mupe1_1110_s2014_OV

Econ 1110-INTRODUCTORY MICROECONOMICS

MAKEUP Wissink-S2014-March 5-PRELIM#1
PRINT YOUR NAME: _______________________________________________________________

YOUR NetId:______________________ YOUR STUDENT NUMBER:________________________________

INSTRUCTIONS and EXAM TAKING POLICY:

There are two sections in this exam. Answer all questions.
Part I: 16 multiple choice questions @ 3.5 points each
Part II: 2 problem @ 22 points each
TOTAL POINTS = 100, TOTAL TIME = 90 minutes.
NO QUESTIONS CAN BE ASKED DURING THE EXAM ABOUT EXAM CONTENT: If you
need to use the restroom, or you need a pencil or scratch paper, or some other supply that we might have,
raise your hand and wait for the proctor to come to you. Only one person can be out of the examination
room at a time, and the proctor will hold onto your exam papers while you are out at the restroom.
NO CELL PHONES, NO IPODS OR SIMILAR DEVICES WITH CALCULATOR APPS.
NO GRAPHING CALCULATORS.
NO BOOKS. NO NOTES. NO HELP SHEETS.
NO TALKING TO EACH OTHER.

Check the SECTION you regularly attend (that is where you will pick up your prelim):
Daniel Chin Lay Lau (dcl253)
____________6545 DIS 210 T 08:00AM - 08:50AM URH 202
____________6546 DIS 211 T 09:05AM - 09:55AM URH 202
____________6547 DIS 212 T 10:10AM - 11:00AM URH 202
Yanan Li (yl2294)
____________6548 DIS 213 T 12:20PM - 01:10PM RCK 112
____________6549 DIS 214 T 01:25PM - 02:15PM RCK 112
____________6550 DIS 215 T 02:30PM - 03:20PM RCK 112
Todd Jones (trj25)
____________6551 DIS 216 R 08:00AM - 08:50AM RCK 122
____________6552 DIS 217 R 09:05AM - 09:55AM RCK 122
____________6553 DIS 218 R 10:10AM - 11:00AM RCK 122
Zhenda Yin
____________6554 DIS 219 F 08:00AM - 08:50AM GSH G22
____________6555 DIS 220 F 09:05AM - 09:55AM GSH G22
____________6556 DIS 221 F 10:10AM - 11:00AM GSH G22
Mehreen Mookerjee
____________9603 DIS 222 T 08:00AM - 08:50AM IVS 219
____________9604 DIS 223 T 09:05AM - 09:55AM IVS 219
____________9605 DIS 224 T 10:10AM - 11:00AM IVS 219

One more time, please

PRINT YOUR NAME: ____________________________________

YOUR NetId: _____________

YOUR STUDENT NUMBER: ____________________________

GRADING

MC (out 56 points)=___________________

Q1 (out of 22 points)=_________________

Q2 (out of 22 points)=_________________

TOTAL SCORE: _____________________

mupe1_1110_s2014_OV

Part I: Multiple Choice. Do them ALL.

CIRCLE the letter for your answer.
_____________________________________________
1. Which one of the following sentences is a normative statement?
A. The price elasticity of cigarettes is -2.1.
B. The unemployment rate was 3% when George W. Bush took
office and now it is 5%.
C. On average Americans pay $16,000 a year for health insurance.
D. In the last 5 years 400,000 additional children have lost health
care coverage.
E. Congress and the president should increase taxes on employed
persons in order to provide more health care to the poor.
2. Ima Monkey manages a frozen banana stand.
Bananas Milkshakes
He has four employees: Maeby, George Michael,
40
20
Maeby
Gob and Tobias. The table shows the maximum
20
40
George
Michael
number of frozen bananas or milkshakes that each
24
8
Gob
employee can make during one hour. Workers can
50
60
Tobias
produce any linear combination of their extreme
values.
Ima has allocated his workers efficiently. Suppose Tobias is
making both bananas and milkshakes. Given that information,
which one of the following statements is TRUE?
A. Maeby is making no bananas.
B. Gob is making only bananas.
C. Maeby, George Michael and Gob are also producing some of
both goods.
D. George Michael is making only bananas.
E. Everyone is making Milkshakes
3. Roger and Derek produce two goods, tennis balls and baseballs.
Each of them works eight hours per day. In any given hour Derek
can make 5 tennis balls or 5 baseballs or any linear combination of
the two. In any given hour Roger can make 2 tennis balls or 1
baseball or any linear combination of the two. Which one of the
following statements is TRUE?
A. Derek has a comparative advantage in the production of tennis
balls.
B. Roger has both an absolute and comparative advantage in
making tennis balls.
C. Roger has a comparative advantage in the production of tennis
balls.
D. Roger has a comparative advantage in nothing.
E. Derek and Roger would be unable to mutually benefit based on
the theory of comparative advantage.

