Midterm 1 60 minutes Econ 1101 Principles of Microeconomics October 8 2012 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 four questions consider the market for widgets For each of the following situations determine what happens to the equilibrium quantity Qwidget and equilibrium price Pwidget of widgets 2 Income increases Assume widgets are an inferior good a Qwidget and Pwidget b Qwidget and Pwidget c Qwidget and Pwidget d Qwidget and Pwidget 3 The price of smidgets increases Assume smidgets and widgets are complements a Qwidget and Pwidget b Qwidget and Pwidget c Qwidget and Pwidget d Qwidget and Pwidget 4 The price of wood increases Wood is an input in the production of widgets a Qwidget and Pwidget b Qwidget and Pwidget c Qwidget and Pwidget d Qwidget and Pwidget 5 Two things happen i the price of smidgets increases ii the price of wood increases a Qwidget and we can t tell what happens to Pwidget b Qwidget and we can t tell what happens to Pwidget c Pwidget and we can t tell what happens to Qwidget d Pwidget and we can t tell what happens to Qwidget 6 Consider the widget industry Suppose the price of an input increases and as a consequence Qwidget decreases while PWidget remains unchanged Which of the following is a possible explanation for why this happened a Demand is perfectly inelastic b Supply is perfectly inelastic c Demand is perfectly elastic d Supply is perfectly elastic e none of the above 2 7 In an industry 1 demand is perfectly inelastic 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 Reservation Prices and Costs in Econland for a Widget Name of D Reservation Cost to Name of Person price for one make S widget one widget Person 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 8 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 D2 D3 D4 D5 D6 each consume a widget This is not Pareto efficient because a D2 can sell a widget to D7 for 5 and both are better off b S7 can sell a widget to D7 for 5 and both are better off c S1 can sell a widget to D1 for 10 and both are better off d S6 can pay 3 to S1 to outsource production of the widget to S1 and both are better off e None of the above 9 Suppose there is a price ceiling of 3 What inefficiency might result a D9 might end up consuming a widget while D1 does not b D6 might end up consuming a widget while D2 does not c S5 might end up producing a widget while S3 does not d S2 might end up producing a widget while S1 does not e None of the above 3 The above diagram gives information about demand and supply in a particular market The next few questions ask you to determine the effects of a tax of 4 per unit To answer the questions it is recommended that you first fill out the table below 10 Variable Free Market Q 6 PD 2 PS 2 CS 18 PS 0 Gov t Surplus 0 TS 18 4 Tax Change Suppose there are no externalities associated with this market and there is no monopoly What is the efficient output level the output that maximizes total surplus in this market a 4 b 5 c 6 d 7 e 8 4 The equilibrium consumer price PD under the 4 tax is 11 a 4 b 5 c 6 d 7 e 8 12 Consumer surplus under the 4 tax is a 1 b 2 c 4 5 d 8 e 12 13 The change in total surplus from the 4 tax is a 0 b 4 c 6 d 8 e 12 14 15 Assume the same demand and supply curve in the diagram above but consider a different policy The government has implemented a supply management policy in the industry limiting industry quantity to Q 4 It does this by distributing 4 units total of quota and requiring that any firm producing output have quota equal to how much the firm produces Suppose it is possible to buy and sell quota on a quota exchange The equilibrium price of quota at the quota exchange per unit of quota equals a 0 b 1 c 2 d 4 e 8 The total market value of the quota equals the quantity of quota times the price of quota Which of the alternative quota quantities below maximizes the total market value of quota a Q 2 b Q 3 c Q 4 d Q 5 e Q 6 5 16 Which of the following conditions are satisfied in a Pareto efficient allocation 1 The consumer reservation value of the last unit consumed equals the marginal cost of the last unit produced 2 Consumption is allocated to consumers with the highest willingness to pay 3 Production is allocated to producers with the lowest cost 4 Total surplus is allocated in an equitable way a 1 b 2 and 3 c 1 2 and 3 d None of the above 17 Which of the following two statements are true about the deadweight loss of a tax per dollar collected of a tax 1 It tends to be large when taxes are small 2 It is zero when demand is perfectly elastic a 1 b 2 c 1 and 2 d Neither 1 nor 2 Consider the following conditions that may or may not apply about a market 1 All goods …