lesson is at least [
Answer07 = 410.00 ].
8. John is thinking about watching a football game with his friend. John is willing to pay HK$130 for
watching the game. A ticket of the game costs HK$80 and he will have to cancel his part time job that
pays HK$260. Normally, he would be unwilling to do the part time job for less than HK$Y. (John
views the unpleasantness of the part time job as an offset against its salary.) John will decide to watch
the game if Y is at least [ Answer08 = 210.00 ].

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 9. The equation below shows Jane’s benefit of consuming n cups of coffee and coffee is perfectly divisible
and can be consumed at any arbitrary quantity (say, 5.24 cups).

Total benefit: T B(n) = 40n − n2

Average benefit: AB(n) = 40 − n
Marginal benefit: M B(n) = 40 − 2n

Suppose the price is $8 per cup. We would expect Jane to consume [ Answer09 = 16.00 ] cup(s) of
coffee.
10. Suppose that Joan and Tanya both can produce jacket and shoes. In a day, Joan can produce either 5
jackets or 5.5 pairs of shoes. In a day, Tanya can produce either 8 jackets or 12 pairs shoes. Assume
that Joan and Tanya decide to COMPLETELY specialize in the production of one type of goods and
trade with one another. In a day, Joan will produce [ Answer10 = 5.00 ] jackets.
11. Consider a small open economy consisting of Joan and Tanya, both can produce jacket and shoes. In
a day, Joan can produce either 5 jackets or 5.5 pairs of shoes. In a day, Tanya can produce either 8
jackets or 12 pairs shoes. Suppose the world price of jacket is 350 and the world price of shoes is 140.
In a day, this small economy will produce a total of [ Answer11 = 13.00 ] jackets.
12. Farmer Amy can use its resources to produce two types of goods; mango and passion fruit. In a day,
Farmer Amy can produce 20 kgs of passion fruits, or 18 kgs of mangos. Farmer Bob also produces
passion fruit and mango. In a day, Farmer Bob can produce 35 kgs of passion fruits, or X kgs of mangos.
We can conclude that Farmer Amy has comparative advantage in the production of mango only if X is
strictly less than [ Answer12 = 31.50 ].
13. Neo and Hailey both can produce bells and whistles. The table below shows their productivity (units
per hour).

Bells Whistles
Neo 2 3
Hailey 6 15.6

In order for both Neo and Hailey to engage in trade and specialize in the production that they have
comparative advantage in, the term of trade must be larger than [ Answer13A = 1.50 ] whistles per
bell and less than [ Answer13B = 2.60 ] whistles per bell.

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14. Eric, Flora, Glen and Howard can produce bells and whistles. The table below shows their productivity
(units per hour).

Bells Whistles
Eric 3 1.5
Flora 10 9
Glen 19 24.7
Howard 2 2.2

If this small economy wants to allocate two persons to completely specialize in the production of bells,
who should be allocated to the production of bells?
A) Eric and Flora
B) Eric and Glen
C) Eric and Howard
D) Flora and Glen
E) Flora and Howard
F) Glen and Howard
[ Answer14 = A ]
15. France and Italy trade tanks and jets. France can produce one jet with 25000 man hours, and one tank
with 30000 man hours. Italy can produce one jet with 30000 man hours, and one tank with 5000 man
hours. You are on the Italian team bargaining over the terms of trade. You tell the defense minister
that the best terms of trade you can reasonably ask for are [ Answer15A = 0.83 ] tanks per jet and
the worst you can accept are [ Answer15B = 6.00 ] tanks per jet.
16. The demand curve for eggs in Singapore is Q = 260 − 50P million cartons per year. The customer with
the highest willingness to pay would pay no more than [ Answer16A = 5.20 ] Singapore dollars for
a carton of eggs. If eggs cost a dollar per carton, Singaporeans would only take home [ Answer16B =
210.00 ] million cartons per year.
17. Costco sets a price of 0.82 for each bag of rice. Given a supply curve and a demand curve for bags of
rice facing Costco represented by equations

Supply: Q = 35 + 7P
Demand: Q = 121 − 11P

we can expect there will be a excess demand of [ Answer17 = 71.24 ] bags of rice, at the chosen
price.

