Midterm Examination
Semester 2, 2017 - Principles of Economics I
Write only answers to the following questions in the given paper.
1. Suppose after graduating from college you get a job working at a bank
earning $30,000 per year. After two years of working at the bank earning the
same salary, you have an opportunity to enroll in a one-year graduate
program that would require you to quit your job at the bank. Which of the
following should not be included in a calculation of your opportunity cost?
(a) the cost of tuition and books to attend the graduate program
(b) the $30,000 salary that you could have earned if you retained your job at the
bank
(c) the $45,000 salary that you will be able to earn after having completed your
graduate program
(d) the value of insurance coverage and other employee benefits you would have
received if you retained your job at the bank.
2. Teresa eats three oranges during a particular day. The marginal benefit she
enjoys from eating the third orange
(a) can be thought of as the total benefit Teresa enjoys by eating three oranges
minus the total benefit she would have enjoyed by eating just the first two
oranges.
(b) determines Teresa’s willingness to pay for the first, second, and third oranges.
(c) does not depend on how many oranges Teresa has already eaten.
(d) All of the above are correct.
3. A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The
shop does not sell day-old bagels, so all unsold bagels are thrown away at 7
p.m. each day. The cost of making and selling a dozen bagels is $1.00; there
are no costs associated with throwing bagels away. If the manager has 8
dozen bagels left at 6:30 p.m. on a particular day, which of the following
alternatives is most attractive?
(a) Lower the price of the remaining bagels, even if the price falls below $1.00 per
dozen.
(b) Lower the price of the remaining bagels, but under no circumstances should
the price fall below $1.00 per dozen.
(c) Throw the bagels away and produce 8 fewer dozen bagels tomorrow.
(d) Starting tomorrow, lower the price on all bagels so they will all be sold earlier
in the day.
4. Sam and Sadie charge people to park on their lawn while attending a nearby
craft fair. At the current price of $10, eight people park on their lawn. If they
raise the price to $15, they know that only six people will want to park on
their lawn. Whether they have eight or six cars parked on their lawn does not
affect their costs. From this information it follows that
(a) they should leave the price at $10.
(b) it does not matter if they charge $10 or $15.
(c) they would do better charging $15 than $10.
(d) they should raise the price even more.
5.
(a)
(b)
(c)
(d)
A competitive market is a market in which
an auctioneer helps set prices and arrange sales.
there are only a few sellers.
the forces of supply and demand do not apply.
no individual buyer or seller has any significant impact on the market price.
Using this Table, answer to the following questions 6, 7, and 8.
Price
Aaron’s
Angela’s
Austin’s
Alyssa’s
Quantity
Quantity
Quantity
Quantity
Demanded
Demanded
Demanded
Demanded
$0.00
20
16
4
8
$0.50
18
12
6
6
$1.00
14
10
2
5
$1.50
12
8
0
4
$2.00
6
6
0
2
$2.50
0
4
0
0
6.
(a)
(b)
(c)
(d)
Whose demand does not obey the law of demand?
Aaron’s
Angela’s
Austin’s
Alyssa’s
7. If these are the only four buyers in the market, then the market quantity
demanded at a price of $2 is
(a) 0 units.
(b) 3.5 units.
(c) 6 units.
(d) 14 units.
8. If these are the only four buyers in the market, then when the price increases
from $1.00 to $1.50, the market quantity demanded
(a) decreases by 1.75 units.
(b) increases by 2 units.
(c) decreases by 7 units.
(d) decreases by 24 units.
9. Demand function of Mr. Kim for pens is p=10-q and demand function of Mr.
Lee for pens is p=10-2q. If these are the only two buyers in the market, then
what is the market demand function?
(a) p=10-(1/3)q
(b) p=20-3q
(c) p=20-(1/2)q
(d) p=10-(2/3)q
10. Suppose you like to make, from scratch, pies filled with banana cream and
vanilla pudding. You notice that the price of bananas has increased. How
would this price increase affect your demand for vanilla pudding?
(a) It would decrease.
(b) It would increase.
(c) It would be unaffected.
(d) There is insufficient information given to answer the question.
11. Currently you purchase 6 packages of hot dogs a month. You will graduate
from college in December, and you will start a new job in January. You have
no plans to purchase hot dogs in January. For you, hot dogs are
(a) a substitute good.
(b) a normal good.
(c) an inferior good.
(d) a complementary good.
12. The law of supply states that, other things equal,
(a) an increase in price causes quantity supplied to increase.
(b) an increase in price causes quantity supplied to decrease.
(c) an increase in quantity supplied causes price to increase.
