SECOND MIDTERM EXAMINATION ECON 200 Spring 2007 Version A Version B Follows STUDENT S NAME STUDENT S IDENTIFICATION NUMBER DAY AND TIME YOUR SECTION MEETS BEFORE YOU BEGIN PLEASE MAKE SURE THAT YOUR EXAMINATION HAS BEEN DUPLICATED AND COLLATED CORRECTLY THERE SHOULD BE 40 MULTIPLE CHOICE QUESTIONS THE EXAM HAS 10 PAGES INCLUDING THIS COVER SHEET ANSWER ALL THE PROBLEMS ON THE SCANTRON SHEET ENTER THE NUMBER 123456 UNDER SPECIAL CODES ON THE SCANTRON SHEET BE SURE TO FILL IN YOUR NAME LAST NAME FIRST AT THE TOP OF THE SCANTRON SHEET FILL IN YOUR STUDENT IDENTIFICATION NUMBER UNDER IDENTIFICATION NUMBER ON THE SCANTRON SHEET WRITE YOUR TA S NAME IN THE UPPER RIGHT HAND CORNER OF YOUR SCANTRON SHEET University of Maryland Honor Pledge The University is committed to Academic Integrity and has a nationally recognized Honor Code administered by the Student Honor Council In an effort to affirm a community of trust the Student Honor Council proposed and the University Senate approved Honor Pledge The University of Maryland Honor Pledge reads I pledge on my honor that I have not given or received any unauthorized assistance on this examination or assignment Please rewrite the exact wording of the pledge followed by your signature in the space below Pledge Your Signature 1 Each question is worth 2 5 points Please select THE BEST answer Figure 1 The curves below reflect information about the cost structure of a firm The Marginal Cost Curve Average Fixed Cost Curve Average Variable Cost Curve and Average Total Cost Curves are shown not necessarily in that order 1 Refer to Figure 1 Which of the curves is MOST likely to represent average total cost a A b B c C d D 2 Refer to Figure 1 Which of the curves is MOST likely to represent marginal cost a A b B c C d D 3 Refer to Figure 1 Curve A is U shaped because of a diminishing marginal product b increasing marginal product c the fact that increasing marginal product follows decreasing marginal product d the fact that decreasing marginal product follows increasing marginal product 2 Figure 2 4 Refer to Figure 2 With trade and without a tariff a the domestic price is equal to the world price b carnations are sold at 8 in this market c there is a shortage of 400 carnations in this market d this country imports 200 carnations 5 Refer to Figure 2 The imposition of a tariff on carnations a increases the number of carnations imported by 100 b increases the number of carnations imported by 200 c decreases the number of carnations imported by 200 d decreases the number of carnations imported by 400 6 Refer to Figure 2 The amount of deadweight loss caused by the tariff equals a 100 b 200 c 400 d 500 7 Market failure can be caused by a too much competition b externalities c low consumer demand d scarcity 3 8 A free rider problem may exist for any good that is NOT a rival in consumption b a private good c free d excludable Figure 3 below reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods 9 Refer to Figure 3 The difference between the social cost curve and the supply curve reflects the a profit margin of each concert b cost of spillover effects from the concert e g noise and traffic c value of concerts to society as a whole d amount by which the city should subsidize the concert organizers 10 Refer to Figure 3 At the private market outcome the equilibrium price will be a P0 b P1 c P2 d None of the above is correct 4 11 Refer to Figure 3 What price and quantity combination best represents the optimum price and number of concerts that should be organized a P1 Q1 b P2 Q1 c P2 Q0 d The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion 12 National defense is a classic example of a public good because a there is no market for private security services b it is difficult to exclude people from receiving the benefits from national defense once it is provided and when one person consumes defense the amount of national defense available for others remains the same c everyone agrees that some level of national defense is important but only the government knows the optimal amount d there are no private firms willing to supply defense goods such as tanks and weapons 13 Four friends decide to meet at a Chinese restaurant for dinner They decide that each person will order an item off the menu and they will share all dishes They will split the cost of the final bill evenly among each of the people at the table When the food is delivered to the table each person faces incentives similar to the a consumption of a common resource good b production of a public good c consumption of a natural monopoly good d production of a private good 14 Ford Motor Company announces that it will offer 3 000 rebates on new Mustangs starting next month As a result of this information today s demand curve for Mustangs a shifts to the right b shifts to the left c shifts either to the right or to the left but we cannot determine the direction of the shift from the given information d will not shift rather the demand curve for Mustangs will shift to the right next month 15 Economic profit is equal to a total revenue minus the explicit cost of producing goods and services b total revenue minus the accounting cost of producing goods and services c total revenue minus the opportunity cost of producing goods and services d average revenue minus the average cost of producing the last unit of a good or service 16 For a particular good A a 3 percent increase in price causes a 10 percent decrease in quantity demanded For another good B a 3 percent increase in price causes a 6 percent decrease in quantity demanded Which of the following statements is most likely applicable to the two goods a The relevant time horizon is shorter for A than for B b Good A is a necessity and B is a luxury c The market for the good A is more broadly defined than the market for B d There are many close substitutes for good A and relatively fewer for B 5 17 A price floor is NOT binding if a the price floor is higher than the equilibrium price of the good b the quantity of the good demanded with the price floor is less than the quantity demanded of the good without the price floor c the quantity of the good supplied with the price floor is less than the quantity supplied of the good without the price floor d All of the above are correct 18 Suppose Larry Moe and Curly are bidding in an auction for a mint
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