Version 2 Page 1 Economics 2010 (Morey section), Fall 2011 Second Midterm: Version 2 Name: __________________________ Date: _____________ Note that we gave everyone full credit for the cruise question about variable costs. It was not a great question. I did not add comments to version 2. Takers of version 2 need to look through the comments on version 1. I did not want to write everything twice. Some people do not adequately understand negative numbers and what they mean. Surprisingly, at least to me, some people found the elasticity questions difficult. I thought most of them would be shoe-ins. Maybe the difficulty is due to my last point. There was an issue with question13 that I only thought about after the exams were graded. Given the problem with the question (explained below) we will add one point, out of 45, to everyone’s test score. This grade change applies to both versions of the exam. 1. Justin is in college and has $16 a day to spend on food. Given his allergies and intolerance to lactose, he can consume only pesto pizza without cheese and seaweed salad. The pizza cost $2 a slice and the salad $4 a bowl. Justin belongs to the Church of Skinny which allows one to consume no more than 800 calories per day. Justin is a devout member. Each slice of pizza has 200 calories and each bowl of seaweed has 100 calories. In addition, Justin's mother instructed him to waste no more than one hour a day eating, and Justin obeys his mother. It takes Justin 10 minutes to each a slice of pizza and 15 minutes to knock back a bowl of seaweed salad. If Justin spends all of his $16 on food, then, per day A) Justin can consume a maximum of 6 slices of pizza B) Justin can consume a maximum of 8 dishes of salad C) Justin can consume a maximum of 3 slices of pizza D) Justin can consume a maximum of 4 dishes of salad 2. Assume China and the U.S. currently have the same levels of pollution, but the U.S. is much richer in terms of goods. Which statement is more likely to be correct? A) The marginal-rate-of-substitution of pollution reduction for goods in the U.S. is greater than the marginal-rate-of-substitution of pollution reduction for goods in China B) The marginal-rate-of-substitution of pollution reduction for goods in China is greater than the marginal-rate-of-substitution of pollution reduction for goods in the U.S. C) Willingness-to-pay for pollution reduction is higher in ChinaVersion 2 Page 2 3. In the theory of the firm, we use "isoquants". Breaking down the term we have "quant" as in "quantity," and "iso" as in "one," meaning every point on an isoquant corresponds to the same quantity. The analogous concept in regards to consumer theory is_______. A) An Indifference curves B) Preferences C) Utility D) A budget line 4. The slope of ______ shows the rate at which two goods can be exchanged ________ the consumer's ________. A) a budget line, without affecting, utility level. B) an indifference curve; without affecting; utility level. C) an indifference curve, without affecting, level of expenditures. 5. Which statement best describes how the competitive firm chooses the input combination it will use to produce, in the long run, its chosen level of output. A) It is determined by the state of technical knowledge for producing its output and the constraints imposed on the firm by the market. B) It is determined by the isoquant map C) It is determined by its chosen level of output D) It is determined by the input prices 6. Scott operates a business that takes people on boat tours in Crystal River, Florida. The amount of fuel Scott uses each day is a variable input. A) True B) False 7. Jim is a stalwart Republican; he works a steady job, has a wife and two kids, and lives in the suburbs. He dislikes Obamacare. Which of the following statements is definitely not correct? A) Jim's wta Obamacare is positive and maybe greater than his income. B) For Jim, every state-of-the-world with Obamacare is preferred to every state without Obamacare. C) Jim's wtp to eliminate Obamacare is positive but less than his income.Version 2 Page 3 8. Since females in the US tend to marry at a younger age than males, women born during the early portion of the baby boom (starting 1945) entered the "marriage market" before their male counterparts creating a situation in the 1960's where there were more potential brides than grooms. The 1960's ushered in the Sexual Revolution. The "pill" became widely available and the frequency of pre-marital sex jumped drastically. Luckily, this was before the time of AIDS. Robert Frank, a noted economist, recently speculated in the New York Times that the increased competition for grooms caused by the baby boom might be responsible for some of the jump in the incidence of pre-marital sex that started in the 1960's. A) Frank's hypothesis seems to require the assumption that marriage-age females believe that having sex before marriage will increase the probability that they will get married, or at least believed this back then. B) An alternative to Frank's hypothesis is that the jump in pre-marital sex was completely due to the pill becoming widely available. C) All of the other four choices are reasonable. D) This is an accurate description of Frank's hypothesis, whether it is correct is another matter. E) Frank would likely say that the demand curve for grooms shifted to the right, supply curve constant, when the baby-boom females came of age. 9. Fred, the skier, just got a bunch of new non-skiing friends who want Fred to hang out with them watching, over and over, episodes of the TV show Pretty Little Liars. Fred likes Pretty Little Liars. This widening of her social circle will likely A) decrease the number of miles that she skis because it has caused her "wage rate" to increase B) increase the number of miles that she skis because it has caused her "wage rate" to decrease. C) have no effect on the number of miles she skis because it does not affect her "wage rate." D) increase the number of miles that she skis because it has caused her "wage rate" to increase. 10. Karen consumes gasoline and other goods. A new excise tax on gasoline raises gas prices. However, the government pays Karen an income subsidy that is just enough for her to stay on her original (pre-tax) indifference curve. Her new optimal consumption bundle will have: A) less gas and more of other goods. B) This question can't be answered, since