4. Which one of the following is inconsistent with the model of

perfect competition?
A.
B.
C.
D.

A large number of incumbent or potential firms.

Price-taking behavior by buyers and sellers.
Unrestricted or free entry and exit.
A single seller of a product with the ability to influence market
price by his or her actions.
E. Fully and symmetrically informed buyers and sellers.
5. A careless research assistant has presented his professor with
the following unlabeled equation representing the market for
sunglasses: Q=50 - 17A + 1/2B + 45C. The professor then spends
numerous hours trying to figure out what the equation represents.
Which one of the following is a plausible best guess?
A. It is a supply function where A represents the price of sun tan
lotion.
B. It is a demand function where A represents the number of
consumers in the market.
C. It is a supply function where C represents the cost of the
sunglass components to the manufacturer.
D. It is a demand function where A represents a sun umbrella
(sometimes known as a parasol).
E. It is a supply function where C represents the price of
sunglasses.
6. Market equilibrium price will rise and the equilibrium quantity
may increase, decrease, or stay the same when
A.
B.
C.
D.
E.

demand and supply both increase.

demand increases and supply decreases.
demand decreases and supply increases.
demand and supply both decrease.
supply increase while demand stays constant.

7. Four sellers are in the market willing to sell their tickets to see
the NCAA Final Four Basketball Championships. Suppose the
following reservation selling price for each person:
Jennys=$1,000, Daves=$550, Marianas=$675 and Gregs=$890.
If the current market price of a ticket is $800, what is the total
producers surplus over these four people in this situation?
A.
B.
C.
D.
E.

$3,115
$-85
$1,600
$375
$2,265

8. International migration is a politically sensitive topic at the

moment. Much of the discussion is centered around the effect of
migrants on local labor markets. Suppose country X decides to
relax its quotas on the number of migrants allowed to enter country
X each year. Suppose that the only effect that migrants have is to
increase the amount of labor supply in the economy. Which one of
the following predictions is most correct?
A. The equilibrium market price of labor (wages) will definitely
increase and the equilibrium quantity traded (employment)
could go up or down.
B. Employment will definitely increase but wages could go up or
down.
C. Both wages and employment will definitely increase.
D. Both wages and employment will definitely decrease.
E. Wages will definitely decrease and employment will definitely
increase.
Price
($/Ice
Cream)
$1.25
$1.50
$1.75
$2.00
$2.25
$2.50
$2.75
$3.00
$3.25

Quantity
Demanded
(Ice Creams)
4000
3500
3000
2500
2000
1500
1000
500
0

Quantity
Supplied
(Ice Creams)
1000
1100
1200
1300
1400
1500
1600
1700
1800

9. Consider the supply and demand schedules for ice creams.

Locals complain that there are too many ice cream vendors on the
Seaside Heights boardwalk. The local government therefore
imposes a quota on the number of ice cream stalls allowed on the
boardwalk per day. They do this by issuing 20 permits which
allows the owner of the permit to set up and sell ice cream on the
boardwalk. Given that each ice cream stall can produce 50 ice
creams per day, what price will ice creams sell for after the permit
policy goes into effect?
A.
B.
C.
D.
E.

$1.25
$1.50
$2.00
$2.50
$2.75

10. The graph represents the Ithaca market for jelly

beans this spring. Q is number of pounds. P is price
per pound. Suppose the local government decides to
levy a tax of $10 per pound on transactions in the jelly
bean market. The consequence of this tax
A. cannot be determined until we know how the tax
revenue will be collected.
B. is that the economic price incidence of the tax will
be borne completely by demanders if the tax is
collected from demanders.
C. is that demanders will now ultimately pay $30 per pound.
D. is that the economic price incidence of the tax will be shared
equally between demanders and suppliers.
E. is that demanders will now ultimately pay $15 per pound.