(d) an increase in quantity supplied causes price to decrease.
Using the two graphs, answer to the following two questions, 13 and 14.
Firm A
20
Firm B
price
20
18
18
16
16
price
14
14
S
12
12
10
10
8
8
6
6
4
4
2
2
2
4
6
8
10
12
14
16
18
20
S
2
quantity
4
6
8
10
12
14
16
quantity
13. If these are the only two sellers in the market, then the market quantity
supplied at a price of $6 is
(a) 2 units.
(b) 10 units.
(c) 12 units.
(d) 22 units.
14. If these are the only two sellers in the market, then what is the market supply
function?
(a) p=(2/9)q.
(b) p=1+(3/7)q
(c) p=(3/11)q
(d) p=17+(5/22)q
The demand schedule below pertains to sandwiches demanded per week. Solve the
following two questions, 15 and 16.
Price
Chalie’s Quantity
Maxine’s Quantity Quinn’s Quantity
Demanded
Demanded
Demanded
$3
3
4
3
$5
1
2
x
15. Regarding Charlie and Maxine, for whom are sandwiches a normal good?
(a) only for Charlie.
(b) only for Maxine.
(c) for Charlie and for Maxine.
(d) This cannot be determined from the given information.
16. Suppose Charlie, Maxine, and Quinn are the only demanders of sandwiches.
Also suppose x = 2. Then
(a) the slope of Quinn’s demand curve is -1/2 and the slope of the market
demand curve is -5/2.
(b) the slope of Quinn’s demand curve is -1/2 and the slope of the market
demand curve is -2/5.
(c) the slope of Quinn’s demand curve is -2 and the slope of the market demand
curve is -5/2.
(d) the slope of Quinn’s demand curve is -2 and the slope of the market demand
curve is -2/5.
The diagram below pertains to the demand for chicken in Korea. Please
answer to the following questions 17 and 18.
price
y
x
DA
DB
quantity
17. All else equal, an increase in the income of buyers who consider chickens to
be an inferior good would cause a move
(a) from DA to DB.
(b) from DB to DA.
(c) from x to y.
(d) from y to x.
18. All else equal, the destruction of thousands of chickens would cause a move
(a) from DA to DB.
(b) from DB to DA.
(c) from x to y.
(d) from y to x.
19. For a particular good, a 3 percent increase in price causes a 10 percent
decrease in quantity demanded. Which of the following statements is most
likely applicable to this good?
(a) The relevant time horizon is short.
(b) The good is a necessity.
(c) The market for the good is broadly defined.
(d) There are many close substitutes for this good.
Using the following demand curve, answer to the following questions 20 and 21.
60
Price
54
48
42
36
30
24
18
12
6
Demand
3
6
9
12
15
18
21
24
27
30
33
Quantity
20. when price increases from $12 to $18, price elasticity of demand is
(a) -0.29
(b) -0.25
(c) -1.33
(d) -1.89
21. Now, using the midpoint method, between prices of $30 and $36, price
elasticity of demand is (Hint: find the most approximate number.)
(a) -0.33
(b) -1.00
(c) -1.22
(d) -1.85
22. Barb's Bakery earned $200 in total revenue last month when it sold 100 loaves
of bread. This month it earned $300 in total revenue when it sold 60 loaves of
bread. The price elasticity of demand for Barb's bread is (Hint: find the most
approximate number)
(a) -1.25
(b) -1.71
(c) -0.27
(d) -0.58
23. If the price elasticity of demand for aluminum foil is -1.45, then a 2.4%
decrease in the price of aluminum foil will increase the quantity demanded of
aluminum foil by
(a) 1.66%, and aluminum foil sellers' total revenue will increase as a result.
(b) 3.48%, and aluminum foil sellers' total revenue will increase as a result.
(c) 3.48%, and aluminum foil sellers' total revenue will decrease as a result.
(d)
1.66%, and aluminum foil sellers' total revenue will decrease as a result.
24. When her income increased from $10,000 to $20,000, Heather's consumption
of macaroni decreased from 10 pounds to 5 pounds and her consumption of
soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for
Heather,
(a) macaroni and soy-burgers are both normal goods with income elasticities
equal to 1.
(b) macaroni is an inferior good and soy-burgers are normal goods; both have
income elasticities of 1.
(c) macaroni is an inferior good with an income elasticity of -0.5 and soy-burgers
are normal goods with an income elasticity of 1
(d) macaroni and soy-burgers are both inferior goods with income elasticities
equal to -1.