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18. The demand for aluminum (tons per day) by Ali Motor and Baba Motor are given by the following
equations

Ali: QA = 500 − 1.7P

Baba: QB = 1300 − 0.2P

At the price is 50 dollars per ton, the total quantity demanded for aluminum is [ Answer18 = 1705.00
].
19. Assume the market demand for aluminum from the previous question. At the price is 50 dollars per
ton, the consumer surplus in this market is [ Answer19 = 4210904.41 ].
20. The demand for good X in any economy can be summarized by

QX = 9876 − 0.2 × PX + 4.50 × PY − 0.39 × IN C + 13 × P OP

In this the equation, QX is the quantity demanded of good X, PX is the price of good X, PY is the
price of good Y , IN C is the average income of the economy, P OP is the population of the economy.
Given the demand equation, we conclude that
A) X is an inferior good; X and Y are complements
B) X is an inferior good; X and Y are substitutes
C) X is a normal good; X and Y are complements
D) X is a normal good; X and Y are substitutes
[ Answer20 = B ]
21. Suppose that you go to your local supermarket one afternoon and notice that there are changes in
prices and availabilities of orange juice. Please refer to table below. More shelf space indicates goods
that are expected to have a higher quantity sold. Demand curve and supply curve are downward sloping
and upward sloping respectively.

Price Rows on shelf

last week 10 17
this week 9.9 18

If there is only a single cause for the shift, it must be

A) A decrease in supply
B) An increase in supply
C) A decrease in demand
D) An increase in demand
[ Answer21 = B ]

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22. The following graph shows the Neverland’s production possibilities. Neverland is a small nation.
Suppose the world price of Tea is $6 per kg and the world price of Banana is $1 per kg, and Neverland
decides to open up to the world market and trade.

If they were to consume 10 kgs of banana, they could consume [ Answer22 = 10.33 ] kgs of tea.
23. The demand curve for indigo used to dye blue jeans is given by the equation (in pounds)

Q = 10000 − 50P

The price elasticity of demand for indigo at the quantity of 4000 pounds is equal to [ Answer23 =
-1.50 ].
24. The corner gas station sells cigarettes, facing a linear downward sloping demand curve. To maximize
revenue, the manager set the price equal to 22 dollars and sold a quantity of 40 packs per day on
average. But to discourage smoking, the government just set a per-pack tax of 2 dollars, to be paid
by the buyer. Now, to maximize revenue, the manager will reduce quantity by [ Answer24 = 1.82 ]
packs per day on average.
25. Suppose there is only an initial shift of supply or demand (but not both), and we observe that the
equilibrium price of computers decreases by 8.1%, and the equilibrium quantity decreases by 6.1%, we
conclude that
A) The price elasticity of demand is elastic.
B) The price elasticity of demand is inelastic.
C) The price elasticity of supply is elastic.
D) The price elasticity of supply is inelastic.
[ Answer25 = D ]
26. Your boss Jeff wants you to maximize revenue from sales of postcards in your souvenir shop. Previously,
you sell 150 cards on a typical day when you set a price of 1 dollar each. After knowing the objective
from your boss, you experimented with setting a price of 1.25 dollar each, and found that you can
sell 112 cards on a typical day. After gathering such information, and assuming that Jeff is facing a
download sloping linear demand, you suggest to Jeff that the revenue-maximizing price is [ Answer26
= 0.99 ] dollars per card.

