MIDTERM EXAM 1
Simon Fraser University ECON 103-D100: Principles of Microeconomics Instructor: Iryna Dudnyk Summer 2011
MIDTERM EXAM 1 Version A
FULL NAME: STUDENT ID: Your TA is (circle one)
FRANK
QIANZHENG
TUTORIAL SECTION:
INSTRUCTIONS: you have 1 hour 30 minutes to complete the exam. Write all your answers in the space provided; any work outside the space provided will be given zero credit. You can write in either pen or pencil. If you write in pencil your exam cannot be regraded. The exam has 6 pages and 2 sections: 15 multiple choice questions 4 short answer questions
MC WRITTEN PART TOTAL
1
I. MULTIPLE CHOICE. 15 questions, each question is worth 1 point. Circle only one answer that you think is the best.
1. John sells 1,000 cinnamon buns per day at price 2.00 per bun. He knows that the absolute value of price elasticity of demand for his cinnamon buns is 0.5. If John charges 2.50 per bun how many will he sell? (A) 750 (B) 1,250 (C) 1,000 (D) 875 (E) 1,125
2. As price of good 2 P2 changed from 50 to 40 dollars, quantity demanded of good 1 Q1 and the goods are changed from 100 to 110. The cross-price elasticity is (A) -2, complements (B) -2, substitutes (C) 2, complements (D) .5, substitutes (E) -0.5, complements
3. Choose what is not true about consumer surplus. (A) it is difference between what one is willing to pay and actually pays (B) the lower is the price the higher is consumer surplus (C) it exists because MV is diminishing (D) there is a negative relationship between consumer surplus and total value (E) it is difference between the value and the cost of the good for a consumer
4. Choose a true statement regarding elasticity E of demand D: (A) if D is a straight line, E is constant along D curve (B) if D is horizontal E is infinite (C) if D is vertical E=1 (D) if D is vertical E is infinite (E) if D is relatively steep, it is called elastic
5. In one hour John can either bake 60 cookies or 45 muffins. The opportunity cost of one cookies muffin is (A) 5/3 (B) 3/5 (C) 1 (D) 3/4 (E) 4/3
2
6. Choose a true statement (A) air is scarce because the amount of it is limited (B) in Canada food is not scarce because food banks give it out for free (C) in Vancouver sunny days in December are scarce because there are so few of them (D) air is not scarce because it’s free and there is no shortage
7. Demand for gas will increase if (A) price of cars increases (B) price of cars falls (C) price of bus fares falls (D) price of gas falls (E) (A) and (D) (F) (B), (C) and (D)
8. Sue sells roasted chestnuts in a park and she discovered that as she raises the price of chestnuts her sales revenue increases. This means that (A) higher price results in higher quantity sold (B) chestnuts are an inferior good (C) chestnuts are a normal good (D) demand for chestnuts is elastic (E) demand for chestnuts is inelastic
. 9. Price ceilings such as rent controls (A) cause surpluses and therefore are inefficient (B) cause surpluses, but do not cause inefficiency (C) make landlords worse off and therefore are inefficient (D) cause shortages and therefore are inefficient (E) create a shortage, but do not cause inefficiency
10. Demand is P = 30 − .25Q and supply is fixed at Q = 60. If P = 10 we will observe (A) surplus of 20 untis (B) shortage of 20 units (C) equilibrium in this market (D) shortage of 80 units (E) surplus of 80 units
3
11. Ana and John live in the same city, have exactly the same income and own identical cars. John does a lot of driving, while Ana drives only several times a month. Choose a correct statement (A) Ana must view driving as an inferior good while for John it is a normal good (B) John must view driving as an inferior good while for Ana it is a normal good (C) John’s demand for gas is likely to be more elastic than Ana’s (D) Ana’s demand for gas is likely to be more elastic than John’s
12. Supply decreased and demand increased. How will this affect market equilibrium? (A) both P and Q will rise (B) both P and Q will fall (C) Q falls P can rise, fall, or stay the same (D) Q falls P rises 13. Tickets to some concerts or events are scalped1 for price several times higher than that at which they were originally purchased. This means that (A) demand for viewing the show is very inelastic (B) demand for viewing the show is very elastic (C) the initial price was inefficient (D) the initial price was not an equilibrium price
14. Marta is considering signing up for yoga classes. Lotus Yoga has lower price per session, but charges high membership fee. Green Tara charges lower membership fee, but higher price per class. What should Marta do? (A) go to Lotus Yoga, because she will attend more classes there (B) go to Green Tara, because the membership is lower (C) go to the club where the total amount spent is smaller (D) go to the club where she will receive higher total value (E) none of the above 15. When Sally visited Paris in 2004 she bought a two-week pass for the subway. Interestingly enough it was a laminated card with a photograph of the card holder (Sally). Sally’s cost of taking subway during those two weeks was (A) variable and avoidable (B) variable and sunk (C) fixed and sunk (D) fixed and avoidable
1
Bought from licensed sellers and then resold
4
II. SHORT ANSWER. Answer all questions. PROVIDE FULL EXPLANATIONS and USE RELEVANT DEFINITIONS 1. After a lecture a student approached me and commented on the principle of diminishing marginal value: ‘I think that end of season sales contradict this principle. The available quantity of clothes or shoes is smaller, but price is lower. This means that when quantity is smaller the MV is lower as well’. How would you respond to this comment? Provide a complete explanation using a diagram. (3 marks).
