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Midterm Exam 1

This document provides the details of a microeconomics midterm exam, including 10 multiple choice and short answer questions worth a total of 100 points. The exam covers topics like demand and supply, production possibilities frontier, price elasticity, and consumer choice. It will be worth 15% of the student's final grade in the course.

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dinh_dang_18
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286 views3 pages

Midterm Exam 1

This document provides the details of a microeconomics midterm exam, including 10 multiple choice and short answer questions worth a total of 100 points. The exam covers topics like demand and supply, production possibilities frontier, price elasticity, and consumer choice. It will be worth 15% of the student's final grade in the course.

Uploaded by

dinh_dang_18
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Microeconomics, Midterm Exam #1 November 15 NAME: This is a closed book exam.

This means that you are not permitted to refer to any textbooks, notes or friends while writing this exam. you are responsible for ensuring that all textbooks and notes are closed and stored in your bags. The possession of written notes of any kind during the writing of this exam will be regarded as academic dishonesty. There are a total 100 points on this exam. The value of each question is given below. The exam is worth 15% of your nal grade in this course.

1. [5 points] The central question in economics is how to (a) use government planning agencies (b) induce people to want less (c) make the best use of scarce resources (d) increase human knowledge 2. [5 points] A consumers willingness to trade one good for another can be expressed by the consumers (a) indierence curve (b) marginal rate of substitution (c) both (a) and (b) above (d) none of the above 3. [5 points] Good X and Good Y are substitutes. If the price of Good X rises, then what will happen to the price of Good Y? Explain in 1 sentence.

4. [5 points] In November 1998 Vincent van Goghs self-portrait sold at auction for $71.5 million. Portray this sale in a demand and supply diagram and comment on the elasticity of supply.

5. [10 points] Consider a competitive market of a good A. If the demand increases and supply decreases, how it will aect the equilibrium price and quantity? (that is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate because they depend on the magnitudes of the shifts?) Use supply and demand diagrams to verify your answers.

6. [10 points] Jihlava residents consumed 200 chocolate bars per week when its price was 25CZK. When the price rose to 50CZK, Jihlava residents consumed 50 chocolate bars per week. (a) Calculate the price elasticity of demand chocolate bars using the midpoint formula. (b) Is chocolate demand price elastic or price inelastic? Explain in 1 sentence.

7. [20 points] Cuba is a fake economy which produces only 2 goodsbread and milk. Cuba has 200 workers; each worker can produce 5 bread or 10 milk (a) Draw Cubas Production Possibilities Frontier. (b) In 1990, Cuba was producing 300 bread and some milk. All workers are fully employed and optimally used. Illustrate Cubas 1990 production on the graph you drew above. Label it 1990, and calculate precisely how much milk is being produced. (c) In 1995 Cuba was producing 1500 units of milk and some bread. Only 150 workers are employed. Illustrate Cubas 1995 production on the graph you drew above. Label it 1995, and calculate precisely how much bread is being produced. (d) What is the opportunity cost of producing 1 bread?

8. [20 points] The market for corn is represented as follows: Q = 10 3P ; Q = 2 + P . Which equation does represent the supply curve? Which equation does represent the demand curve? (a) What are equilibrium quantity and price in the market? (b) The government has imposed a price ceiling of $2.5. Will an equilibrium occur? Demonstrate your answer with precise numerical calculations. Illustrate the corn market using a completely-labeled graph.

9. [20 points] Consider Teresas decision about how many hours to work. Each day Teresa awake 16 hours, this time she can spend either on work or leisure. Hourly wage is 200CZK. (a) Draw Teresas budget constraint. On the same diagram, draw another budget constraint assuming that hourly wage has increased to 300CZK. (b) Will Teresa work more or less when hourly wage has increased? Use illustration of Teresas optimal choice on your diagram, discuss substitution and income eects.

Bonus problem. [15 extra points] Consider the market depicted below on the graph. Assume that the government restricts quantity supplied to 100, what will be the market price? Shade consumer and producer surplus on the diagram. Is there any deadweight loss?
P 5 4 3 2 1 0 100 300 D 500 Q S

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