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U of M ECON 1101 - Midterm1_2014_formA

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1Midterm 1 60 minutes Econ 1101: Principles of Microeconomics October 6, 2014 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 - X.500 username (= email without “@umn.edu”) - Identification Number, - Section (recitation number) - Form A (in box marked “Form/Version”) Fill in the corresponding bubbles. Sign your name on back of answer form. You will be awarded 1.5 bonus points for filling the correct name, x500, ID, and form number on the answer form. There are 33 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 ethanol. For each of the following situations, determine what happens to the equilibrium quantity (Qethanol) and equilibrium price (Pethanol) of ethanol. 2. The price of corn decreases. Corn is an input in the production of ethanol a) Qethanol ↑ and Pethanol ↑. b) Qethanol ↓ and Pethanol ↑. c) Qethanol ↑ and Pethanol ↓. d) Qethanol ↓ and Pethanol ↓. 3. The price of crude oil decreases. a) Qethanol ↑ and Pethanol ↑. b) Qethanol ↓ and Pethanol ↑. c) Qethanol ↑ and Pethanol ↓. d) Qethanol ↓ and Pethanol ↓. 4. Two things happen: (i) the price of corn decreases; (ii) the price of crude oil decreases. a) Qethanol ↑ and we can’t tell what happens to Pethanol. b) Qethanol ↓ and we can’t tell what happens to Pethanol. c) Pethanol ↑ and we can’t tell what happens to Qethanol. d) Pethanol ↓ and we can’t tell what happens to Qethanol. 5. Consider the widget industry. Suppose the price of an complement increases, and as a consequence, PWidget decreases while Qwidget remains unchanged. Which of the following statements about the widget market must be true? a) Demand is perfectly elastic. b) Supply is perfectly elastic. c) Demand is perfectly inelastic. d) Supply is perfectly inelastic. e) none of the above. 6. In an industry, (1) demand is unit elastic (i.e., the elasticity of demand equals one) and (2) supply is unit elastic (i.e., the elasticity of supply equals one). Suppose a tax is imposed on the industry. Which statement is true? a) Sellers bear the entire burden of the tax. b) Buyers bear the entire burden of the tax. c) Buyers and sellers each bear some of the burden of the tax. d) There is insufficient information to answer the question.3 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 7. The table above provides reservation prices and costs for the inhabitants of Econland. Suppose we have an allocation where S9 produces a widget and S2 does not produce a widget. This is not Pareto efficient because a) S9 can give $10 to S2, and S2 can make the widget instead of S9, and both are better off. b) S9 can give $1 to S2, and S2 can make the widget instead of S9, and both are better off. c) S9 can give $1.99 to S2, and S2 can make the widget instead of S9, and both are better off. d) S9 can give $2.01 to S2, and S2 can make the widget instead of S9, and both are better off. e) None of the above. 8. Suppose we have an allocation where S1,S2,S3,S4,S5 produce a widget and D1,D2,D3,D4,D5 consume a widget. a) This is not Pareto efficient because we can have S9 sell to D1 for $9, S8 sell to D2 for $8, S7 sell to D3 for $7, and so on up to S1 sell to D9 for $1, and this will maximize output. b) This is not Pareto efficient because S8 can sell a widget to D8 for $8 and both are better off. c) This is not Pareto efficient because S5 should outsource production to S10. d) This is not Pareto efficient because the condition for efficient allocation of consumption is not satisfied. e) None of the above. 9. True of False: In any Pareto efficient allocation, producer surplus must equal consumer surplus. a) True b) False4 The above diagram gives information about demand and supply for widgets in Econland. 10. True of False: In the unregulated market equilibrium, excess demand must be zero. a) True b) False 11. Suppose the market is currently unregulated. Consumer surplus equals a) 5 b) 10.5 c) 12.5 d) 16 e) 25 12. Suppose the government offers a subsidy of $6 per widget. The equilibrium quantity with the subsidy is a) 2 b) 6 c) 7 d) 8 e) 10 13. The total government expenditure on a program with a $6 subsidy is a) 12 b) 36 c) 48 d) 60 e) 80 012345678910012345678910Quantity$DS012345678910012345678910Quantity$DS514. The change in total surplus (deadweight loss) of the $6 subsidy program compared to the unregulated market equals a) −1 b) −2 c) −4 d) −8 e) −9 15. Suppose instead of the subsidy, there is a price ceiling of $2. Excess demand in the market equals a) 0 b) 2 c) 4 d) 6 e) 8 16. Suppose when the price ceiling is $2 that rationing is perfectly inefficient. Consumer surplus equals a) 1 b) 2 c) 4 d) 10 e) 14 17. Suppose instead of a price ceiling, there is a price floor of $2. Consumer surplus equals a) 0 b) 4 c) 12.5 d) 25 e) 32 18. Finally, suppose instead of all the policies listed above, there is a cap and trade policy that caps the total amount of quota at 4 units. The equilibrium price of one unit of quota at the quota exchange equals a) 1 b) 2 c) 3 d) 4 e) 5619. Which statement is true about government intervention in the dairy industry in Canada? a) There is a government subsidy for milk b) There is a price ceiling on milk. c) There is a tax on milk that is rebated back to farmers. d) There is a cap and trade program for milk. e) None of the above. 20. Consider the following conditions that may or may not


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