Econ 102Summer 2011Midterm #1June 28, 2011Version #1Student Name: ________________________________________You have 75 minutes to answer the exam. The exam contains 3 problems worth a total of 50 points and 20 multiple choice questions worth 2 points each for a total of 50 points. There are 100 total points on the exam. No cell phones, calculators, or formula sheets are allowed. Cheating will not be tolerated.Pick the best answer for each question in the multiple choice section of the exam.If there is an error on the exam or you do not understand something, make a note on your exambooklet and the issue will be addressed AFTER the examination is complete. No questionsregarding the exam can be addressed while the exam is being administered.I, ________________________________, agree to neither give help to other students on thisexam, or receive any help on this exam from other students. Furthermore, I understand that theuse of a calculator on this exam is an academic misconduct violation. Signed _____________________________******************************************************************************1I. Problems (3 problems worth 50 points each)1. (20 total points)You are told that there are two consumers in a market. The demand curvefor each consumer is given below:Demand for Consumer One: P = 10 – QDemand for Consumer Two: P = 5 – QYou are also told that the market supply curve is initially P = (1/2)Q. But, the market supplycurve is no longer in its initial position: at every price the quantity supplied has increased by5 units. a. (8 points) Draw a series of graphs in the space below that represent the demand forconsumer one, the demand for consumer two, and the market demand. There should be threeseparately labeled graphs. All intercepts should be numerically labeled, all kinks in thedemand curve should be numerically labeled, all axes should be clearly labeled, and eachgraph should be clearly titled. b. (4 points) Find the market demand curve given that there are two demanders in thismarket. If necessary provide the relevant range of prices for each segment of the demandcurve. c. (2 points) Find the new supply equation for this market given the above information.2d. (2 points) Find the equilibrium price and quantity in this market given the aboveinformation. Show your work.e. (2 points) Calculate the value of producer surplus in this market. Show your work.f. (2 points) Calculate the value of consumer surplus in this market. Show your work. 32. (15 points total) Suppose that the market for stoves in the small, closed economy ofCamelot can be described by the following domestic demand and domestic supplyequations:Domestic Demand: P = 1000 – 2QDomestic Supply: P = 200 + 2Qa. (1 point) Calculate the equilibrium price and quantity in the market for stoves in Camelotif this market is closed to trade. Show your work. b. (2 points) Calculate the value of consumer surplus (CS) and producer surplus (PS) in themarket for stoves in Camelot is this market is closed to trade. Show your work. c. (2 points) Suppose that the world price of stoves is equal to $700. Determine whether ornot Camelot will import or export stoves if Camelot opens its stove market to trade. Providea numeric measure of these imports or exports. d. (2 points) Suppose that the world price of stoves is equal to $700 and Camelot opens itsstove market to trade. Do domestic consumers or domestic producers benefit more from thisdecision? Explain your answer.4e. (4 points) Suppose that the world price of stoves is equal to $300 and Camelot opens itsstove market to trade. In addition Camelot imposes a quota of 150 stoves. Calculate the newprice of stoves in Camelot and the license holder revenue that results from the imposition ofthis quota. f. (2 points) The policymakers in Camelot are debating the merits of a tariff versus a quota inthe market for stoves. If the world price of stoves is $300, what would the tariff need to be inorder for the tariff to be equivalent to the quota described in part (e)? Explain your answer. g. (2 points) Suppose that in Camelot the market for stoves is open to trade and that theworld price is $300. For each of the following statements mark the statement as “T” for trueor “F” for false. i. ______ Opening the stove market to trade increases total surplus.ii. ______ Opening the stove market to trade increases consumer surplus. iii. ______Opening the stove market to trade results in deadweight loss. iv. ______Opening the stove market to trade decreases producer surplus. 53. (15 points) Capriland and Utopia both produce tires and shovels. Below is a tableproviding information about the amount of labor that the two countries use to produce thesetwo goods. Amount of Labor to ProduceOne TireAmount of Labor to ProduceOne ShovelCapriland 2 hours 4 hoursUtopia 3 hours 4 hoursAssume that the production possibility frontiers for both Capriland and Utopia are linear andthat both countries have 240 hours of labor that can be devoted to the production of tires andshovels. a. (2 points) What is the maximum amount of tires that Capriland can produce given theabove information?b. (2 points) What is the maximum amount of shovels that Utopia can produce given theabove information?c. (2 points) Write an equation in slope intercept form that expresses the relationship betweenshovels (S) and tires (T) for Utopia. Assume that shovels are measured on the vertical axis ofUtopia’s production possibility frontier. d. (2 points) Write an equation in slope intercept form that expresses the relationship betweenshovels (S) and tires (T) for Capriland. Assume that shovels are measured on the vertical axisof Capriland’s production possibility frontier. 6e. (2 points) Which country has the comparative advantage in the production of shovels?Explain your answer. f. (2 points) Provide a range of trading prices for 10 tires in terms of shovels.g. (3 points) Draw a graph in the space below that depicts the combined productionpossibility frontier for Capriland and Utopia if they trade with one another. Label your graphcarefully and completely. If your PPF is composed of different segments, provide numericvalues for any segment endpoints including the x and y intercepts. 7II. Multiple Choice (25 questions each worth 2 points for a total of 50 points)1. Use the following information to answer the next four
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