2. In the lecture we discussed two points (i) sunk costs are actually incurred, but they do not affect economic decisions (ii) the opportunity cost is not directly paid, but it is counted as a part of economic costs. Think of a simple example that demonstrate why it is so. (2 marks)
5
3. When price of oranges was 1.00 per pound Martha spent 30 dollars on oranges each month. When price increased next year, Martha still spent 30 dollars on oranges each month. The year after that price increased even more, but Martha still spent 30 dollars a month on oranges. This means that Martha’s demand for oranges is perfectly inelastic. TRUE or FALSE? Show Martha’s demand on a diagram. (2.5 marks)
4. Ana has a lunchbox with 2 apples and 4 cookies, denote (2, 4). For her it is as good as bundles (1, 7) and (3, 2) where the first number is the number of apples and the second number is the number of cookies. Relative price of apples is 4 cookies. Should Ana sell, buy or just eat her apples? (2.5 marks)
6
MIDTERM EXAM 1 Version A
FULL NAME: STUDENT ID: Your TA is (circle one)
FRANK
QIANZHENG
TUTORIAL SECTION:
INSTRUCTIONS: you have 1 hour 30 minutes to complete the exam. Write all your answers in the space provided; any work outside the space provided will be given zero credit. You can write in either pen or pencil. If you write in pencil your exam cannot be regraded. The exam has 6 pages and 2 sections: 15 multiple choice questions 4 short answer questions
MC WRITTEN PART TOTAL
1
I. MULTIPLE CHOICE. 15 questions, each question is worth 1 point. Circle only one answer that you think is the best.
1. John sells 1,000 cinnamon buns per day at price 2.00 per bun. He knows that the absolute value of price elasticity of demand for his cinnamon buns is 0.5. If John charges 2.50 per bun how many will he sell? (A) 750 (B) 1,250 (C) 1,000 (D) 875 (E) 1,125
2. As price of good 2 P2 changed from 50 to 40 dollars, quantity demanded of good 1 Q1 and the goods are changed from 100 to 110. The cross-price elasticity is (A) -2, complements (B) -2, substitutes (C) 2, complements (D) .5, substitutes (E) -0.5, complements
3. Choose what is not true about consumer surplus. (A) it is difference between what one is willing to pay and actually pays (B) the lower is the price the higher is consumer surplus (C) it exists because MV is diminishing (D) there is a negative relationship between consumer surplus and total value (E) it is difference between the value and the cost of the good for a consumer
4. Choose a true statement regarding elasticity E of demand D: (A) if D is a straight line, E is constant along D curve (B) if D is horizontal E is infinite (C) if D is vertical E=1 (D) if D is vertical E is infinite (E) if D is relatively steep, it is called elastic
5. In one hour John can either bake 60 cookies or 45 muffins. The opportunity cost of one cookies muffin is (A) 5/3 (B) 3/5 (C) 1 (D) 3/4 (E) 4/3
2
6. Choose a true statement (A) air is scarce because the amount of it is limited (B) in Canada food is not scarce because food banks give it out for free (C) in Vancouver sunny days in December are scarce because there are so few of them (D) air is not scarce because it’s free and there is no shortage
7. Demand for gas will increase if (A) price of cars increases (B) price of cars falls (C) price of bus fares falls (D) price of gas falls (E) (A) and (D) (F) (B), (C) and (D)
8. Sue sells roasted chestnuts in a park and she discovered that as she raises the price of chestnuts her sales revenue increases. This means that (A) higher price results in higher quantity sold (B) chestnuts are an inferior good (C) chestnuts are a normal good (D) demand for chestnuts is elastic (E) demand for chestnuts is inelastic
