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U of M ECON 1101 - Midterm1_2012_formA

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1Midterm 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.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 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.37. 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 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 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 above4 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. Variable Free Market $4 Tax ChangeQ 6 PD 2 PS 2 CS 18 PS 0 Gov't Surplus 0 TS 18 10. 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) 85 11. The equilibrium consumer price PD under the $4 tax is 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. 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 15. 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 = 6616. 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


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