1 Exam #2 Principles of Microeconomics – Econ1014 Fall 2012 Blue version - Do not open this exam or begin writing until you are told to begin. - When you are told to begin, first write your name, student ID and exam version on your scantron form and fill in the bubbles for your name and ID. - Be sure to read directions carefully, use your exam copy to help you solve the problems and transfer all your answers to the scantron form. Only answers bubbled into the scantron form before time is called will be accepted. No work on the exam copy itself will be graded. - You will not be given time to fill in any scantron answers after time is called, so make sure to do this before time is called. - You are allowed to use only a pencil, eraser and ruler for the exam. Any other materials used or in sight are prohibited. In particular, you are NOT allowed the use of a calculator or any translation device. Failure to follow these directions is considered cheating and will result in a grade of zero for this exam. - You must stop writing and put down your pen or pencil immediately when you are told it is time to stop the exam. Failure to follow these directions is considered cheating and will result in a grade of zero for this exam. - There will be 40 questions worth 1 point each and 8 questions worth 2 points each out of a total of 56 points. Your score will then be weighted to give you a possible 200 points for the entire exam. - Please choose the best answer possible in each case. 2 1. (2 points) Refer to figure A: Using the point-slope formula, what is the price elasticity of demand when the market price is $8 per gallon? 1. -1 2. 3/2 3. -2/3 4. -12/40 5. None of the above 2. Refer to Figure A: At which price are consumers of gasoline most price responsive? 1. $16 per gallon 2. $10 per gallon 3. $4 per gallon 4. Consumers are equally responsive to price changes at all prices along a single demand curve. 5. Impossible to determine with the information given 3. Refer to Figure A: Assuming no market failures have occurred, what is the economically efficient amount of gasoline consumption? 1. 40 million gallons 2. 60 million gallons 3. 20 million gallons 4. Impossible to determine with the information given 5. None of the above 012345678910111213141516171819200 102030405060708090100110120Price per gallon($) Quantity (millions of gallons of gasoline) Supply DemandFigure A: Use this graph to answer the following 10 questions 3 4. Refer to Figure A: How much economic surplus do gasoline consumers earn from the free market allocation of gasoline? 1. $720 million 2. $480 million 3. $120 million 4. $240 million 5. None of the above 5. Refer to Figure A: How much economic surplus do gasoline producers earn from the free market allocation of gasoline? 1. $720 million 2. $480 million 3. $120 million 4. $240 million 5. None of the above 6. (2 points) Refer to Figure A: How much economic surplus would be earned in total if this market were producing and consuming 60 million gallons? 1. $540 million 2. $450 million 3. $270 million 4. $180 million 5. None of the above 7. Refer to Figure A: How much economic surplus would be earned on the 10 millionth gallon? 1. $8 2. $3.5 3. $17 4. $13.5 5. None of the above 8. Refer to Figure A: The consumer of the 10 millionth gallon of gasoline has a reservation price equal to: 1. $8 2. $3.5 3. $17 4. $13.5 5. None of the above 9. Refer to Figure A: The producer of the 80 millionth gallon of gasoline has a marginal cost of production equal to: 1. $0 2. $14 3. $8 4. Impossible to determine with the information given. 5. None of the above 10. Refer to Figure A: How much revenue would firms be able to earn if they charge a price of $14 per gallon? 1. $300 million 2. $2100 million 3. $140 million 4. $280 million 5. None of the above4 11. According to the article “To Reduce the Cost of Teenage Temptation, Why Not Just Raise the Price of Sin?” researchers have found that a 1% increase in the price of smoking leads to a 1% reduction in smoking while a 1% increase in the price of drinking leads to a 1% to 4% reduction in drinking. Which of the following can we conclude from this information? 1. Smoking is unit price elastic. 2. Drinking is more price elastic than smoking. 3. Drinking is price elastic. 4. All of the above 5. None of the above 12. According to the article “Alcohol and Marijuana Use Among College Students”, university campus bans on alcohol use (which tend to increase the cost of these products) have a stronger impact on female than on male students. Based on this information we can conclude that: 1. Female students are more price responsive than male students. 2. Female students are less price responsive than male students. 3. Female students are more cross-price elastic than male students. 4. Female students don’t like alcohol and marijuana as much as male students. 5. Impossible to determine with the information given. 13. If the price elasticity of demand for computers is equal to -2, you can conclude that: 1. Consumers do not feel like there are any good substitutes for computers. 2. Consumers are fairly responsive to changes in the price of computers. 3. If computer producers try to lower their prices, they will suffer a decrease in their revenues. 4. all of the above. 5. none of the above. 14. Suppose the National Bureau of Economic Research (NBER) estimates that the price elasticity of demand for cocaine is equal to -1.5. If this number is correct, then any government policy which resulted in a 40% increase in cocaine prices should result in: 1. a 40% decrease in desired cocaine purchases. 2. a 60% decrease in desired cocaine purchases. 3. a 40% increase in desired cocaine purchases. 4. a 2.67% decrease