Midterm 1 60 minutes Econ 1101: Principles of Microeconomics October 7, 2013 Exam Form A Name ______________________________ Student ID number _________ Signature_______________________________ Teaching Assistant____________________ Recitation # ____________ 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 2 bonus points for filling the correct name, ID, and form number on the answer form. There are 33 multiple choice questions. 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.For questions 1-3, consider the market for coffee, which is currently at equilibrium, and where Pcoffee and Qcoffee denote the price and quantity of coffee in the market, respectively. If the change given in each problem is the only change that happened (all other things are held constant), what will be the effect on the equilibrium? 1. The price of sweeteners, complementary goods to coffee, decrease in price a. Pcoffee increases, Qcoffee increases b. Pcoffee increases, Qcoffee decreases c. Pcoffee decreases, Qcoffee increases d. Pcoffee decreases, Qcoffee decreases e. None of the above 2. The economy experiences an overall decrease in income. (Suppose that coffee is an inferior good) a. Pcoffee increases, Qcoffee increases b. Pcoffee increases, Qcoffee decreases c. Pcoffee decreases, Qcoffee increases d. Pcoffee decreases, Qcoffee decreases e. None of the above 3. Two things happen: 1) A technology is developed that makes the harvesting of coffee beans twice as efficient and 2) the temperature falls, causing more people to buy coffee a. Pcoffee increases, Qcoffee ambiguous b. Pcoffee decreases, Qcoffee ambiguous c. Qcoffee increases, Pcoffee ambiguous d. Qcoffee decreases, Pcoffee ambiguous e. None of the above 4. Someone made the observation that when income increases by 31%, the quantity demanded of spam increases by 32%. If this is indeed true, this means that: a. The demand for spam is inelastic b. The demand for spam is unit elastic c. The demand for spam is elastic d. Spam is a normal good e. Spam is an inferior good 5. Suppose that widgets are a normal good and that when income goes up, the quantity demanded of widgets stayed the same and the price of widgets increased. Which of the following statements about the widget market could be true? a. The demand for widgets is unit elastic, and the supply for widgets is perfectly inelastic b. The demand and supply for widgets are both perfectly elastic c. The demand and supply for widgets are both perfectly inelastic d. The demand for widgets is perfectly inelastic, and the supply for widget is perfectly elastic e. None of the aboveRefer to the diagram below for questions 6-13. Suppose that the market is currently unregulated and in equilibrium. 6. What is consumer surplus in this market? a. 7.5 b. 9 c. 12.5 d. 18 e. 25 7. What is producer surplus in the market? a. 7.5 b. 9 c. 12.5 d. 18 e. 25Suppose now a tax of $8 is imposed in the market. 8. What is consumer surplus in the market? a. 0 b. 2.5 c. 3 d. 3.5 e. 5 9. What is the government revenue in the market? a. 0 b. 8 c. 16 d. 24 e. 32 10. What is the change in total surplus from the free market to the market with an $8 tax? In other words, what is the deadweight loss in the taxed market? a. 0 b. 4 c. 16 d. 20 e. 25 Suppose now, instead of the $8 tax described above, a price floor of $7 is imposed on the free market. 11. What is consumer surplus in this market? a. 0 b. 2 c. 4 d. 8 e. Not enough information 12. What is producer surplus in this market? a. 0 b. 1 c. 11 d. 30 e. Not enough information 13. True or False: The advantage of having a $7 price floor instead of an $8 tax is that there will always be less deadweight loss, and hence less inefficiency in the market with the price floor. a. True b. False14. Why is the First Welfare Theorem such an amazing result for competitive markets where there are no externalities? a. It proves that whenever markets are controlled by a “visible hand,” such as a government, the greatest efficiency will be achieved b. It proves that the free market is in fact not efficient, as any allocation where there is at least some government intervention is more efficient c. It proves that supply does not need to equal demand in equilibrium d. It proves that the most efficient allocation is indeed the one where everyone gets the same amount of surplus – in other words, efficient equals equitable e. It proves that having a free market results in the same total surplus as having someone allocate consumption and production to get the greatest total surplus 15. Suppose that cheesecake is a luxury good and imagine your income increases. Which statement is the most accurate? a. your total spending on cheesecake goes down b. you buy less cheesecake c. you buy more cheesecake d. the share of income you spend on cheesecake decreases e. the share of income you spend on cheesecake increases 16. When trying to calculate accurately the price elasticity of demand for corn between the months of June and July, which of the following must not be true? a. Income between June and July is the same b. The price of wheat is the same between June and July c. The price of corn is the same between June and July d. The number of buyers for corn is the same between June and July e. The preferences of buyers are the same between June and July 17. Consider two markets, the market for flowers and the market for cookies. Suppose the equilibrium price of flowers is $12 and the equilibrium price for cookies is $3. If the government places a $6 price ceiling on both markets: a. There will be a shortage of flowers and cookies b. There will be a surplus of flowers and cookies c. There will be a shortage of flowers only d. There will be a shortage of cookies only e. There will be a surplus of cookies only 18. In the U.S.,