11. The graph represents the Ithaca market for

jelly beans this spring. Q is number of pounds.
P is price per pound. Suppose the government
imposes a price ceiling of $10 per pound. The
consequence of this is that
A. there will be a surplus of 30 pounds of jelly
beans.
B. there will be a shortage of 30 pounds of
jelly beans.
C. there will be a dead weight loss of $200
D. there will be a surplus of 40 pounds of jelly
beans.
E. nothing happens, since the price ceiling is
not binding.

12. A fall in the price of lemons from $10.50 to $9.50 per bushel
raises the quantity demanded from 19,200 to 20,800 bushels.
Using the midpoint arc formula, the own price elasticity of demand
in this part of the lemon demand curve is approximately equal to
A.
B.
C.
D.
E.

-8.00.
-1.25.
-0.80.
-1.20.
0

13. Consider the demand and supply graphs for X, Y and Z as

illustrated. The government plans to place a tax of $t/unit on one
of these markets. In which market would this tax create the least
amount of dead weight loss?
A.
B.
C.
D.
E.

Market X
Market Y
Market Z
We do not have enough information to know.
The same amount of dead weight loss is generated in each
market.

14. Assume the demand curve for tires is linear. Which of the
following results in an increase in total consumer expenditures on
tires?
A. Demand for tires is currently unitary elastic and the price falls
slightly.
B. Demand for tires is currently price elastic and the price rises
slightly.
C. Demand for tires is currently price inelastic and the price falls
slightly.
D. Demand for tires is currently price inelastic and the price rises
slightly.
E. None of the above.

15. Using national data, in which one of the following markets

would economists expect market demand to be the most price
inelastic?
A.
B.
C.
D.
E.

The market for pomegranate Chobani Greek-style yogurt.

The market for Chobani Greek-style yogurt.
The market for Greek-style yogurt.
The market for yogurt.
(just choose an answer from A D)

16. The exact value of the own price elasticity of demand at point
A in the diagram is

P ($/unit)
8
6

3
A.
B.
C.
D.
E.

-1
-3
-3/4
-4/3
None of the above.

KEEP GOING!

Q
12 (units/wk)

mupe1_1110_s2014_OV

Part II: Make sure you read and do ALL parts of each question. Show as much work as
possible. TRY to get started on every question. Show us something. Write legibly and
remember to label all graphs and axes in diagrams.
1. Suppose the demand and supply curves for bagels in Ithaca are given by the following
equations:
QD = 100 - 10P and QS = -20 + 30P where
QD = quantity of bagels demanded per day in Ithaca,
QS = quantity of bagels supplied per day in Ithaca, and
P = price per bagel.
a. Graph the demand and supply curves. Make your graph BIG enough to play around with for
the rest of the problem. For full credit you must label intercept values on the vertical and
horizontal axes.
b. What are the equilibrium price and quantity in this market? Illustrate and label the values in
the graph.
c. Assume the demand equation changes to: QD = 130 - 10P. Is this an increase in demand or a
decrease in demand? Briefly explain.
d. Suppose, adding to part c, that the supply of bagels changes to: QS = -30 + 30P. Offer one
reasonable explanation to what might have generated this change in supply.
e. Using the information in (c) and (d) graphically show what occurs in the market for bagels.
Calculate the new equilibrium price and equilibrium quantity. Illustrate and label the values
of P* and Q* in the graph.
f. Suppose the Ithaca Bagel Eaters Society gets the mayor to impose a price ceiling on bagels
equal to the ORIGINAL bagel equilibrium price. Analyze the likely impact of this policy
using your graphs and some calculations.
PLEASE DRAW YOUR GRAPH ON THE NEXT PAGE.