. 9. Price ceilings such as rent controls (A) cause surpluses and therefore are inefficient (B) cause surpluses, but do not cause inefficiency (C) make landlords worse off and therefore are inefficient (D) cause shortages and therefore are inefficient (E) create a shortage, but do not cause inefficiency
10. Demand is P = 30 − .25Q and supply is fixed at Q = 60. If P = 10 we will observe (A) surplus of 20 untis (B) shortage of 20 units (C) equilibrium in this market (D) shortage of 80 units (E) surplus of 80 units
3
11. Ana and John live in the same city, have exactly the same income and own identical cars. John does a lot of driving, while Ana drives only several times a month. Choose a correct statement (A) Ana must view driving as an inferior good while for John it is a normal good (B) John must view driving as an inferior good while for Ana it is a normal good (C) John’s demand for gas is likely to be more elastic than Ana’s (D) Ana’s demand for gas is likely to be more elastic than John’s
12. Supply decreased and demand increased. How will this affect market equilibrium? (A) both P and Q will rise (B) both P and Q will fall (C) Q falls P can rise, fall, or stay the same (D) Q falls P rises 13. Tickets to some concerts or events are scalped1 for price several times higher than that at which they were originally purchased. This means that (A) demand for viewing the show is very inelastic (B) demand for viewing the show is very elastic (C) the initial price was inefficient (D) the initial price was not an equilibrium price
14. Marta is considering signing up for yoga classes. Lotus Yoga has lower price per session, but charges high membership fee. Green Tara charges lower membership fee, but higher price per class. What should Marta do? (A) go to Lotus Yoga, because she will attend more classes there (B) go to Green Tara, because the membership is lower (C) go to the club where the total amount spent is smaller (D) go to the club where she will receive higher total value (E) none of the above 15. When Sally visited Paris in 2004 she bought a two-week pass for the subway. Interestingly enough it was a laminated card with a photograph of the card holder (Sally). Sally’s cost of taking subway during those two weeks was (A) variable and avoidable (B) variable and sunk (C) fixed and sunk (D) fixed and avoidable
1
Bought from licensed sellers and then resold
4
II. SHORT ANSWER. Answer all questions. PROVIDE FULL EXPLANATIONS and USE RELEVANT DEFINITIONS 1. After a lecture a student approached me and commented on the principle of diminishing marginal value: ‘I think that end of season sales contradict this principle. The available quantity of clothes or shoes is smaller, but price is lower. This means that when quantity is smaller the MV is lower as well’. How would you respond to this comment? Provide a complete explanation using a diagram. (3 marks).
2. In the lecture we discussed two points (i) sunk costs are actually incurred, but they do not affect economic decisions (ii) the opportunity cost is not directly paid, but it is counted as a part of economic costs. Think of a simple example that demonstrate why it is so. (2 marks)
5
3. When price of oranges was 1.00 per pound Martha spent 30 dollars on oranges each month. When price increased next year, Martha still spent 30 dollars on oranges each month. The year after that price increased even more, but Martha still spent 30 dollars a month on oranges. This means that Martha’s demand for oranges is perfectly inelastic. TRUE or FALSE? Show Martha’s demand on a diagram. (2.5 marks)
4. Ana has a lunchbox with 2 apples and 4 cookies, denote (2, 4). For her it is as good as bundles (1, 7) and (3, 2) where the first number is the number of apples and the second number is the number of cookies. Relative price of apples is 4 cookies. Should Ana sell, buy or just eat her apples? (2.5 marks)
6
