Economics 110 Principles of Economics Midterm Exam # 1 You have 50 minutes to complete this examination. The exam consists of two parts, totaling 100 points: Part I: Short Answer/Problem Solving 2 questions (46 points) Part II: Multiple Choice 18 questions (54 points) The examination is closed book: no outside materials (notes, books, problem set solutions, etc.) are permitted during the exam. Calculators are permitted. All scrap paper will be provided in class. For Part I: Short Answer/Problem Solving. Show all your work to receive full credit. Adequate space is provided to answer each question on the exam. You can use back of the exam questions for extra space. For Part II: Multiple Choice. Choose the correct letter answer and fill in the corresponding bubble in the provided Scantron sheet. Good Luck! NAME: ID # GRADING: Part I: Part II: Total:
Part I: Short Answer/Problem Solving Directions: In the following five scenarios, you are asked to apply the supply and demand analysis to determine the effects of certain economic events on the markets given in the question. To receive credit, you must identify which curve is affected from the event discussed in the question and then clearly indicate the shift in the appropriate curve. Also clearly mark the initial and final (equilibrium price, equilibrium quantity) pairs. 1) a) The memory foam mattresses claim to have several advantages over spring mattresses such as providing even support and relieving stress and pressure while you sleep. Suppose foam prices increase. Find the effect of this change on the equilibrium price and quantity of memory foam mattresses. P S 1 Equilibrium Price: D 1 Q Equilibrium Quantity: b) Vibram pioneered the bare foot running movement with the five fingers line of shoes which are imitated by many competing shoe companies. A recent study by the American College of Medicine found out that minimalist running shoes cause significantly more bone marrow edema injuries. Find the effect of this change on the equilibrium price and quantity of minimalist running shoes. P S 1 Equilibrium Price: D 1 Q Equilibrium Quantity:
c) Keurig coffee makers are very popular among home and business users who like the convenience of single serving coffee brewing system. The Keurig system requires users to buy special capsules packed with ground coffee called K- cups. Suppose due to increased number of coffee roasters offering K- cups, the price of K- cups decreased. Find the effect of this change on the equilibrium price and quantity of Keurig coffee makers. P S 1 Equilibrium Price: Equilibrium Quantity: D 1 Q d) Bologna is a pork sausage widely available in grocery stores. Average income levels in United States rise over the past year. Assume Bologna is an inferior good. Find the effect of this change on the equilibrium price and quantity of bologna. P S 1 Equilibrium Price: Equilibrium Quantity: D 1 Q e) Long term forecasts suggest smaller than usual Orange crops in Florida, likely to result in higher prices for frozen orange concentrate in 2015. Find the effect of this change on the equilibrium price and quantity of frozen orange concentrate today. P S 1 Equilibrium Price: Equilibrium Quantity: D 1 Q
2) Rachel and Joey are working for Cracking - a breakfast bar. In one hour Rachel can cook 10 omelets or 20 pancakes. Joey can cook 5 omelets or 15 pancakes in one hour. Each day Cracking is open for business for 4 hours in the morning. a) Who has the absolute advantage in making omelets? b) Who has the absolute advantage in making pancakes? c) Who has the comparative advantage in making omelets? Explain. d) Who has the comparative advantage in making pancakes? Explain. e) Draw the joint Production Possibilities Frontier (PPF) for Rachel and Joe for a workday at Cracking in the graph below. 80 70 60 50 Omelets 40 30 20 10 0 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 Pancakes
Answer part (f) and (g) using the joint PPF you have drawn in part (e). f) Working as a team, what is the maximum omelets that they can cook in a workday if they also have to cook 30 pancakes in that workday. Mark that as point A in your PPF graph. A= ( Omeletes, 30 Pancakes ) g) Explain, how point A can be achieved: Joey works hours on Pancakes and hours on Omelets Rachel works hours on Pancakes and hours on Omelets
1. A microeconomist might study each of the following EXCEPT a. the effects of rent control on housing in New York City. b. how a college student makes financial decisions. c. how tariffs on shoes affects the shoe industry. d. impact of monetary policy on the rate of inflation. 2. It takes Bob 20 minutes to wash a car and 30 minutes to vacuum the interior. It takes Patrick 10 minutes to wash a car and 20 minutes to vacuum the interior. Which of the following is correct. a. Bob has absolute advantage in washing cars, Patrick has absolute advantage in vacuuming b. Patrick has absolute advantage in washing cars, Bob has absolute advantage in vacuuming c. Patrick has comparative advantage in washing cars, Bob has comparative advantage in vacuuming d. Bob has comparative advantage in washing cars, Patrick has comparative advantage in vacuuming e. Patrick has comparative advantage in both car washing and vacuuming 3. Which of the following is the most accurate statement about economic models? a. Economic models attempt to mirror reality exactly b. Economic models cannot be used in the real world because they omit details c. Economic models omit many details to allow us to see what is truly important d. Economic models are useful in classroom for pedagogical purposes, but are not used for policy making 4. Which of the following is an example of a normative statement? a. If the price of a product decreases, quantity demanded increases b. Reducing tax rates would be good for the economy. c. If the national savings rate were to increase, so would the rate of economic growth d. Prices rise when the government prints more money 5. Suppose Joelle quits her job as an IT consultant and starts her own dance studio. As an IT consultant her yearly salary was 60,000. To rent the space for her studio and pay for salaries of coworkers and other expenses, she withdraws $20,000 of her savings, which was earning 5% interest. At her studio, Joelle has 100 students and charges each one tuition of $400. Which of the following is Joelle s opportunity cost of starting her own dance studio? a. $21,000 b. $80,000 c. $81,000 d. $121,000 e. $41,000
