Midterm 2 60 minutes Econ 1101 Principles of Microeconomics November 10 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 1 2 3 4 5 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 1 1 For ques stion 1 plea ase fill in a on your bub bble sheet a as this is exa am form A We are usin ng this question n to verify the e exam form m a Form mA The questio ons on this page and the t next pa age refer to the graph below Terrrapin consumes pizza and soda an nd the graph h illustrates s his indifferrence curve es 2 From Te errapin s indifference currves we can n determine that Terrapiin is indiffere ent between having 10 pizzas 10 sodas s and a 8 pizzas 12 sod das b 8 pizzas p 22 so odas c 6 pizzas 6 soda as d 32 pizzas p 4 sod das e 24 pizzas p 2 sod das 3 Suppose e Terrapin has an incom me of 60 that PPizza 4 and that PSSoda 2 Drraw Terrapin n s budget constraint c in the above figure f From m this we can n see that th he opportunitty cost of on ne more slice of pizza p equals s a so oda b 1 soda c 2 sodas d 3 sodas e 4 sodas 2 4 At this income and prices of soda and pizza the optimal consumption bundle for Terrapin is a 7 5 pizza 15 sodas b 4 pizza 22 sodas c 15 pizza 0 sodas d 10 pizza 10 sodas e 14 pizza 2 sodas 5 Suppose the price of pizza falls from 4 to 2 The change in the demand for pizza equals a 0 b 4 c 8 d 10 e 12 6 When the pizza price falls from 4 to 2 what can we say about the substitution and income effects on the demand for pizza a They are both positive and the substitution effect is bigger than the income effect b They are both positive and the substitution effect is less than the income effect c The substitution effect is negative and the income effect is positive d The substitution effect is positive and the income effect is negative e The substitution effect is zero and the income effect is negative 7 When the price of pizza falls from 4 to 2 at the new optimal consumption bundle the marginal rate of substitution will equal soda for pizza a 0 b 5 c 1 d 2 e 4 8 Go back to the beginning when the price of pizza is PPizza 4 and PSoda 2 and income is 60 Suppose Terrapin wins a prize where he can pick between lowering his pizza price to PPizza 2 for as many slices as he wants to buy or increasing his income by 2 to 62 Which of the following is true a He prefers a 2 price cut per pizza slice over a 2 income increase b He prefers a 2 income increase over a 2 price cut c He is indifferent between the two prizes d There is not enough information to answer this question 3 w assump ptions will the e long run su upply curve for the widg get industry b be perfectly elastic 9 Under what i e perffectly flat i Margiinal cost is greater g than average tota al cost at evvery quantityy level ii The same s techno ology is avaiilable to all firms f iii Therre are no barriers to entrry in the indu ustry iv The supply curve has unit elasticity v Inpu ut prices do not change as the indus stry expandss a i an nd ii b iii and a iv c i iiii and iv d ii iii and v e i iii iv and v Suppose the e required assumptions from above hold for the e widget indu ustry Each widget firm has the cost stru ucture illustra ated in the le eft graph below The rig ght graph illu ustrates two different possible demand d curves D1 and D2 10 Fixed co ost equals a 9 b 5 c 8 d 12 e 15 4 For the next four questions assume demand is D1 and the industry is in long run equilibrium Note D1 is the demand curve on the right 11 The price PLR is a 8 b 5 c 12 d 4 e 6 12 Long run output per firm qLR equals a 2 b 3 c 4 d 5 e 6 13 Long run industry quantity QLR equals a 500 b 700 c 300 d 400 e 600 14 Long run number of firms NLR equals a 50 b 100 c 150 d 200 e 300 15 Suppose the industry is initially in long run equilibrium at demand D1 and the number of firms equals the number in the previous question Demand then shifts to D2 In the short run the equilibrium price will be a 4 b 5 c 6 d 7 e 8 16 Continuing the previous question after demand shifts to D2 in the short run the profit of each firm will be a 2 b 4 c 8 d 4 e 9 5 17 When demand shifts like in the previous question price changes in the short run than the long run and quantity changes in the short run than the long run a less more b less less c more more d more less Name Willingness to Pay D1 7 D2 3 D3 1 D4 0 18 In Econland the willingness to pay for a national park is given by the table above Suppose that a national park is nonrivalrous in consumption and nonexcludable It is socially efficient to build the national park if and only if the cost is no higher than a 6 b 2 c 20 d 11 e 7 19 Suppose Econland is initially in autarky Then after it opens up to trade widget producers in Econland become better off while widget consumers in Econland become worse off After Econland leaves autarky a it must be using an import quota on widgets b it must be using a tariff on imported widgets c it must be exporting widgets d None of the above …