Answer space

2. Momma Bear, Poppa Bear and Baby Bear make two goods: beds and porridge. In a weeks
time Poppa Bear can make 15 beds and no porridge, or 5 bowls of porridge and no beds, or any
linear combination. Baby Bear can make 3 beds and no porridge, or 3 bowls of porridge and no
beds, or any linear combination. Momma Bear is different. She can make 12 beds and no
porridge, 8 beds and 8 bowls of porridge, or any linear combination between these two points.
She can also make 8 beds and 8 bowls of porridge and no beds and 12 bowls of porridge, or any
linear combination between these two points.
The PPF for each bear is illustrated below.
a. Who has the absolute advantage in porridge? Defend your position.
b. Between Baby Bear and Poppa Bear, who has the comparative advantage in the production
of porridge? Defend your position.
c. The Bear family wants to determine the efficient joint production possibilities frontier.
Putting BEDS on the VERTICAL, sketch out the efficient joint production possibilities
frontier. For full credit, if there are any kink points in your graph label the number of units of
each task at any/all kink points. Also label the endpoints of the PPF.
d. If the Bear Family is efficiently making 10 bowls of porridge, how many beds are they
making? Explicitly tell us how many units of each activity each bear is doing.

PLEASE DRAW YOUR GRAPH ON THE NEXT PAGE.

Answer space

Answer space

Econ 1110 S2014 PRELIM 1 MAKEUP Answers to multiple choice questions

1 E
This is the only answer that involves making a judgment about the right thing to do. The other answers are all
positive predictions that do not address the appropriateness of the policy

2 B
Draw each persons PPF and notice the following with respect to the marginal opportunity cost of milkshakes in
terms of bananas: George Michaels = , Tobiass=5/6, Maebys=2 and Gobs=3. So if Tobias is doing some of
both, by now you have George Michael doing only milkshakes, and Maeby and Gob doing only bananas.

3 C
Derek has an absolute advantage in both tennis ball and baseballs. The opportunity cost of make one tennis ball is 1
baseball for Derek, and baseball for Roger. So Roger has a comparative advantage in making tennis balls. They
would be mutually benefit if they specialize and trade.

4 D
This would be MONOPOLY. By definition, parts A, B, C and E are characteristics of perfect competition.
5 E
Sun tan lotion is a complement to sunglasses, whose price impacts demand not supply. Demand increases with the
number of consumers in the market, not decreasing. Increase in input prices will decrease supply. A parasol is a
substitute to sunglasses. An increase in its price will increase demand for sunglasses.

6 B
When demand increases and supply decreases at the same time, price rises unambiguously. However, since they are
going in the opposite direction (in terms of going right and left, which measure quantity), the effect on the
equilibrium quantity is uncertain. Depending on the relative degree of shift in the demand curve and the supply
curve, equilibrium quantity may increase, decrease, or stay the same.

7 D
Only Dave and Mariana will sell their tickets. Producers surplus=$(800-550)+$(800-675)=$375

8 E
The increase in supply shifts the supply curve to the right. This moves the equilbrium point down the demand curve
so that wages fall and employment increases.

9 E
The quota is 1000 (=20*50) ice creams per day. The demand price for this quantity is $2.75 while the supply price is
$1.25.
10 D
Since the demand and supply curves have the same steepness, the tax is equally shared.

11 C
With the price ceiling, quantity demanded is 60 and quantity supply is 20. Thus there will be a shortage of 40. The
quantity sold will be min{20, 60}=20 pound of jelly bean. The DWL=1/2*(30-10)*(40-20)=$200

12 C
Set it up as [(19200-20800)/20000]/[(10.50-9.50)/10] = 0.80

13 B
Market Y has a DWL of $30*t, while Market X has a DWL of *t*a, where a is the decrease of quantity traded.
a<30, so DWL of X is smaller than Y. Similarly, the DWL of Market Z is *t*b, where b is the decrease of quantity
traded, which is less than 30. So DWL of Z is smaller than Y.

14 D
We know that firm can earn more (i.e. consumers spend more) by increasing price when demand is inelastic, or by
decreasing price when demand is elastic, so D is correct, B C: wrong. Also note for linear demand curve (typically
shaped) when demand is unitary elastic, portion above it is elastic, and below it inelastic.

15 D
When there are more substitutes of a good available, consumers are more able to switch to other goods when the
price of the good increases. Therefore, demand is more inelastic for a broadly defined market and more elastic for a
narrow market definition. So the demand for yogurt would be relatively more price inelastic than for some narrower
definition like a particular flavor of yogurt.

16 B
From the diagram we get inverse demand: P = 8 2Q/3, so demand is Q = 12 3P/2; dQ/dP = -3/2;
elasticity = dQ/dP X P/Q = -3/2 X 6/3 = -3