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27. The demand curve in the market of product X is Q = 120 − 2P and the marginal cost of production
is constant at $11. Suppose the government wants to maximize the tax revenue collected from this
market. The government should set the optimal per-unit tax at [ Answer27 = 24.50 ] per unit.
28. Continue from the last question. When the government levies $10 per unit tax on the market, the
deadweight loss (welfare loss relative to the unregulated market) is [ Answer28 = 100.00 ].
29. Suppose the market demand and supply for a liter of diesel are given by the equations

Demand: Q = 17 − 2P
Supply: Q = 5P − 4

Due to a recent severe typhoon, various roads are destroyed. The government decide to impose a $2
tax on diesel to help pay for the construction of roads. As a result, the quantity traded lowers to [
Answer29A = 8.14 ] units and it creates a deadweight loss of [ Answer29B = 2.86 ] due to the
imposition of tax.
30. Suppose the Financial Secretary of Utopia wants our help designing a per-hour wage subsidy (paid to
workers) to raise employment and workers’ pay. Given a wage P measured in HKD, the supply and
demand for labor (per year) are given by the equations

Demand: Q = 20000 − 25P million hours

Supply: Q = 75P − 20000 million hours

The equilibrium wage is P=400 per hour and the equilibrium quantity is Q=10000 million hours.
Suppose the aim is to increase employment by 85 million hours. We should suggest a wage subsidy of [
Answer30A = 4.53 ] dollars per hour and a deadweight loss of [ Answer30B = 192.67 ] million
dollars.
31. Following from the previous question, suppose the Financial Secretary would like to use subsidy to
increase employment but he does not want the deadweight loss to exceed 650 million HKD per year.
Then, we should suggest a maximum subsidy of [ Answer31 = 8.33 ] dollars per hour.
32. Sabrina walk past the same corner store every day. Two days ago, she noticed that the price of a bottle
of apple juice was $19 per bottle and decided not buy any. Yesterday, she saw that the price of a bottle
of apple juice was at $5 per bottle and bought a bottle. Today, Sabrina bought a bottle of apple juice
at the price of $9. Assuming that Sabrina’s valuation of apple juice remains unchanged, how many of
the following statements is/are TRUE?

(1) Sabrina may buy a bottle of apple juice if the price is $17 per bottle.
(2) Sabrina will definitely not buy a bottle of apple juice if the price is $3 per bottle.
(3) Sabrina will definitely not buy a bottle of apple juice if the price is $20 per bottle.
(4) Sabrina’s cost of consuming a bottle of apple juice remains unchanged over time.

A) Zero of the above statements is true.

B) One of the above statements is true.
C) Two of the above statements are true.
D) Three of the above statements are true.
E) Four of the above statements are true.
[ Answer32 = C ]

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33. Suppose there are only two types of transportation available in Utopia: green minibuses running on
LPG and red minibuses running on diesel. Both markets of minibus rides are unregulated. Which of
the following sequence of events will likely be seen after an increase in the price of diesel?

(G1) An increase in the price of green minibus services.

(G2) A decrease in the price of green minibus services.
(G3) An increase in the demand for the green minibus services.
(G4) A decrease in the demand for the green minibus services.
(G5) An increase in the supply of green minibus services.
(G6) A decrease in the supply of green minibus services.
(R1) An increase in the price of red minibus services.
(R2) A decrease in the price of red minibus services.
(R3) An increase in the demand of red minibus services.
(R4) A decrease in the demand of red minibus services.
(R5) An increase in the supply of red minibus services.
(R6) A decrease in the supply of red minibus services.

Sequence: [ Answer33A = R6 ] −→ [ Answer33B = R1 ] −→ [ Answer33C = G3 ] −→ [

Answer33D = G1 ]
34. Consider the following individual production possibilities curves (not drawn to scale), where a = 100,
b = 910, c = 910, d = 100.

If one standard maintenance service includes one clutch replacement and one brake replacement, if they
work separately, they can perform in total [ Answer34 = 180.20 ] standard maintenance services
(can be non-integer).
35. Continue with the previous questions, if they work together, they perform in total [ Answer35 =
405.00 ] PERCENT MORE standard maintenance services than working separately.

