1Midterm 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.21. 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.3 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 Bid (Offer to buy in $ ) Sellers Bid (Offer to sell in $) Aretha 3 Allie 3 Bill 8 Brett 14 Charles 14 Cindy 5 Dane 12 David 4 Elizabeth 5 Earl 4 7. 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) Aretha, Brett 9. 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.4Reservation Prices and Costs in Econland for a Widget Name of D Person Reservation price for one widget (dollars) Cost to make one widget (dollars) Name of S Person 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) D1, D2, D3 will consume. (2) We don’t know who is going to consume. (3) S1, S2, S3, S4, S5, S6, S7 will produce (4) S1, S2, S3 will produce. (5) 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)5 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. Variable Free Market $8 Tax ChangeQ 5 PD 5 PS 5 CS 12.5 PS 12.5 Gov't Surplus 0 TS 25 13. The equilibrium consumer price PD under the $8 tax is a) 6 b) 7 c) 8 d) 9 e) 13 012345678910012345678910Quantity$DS012345678910012345678910Quantity$DS6 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