Midterm 1 60 minutes Econ 1101 Principles of Microeconomics October 10 2011 Exam Form A Name Student ID number Signature Teaching Assistant Section The answer form the bubble sheet and this question form will both be collected at the end of the exam Fill in the information above and then on the answer form please write the following information name student ID number recitation number Form A see the bottom part of the answer sheet for this bubble Fill in the corresponding bubbles Sign your name on the answer form You will be awarded 1 5 bonus points for filling the correct name ID and form number on the answer form There are 32 questions All questions are multiple choice Each question has a single answer Select the best answer for each question and fill in the corresponding bubble on the answer sheet Use a Number 2 pencil to fill in your answer You are not permitted to use calculators or to open books or notes 1 1 For question 1 please fill in a on your bubble sheet as this is exam form A We are using this question to verify the exam form a Form A The following five questions consider the market for corn For each of the following situations determine what happens to the equilibrium quantity Qcorn and equilibrium price Pcorn of corn 2 There is no rain throughout the entire summer in the corn growing regions a Qcorn and Pcorn b Qcorn and Pcorn c Qcorn and Pcorn d Qcorn and Pcorn 3 The price of cars that use ethanol for fuel decreases Ethanol is made out of corn a Qcorn and Pcorn b Qcorn and Pcorn c Qcorn and Pcorn d Qcorn and Pcorn 4 Sugar prices rise Sugar and corn syrup are both used as sweeteners a Qcorn and Pcorn b Qcorn and Pcorn c Qcorn and Pcorn d Qcorn and Pcorn 5 A new kind of corn is developed that is resistant to damage from insects a Qcorn and Pcorn b Qcorn and Pcorn c Qcorn and Pcorn d Qcorn and Pcorn 6 Two things happen i sugar prices rise and ii a new kind of corn is developed that is resistant to damage from insects a Qcorn and we can t tell what happens to Pcorn b Qcorn and we can t tell what happens to Pcorn c Pcorn and we can t tell what happens to Qcorn d Pcorn and we can t tell what happens to Qcorn 2 You are the Independent System Operator ISO in an electricity market You have received the bid information in the table below for a double auction Each buyer s bid is an offer to buy one Mhw of electricity Each seller s bid is an offer to sell one Mhw of electricity Buyers Aretha Bill Charles Dane Elizabeth 7 Bid Offer to buy in 3 8 14 12 5 Sellers Allie Brett Cindy David Earl Bid Offer to sell in 3 14 5 4 4 What price clears the market a 3 b 4 c 5 d 12 e 14 8 In the market clearing allocation buys and sells a Aretha Allie b Charles Brett c Bill David d 9 Aretha Brett Consider the widget industry Suppose consumer income increases and as a consequence the price PWidget increases while the quantity Qwidget remains unchanged Which of the following is a possible explanation for why this happened a Widgets are a necessity good and the supply curve is unit elastic b Widgets are a normal good and the supply curve is perfectly elastic c Widgets are an inferior good and the supply curve is perfectly inelastic d Widgets are a luxury good and the supply curve is unit elastic e none of the above 10 In an industry 1 demand is unit elastic and 2 supply is perfectly elastic If a tax is imposed in this industry bear the entire burden of the tax and equilibrium quantity Pick an answer to fill in the blanks a Buyers decreases b Buyers is unchanged c Sellers decreases d Sellers is unchanged 3 Reservation Prices and Costs in Econland for a Widget Name of Cost to Name of D Reservation S make Person price for one one widget Person widget dollars dollars D1 9 1 S1 D2 8 2 S2 D3 7 3 S3 D4 6 4 S4 D5 5 5 S5 D6 4 6 S6 D7 3 7 S7 D8 2 8 S8 D9 1 9 S9 D10 0 10 S10 11 The table above provides reservation prices and costs for the inhabitants of Econland Suppose we have an allocation where S2 S3 S4 S5 S6 each produce a widget and D1 D2 D3 D4 D5 each consume a widget This is not Pareto efficient because a Total output is higher if S1 through S10 produce and D1 through D10 consume b D5 can sell his widget to D8 for 5 and both are better off c In an efficient allocation 3 widgets are produced d S7 can produce a widget and give it to D6 for 5 and both are better off e S6 can pay 3 to S1 to outsource production of the widget to S1 and both are better off 12 Suppose in Econland there is a price floor of 7 Which of the possible alternatives are true 1 2 3 4 5 D1 D2 D3 will consume We don t know who is going to consume S1 S2 S3 S4 S5 S6 S7 will produce S1 S2 S3 will produce We don t know who is going to produce a 1 and 4 b 2 and 3 c 2 and 4 d 1 and 5 e 2 and 5 4 10 9 8 7 6 5 4 3 2 1 0 S D 0 1 2 3 4 5 6 7 8 9 10 Quantity The above diagram gives information about demand and supply for widgets in Econland The next few questions ask you to determine the impact of a tax of 8 in Econland To answer the questions it is recommended that you first fill out the table below and then use the table to answer the questions 13 Variable Free Market Q 5 PD 5 PS 5 CS 12 5 PS 12 5 Gov t Surplus 0 TS 25 8 Tax The equilibrium consumer price PD under the 8 tax is a 6 b 7 c 8 d 9 e 13 5 Change 14 The equilibrium quantity Q under the 8 tax is a 5 b 4 c 3 d 2 e 1 15 Producer surplus under the 8 tax is a 5 b 1 5 c 4 5 d 6 e 8 16 The change in consumer surplus from the 8 tax is a 0 b 4 c 8 d 12 e 12 5 17 The change in total surplus from the 8 tax is a 2 b 4 c 8 d 12 e 16 18 Which of the following conditions for efficiency are violated on account of the tax 1 Condition 1 that consumption be allocated to consumers with highest willingness to pay 2 Condition 2 that …