25. Last month, sellers of good Y took in $100 in total revenue on sales of 50 units
of good Y. This month sellers of good Y raised their price and took in $120 in
total revenue on sales of 40 units of good Y. At the same time, the price of
good X stayed the same, but sales of good X increased from 20 units to 40
units. We can conclude that goods X and Y are
(a) complements, and have a cross-price elasticity of 0.60
(b) complements, and have a cross-price elasticity of 2
(c) substitutes, and have a cross-price elasticity of 0.60
(d) substitutes, and have a cross-price elasticity of 2
Using the following table, answer to the following question 26.
Supply Curve A
Price
Supply Curve B
Supply Curve C
$1.00
$2.00
$1.00
$3.00
$2.00
$5.00
500
600
600
900
400
700
Quantity
Supplied
26. Which of the three supply curves represents the least elastic supply?
(a) supply curve A
(b) supply curve B
(c) supply curve C
(d) There is no difference in the elasticity of the three supply curves
27. Suppose the price elasticity of supply for books is 0.3 in the short run and 1.2
in the long run. If an increase in the demand for books causes the price of
books to increase by 36%, then the quantity supplied of books will increase
by
(a) 0.8% in the short run and 3.3% in the long run.
(b) 1.2% in the short run and 0.3% in the long run
(c) 10.8% in the short run and 43.2% in the long run.
(d) 120% in the short run and 30% in the long run
For each of three potential buyers of oranges, the table displays the willingness to
pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only
three buyers of oranges, and only three oranges can be supplied per day. Now
answer to the following questions 28, 29 and 30.
First Orange
Second Orange
Third Orange
Alex
$2.00
$1.50
$0.75
Barb
$1.50
$1.00
$0.80
Carlos
$0.75
$0.25
$0
28. If the market price of an orange is $1.20, the market quantity of oranges
demanded per day is
(a) 1
(b) 2
(c) 3
(d) 4
29. If the market price of an orange is $1.20, consumer surplus amounts to
(a) $0.70
(b) $1.10
(c) $1.40
(d) $5.00
30. The market quantity of oranges demanded per day is exactly 5 if the price of
an orange, P, satisfies
(a) $1.00 < P < $1.50.
(b) $0.80 < P < $1.50
(c) $0.80 < P < $1.00
(d) $0.75 < P < $0.80
31. Ronnie operates a lawn-care service. On each day, the cost of mowing the
first lawn is $10, the cost of mowing the second lawn is $12, and the cost of
mowing the third lawn is $15. His producer surplus on the first three lawns
of the day is $53. If Ronnie charges all customers the same price for lawn
mowing, that price is
(a) $25
(b) $30
(c) $36
(d) $45
32. Which of the following will cause a decrease in producer surplus?
(a) the imposition of a binding price ceiling in the market
(b) an increase in the number of buyers of the good
(c) income increases and buyers consider the good to be normal
(d) the price of a complement decreases
33. Kirsten sells 300 glasses of lemonade at $0.50 each. Her total costs are $125.
Her profits are
(a) $25
(b) $124.50
(c) $125
(d) $150
The following table is for production function of Alyson’s Bakery in the short run.
Answer to the following questions, 34 and 35.
Number of Workers
Output (number of bread)
0
1
2
3
4
0
20
45
60
70
34. What is the marginal product of the second worker?
(a) 15
(b) 20
(c) 22.5
(d) 25
35. Suppose that Alyson’s bakery has a fixed cost of $50 per month. Each worker
costs Alyson $60 per day. What is the shape of Alyson’s total cost curve as
output increases from 0 and 45?
Total cost increases but gets flatter.
(b) Total cost increases and gets steeper.
(c) Total cost decreases and gets flatter.
(d) Total cost decreases but gets steeper.
(a)
36. Suppose that for a particular firm the only variable input into the production
process is labor and that output equals zero when no workers are hired. In
addition, suppose that when four units of output are produced, the total cost
is $175, and the average variable cost is $33.75. What would the average fixed
cost be if ten units were produced?
(a) $4
(b) $10
(c) $40
(d) $135
Suppose that production function is given as Q = 2 𝐿 in the short run. The wage
rate per L is $2 and the fixed cost is $0.5. Now answer to the following questions, 37,
38, 39 and 40
37. When L =4,
(a) Q=2
(b) Q=4
(c) Q=6
(d) Q=8
38. When Q=8, the average variable cost is
(a) 32
(b) 16
(c) 8
(d) 4
39. When Q=16, the marginal cost is
(a) 24
(b) 16
(c) 12
(d) 10
40. Average total cost is minimized when Q is
(a) 4
(b) 3
(c) 2
(d) 1
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