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36. Consider the market of toilet papers in 2015 with upward sloping supply and downward sloping demand
curves. Between 2015 and 2016, the equilibrium price of toilet papers decreased, but the equilibrium
quantity of toilet papers remained constant. From this observation, we can conclude that between 2015
and 2016, the supply of toilet papers ______ and the demand for toilet papers ______.
A) increased ; increased
B) decreased ; decreased
C) decreased ; increased
D) increased ; decreased
[ Answer36 = D ]
37. Suppose the Star Ferry (ferry service provider in Hong Kong) increases the price of tickets for the ferries
connecting the Hong Kong Island and Kowloon. This will lead to

(1) a decrease in the total revenue of cross-harbor bus line services

(2) an increase in the total revenue of cross-harbor bus line services
(3) a decrease in the demand for the Star Ferry services
(4) an increase in the demand for the Star Ferry services
(5) a decrease in the quantity demanded for the Star Ferry services
(6) an increase in the quantity demanded for the Star Ferry services
(7) a decrease in the supply of cross-harbor bus line services
(8) an increase in the supply of cross-harbor bus line services

A) (1) only
B) (2) only
C) (7) only
D) (8) only
E) (1) and (6) only
F) (2) and (5) only
G) (7) and two others only
H) (8) and two others only
[ Answer37 = F ]
38. Consider the following demand equation: P = 10 − 0.7Q. At price P = 1, the quantity demanded is [
Answer38 = 12.86 ].

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39. The supply curve is linear and upward sloping and the demand curve is linear and downward sloping.
How many of the following statements is/are TRUE?

(1) The decrease in overall benefit received by consumers and producers is always
more than the gain to the government in tax revenue.
(2) For the same amount of tax per unit imposed, deadweight loss is smaller when the
demand/ supply is more price elastic.
(3) If the government levied a tax of 1 dollar for each gallon of gas, the price of gas
increases by less than 1 dollar.
(4) If buyer is more price elastic than sellers, buyers will share less burden of the tax.

A) 0
B) 1
C) 2
D) 3
E) 4
[ Answer39 = D ]
40. Consider the market of bells. In this market, the supply curve is linear and upward sloping and the
demand curve is linear and downward sloping. The market is intially at an equilibrium, with price of
$78 per bell and quantity of 495. Suppose a commodity tax of $20 per unit is imposed. The tax causes
the equilibrium quantity of the good to decrease from 495 units to 480 units. The total reduction in
the consumer surplus and producer surplus equals [ Answer40 = 9750.00 ].
41. Consider an upward-sloping linear supply curve. Which of the following statements is/are CORRECT?

(1) When the price is high enough, the price elasticity of supply is close to 1.
(2) The price elasticity of supply always changes along the line.
(3) The supply curve is price inelastic when it is steep enough.
(4) The supply curve has a price elastic portion and a price inelastic portion..

A) (1) only
B) (2) only
C) (3) only
D) (4) only
E) More than one of the above statements are correct.
[ Answer41 = A ]
42. Suppose in a market, the price elasticity of supply is constant at 2.8 and the price elasticity of demand
is constant at -0.7. Following a 4% change in demand (parallel rightward or leftward shift), we expect
to have [ Answer42A = 1.14 ]% change in the price and [ Answer42B = 3.20 ]% change in the
quantity traded.

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43. The demand for the former is likely less price elastic than the demand for the latter in how many of the
following pairs?

(1) coffee on a normal Sunday v.s. coffee before the midterm

(2) salt v.s. fish
(3) Ghana chocolate bars v.s. chocolate bars
(4) life-saving drugs v.s. multi-vitamin pills.

A) 0
B) 1
C) 2
D) 3
E) 4
[ Answer43 = C ]
44. An important determinant of the amount of grains harvested next year by Ethiopian farmers is the
amount of seeds planted this year. Given that Western nations have guaranteed to donate five hundred
tons of grain next year, this year the Ethiopian farmers will:
A) plant the same amount of seeds as they would have without the food aid.
B) plant less seeds as the price of grain will be lower with the food aid.
C) plant more seeds as the food aid established a minimum price for grain.
D) plant more seeds as the farmers’ confidence is restored.
[ Answer44 = B ]

END

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