Suppose an economy is producing only bread and milk and the below table gives the PPF for this economy (Use this table to answer questions 6 and 7) Bread (loaves) Milk (gallons) 40 0 30 20 20 35 10 45 0 50 6. Given the above table, what is the opportunity cost of increasing the production of bread from 10 to 20 loaves? a. 5 gallons of milk b. 10 gallons of milk c. 20 gallons of milk d. 15 gallons of milk e. 10 loaves of bread 7. Given the above table, which of the following statements acutely describes the production possibilities for this economy? a. the opportunity cost of an additional 10 loaves of bread is 20 gallons of milk b. the opportunity cost of an additional 10 loaves of bread is 10 gallons of milk c. without additional information, it is impossible to determine the opportunity cost of an additional 10 loaves of bread d. the opportunity cost of an additional 10 loaves of bread increases as more bread is produced 8. When a production possibilities is linear it shows a. a truer picture of real life than a bowed out production possibilities frontier b. that resources are perfectly shiftable from the production of one good to another c. an example of increasing opportunity costs d. that it is possible to produce more of one good without producing less of the other 9. Which of the following would NOT shift the demand curve for a good or service? a. a change in income b. a change in the price of the good or service c. a change in expectations about the future price of the good or service d. a change in the price of a related good
10. According to the graph shown, if price in this market is currently $8, there would be a. shortage of 20 units and price would tend to rise. b. surplus of 20 units and price would tend to fall. c. shortage of 40 units and price would tend to rise. d. surplus of 40 units and price would tend to fall. e. No shortage or surplus 11. Which of the following statements is correct about the law of demand? a. as the price of oranges decreases, the demand for oranges increases b. as the price of oranges increases, the demand for oranges increases c. as the price of oranges decreases, the quantity of oranges demanded increases d. as the price of oranges increases, the quantity of oranges demanded increases e. as the price of oranges decreases, the demand for oranges shifts to the left. 12. Suppose NCAA decreased the price of March madness tickets from $80 to $60 and observed that the number of tickets sold increased from 500,000 to 600,000. From this you infer that the price elasticity of demand for basketball tickets during March madness is a. - 0.8 b. - 0.4 c. Unitary elastic d. - 1.25 e. 0
PRICE QUANTITY DEMANDED QUANTITY SUPPLIED $10 10 50 $8 20 40 $6 30 30 $4 40 20 $2 50 10 13. In the table above the demand and supply schedules for pizza is given. Suppose Transcript publishes an article discussing the negative effects of pizza consumption on acne, thus causing demand to decrease to one half. The new equilibrium price and quantity would be a. $4. and 20. b. $6 and 30. c. $8 and 40 d. $10 and 30. 14. Yellowstone National park is now charging higher entrance fees than before. This should result in a. a movement up along the downward sloping demand curve for park visits b. a decrease in the demand for park visits c. a movement down along the upward sloping supply curve for park visits d. an increase in the supply of of park visits 15. Suppose the ticket price for the upcoming Maroon 5 concert at Nationwide Arena is set above the equilibrium price. Which of the following is correct? a. There is excess supply of Maroon 5 concert tickets b. Buyers desire to purchase more than the available tickets for sale. c. Sellers desire to sell more tickets than buyers wish to purchase d. There is excess demand for Maroon 5 concert tickets. e. Both (a) and (c) 16. Suppose that the number of buyers in ice cream market increases and a new technology in the production of ice cream is developed. What would we expect to happen in the market for ice cream? a. The equilibrium price would increase, but the impact on the equilibrium quantity of ice cream traded would be ambiguous. b. The equilibrium price would decrease, but the impact on the equilibrium quantity of ice cream traded would be ambiguous. c. Both equilibrium price and equilibrium quantity would increase d. Equilibrium quantity would increase, but the impact on the equilibrium price would be ambiguous. e. Equilibrium quantity would decrease, but the impact on the equilibrium price would be ambiguous.
17. Toys, in general are considered normal goods. All else constant, which of the following would tend to decrease the price of toys? a. Consumers get larger than expected Christmas bonuses b. A recession reduces the consumers income c. The government decreases income tax rates d. There is a technological improvement in toy manufacturing e. Both (b) and (d) 18. Suppose that Clancy s decides to lower the per glass price of beer to increase total revenue. The bar must believe that the price elasticity of demand for beer is a. elastic b. inelastic c. unit elastic d. there is not enough information to infer anything about the price elasticity of demand for beer from the information given