Econ 215, Principles of Microeconomics Fall 2014, exam #1 Dr. Stonebraker 1 Name _______________________________ (5%) Differentiate clearly between allocative efficiency and technical efficiency. 2. (6%) Isabella can play two violin concertos or complete five accounting problems in one hour. Draw her production-possibilities curve for an eight-hour day, Label your graph clearly. 3. (8%) Draw typically shaped supply and demand curves for grape jelly and show the equilibrium price and quantity. Label everything clearly. Use your graph to illustrate what will happen in the grape jelly market if the price of grapes rises. Explain briefly. 4. (17%) Leonard can produce either 120 units of good X or 10 units of good Y in a week while Sheldon can produce either 100 units of X or 5 units of Y in a week. a. If specialization is not possible, what is the opportunity cost to Leonard of producing one unit of X? b. If specialization is possible, in which good should Leonard specialize? In which should Sheldon specialize? Explain your answers. c. What trade ratio of X for Y can benefit both? Explain in detail how this ratio will benefit both. 5. (30%) Indicate whether each of the following is true or false and explain the economic logic of each answer. The explanation is more important than the true-false choice. T F An economy always operates on its production possibilities frontier. T F A decrease in the price of crayons will shift the demand curve for crayons to the right. T F A decrease in the price of pork is likely to decrease both the equilibrium price and quantity of chicken. T F If good weather creates an unexpectedly large potato crop, potato farmers will be harmed if the demand for potatoes is inelastic. T F Leisure is a free good. 6. (8%) List the three factors that would tend to make the demand for a product elastic and explain each briefly. 7. (6%) Using the midpoint formula, calculate the elasticity of demand if when price rises from $4 to $10, the quantity demanded falls from 80 units to 20 units (show your work). 8. (8%) List and explain the two major reasons for why women today are less willing to marry today than they might have been 100 years ago. 9. (2%) Define what we mean by an inferior good. 10. (6%) Penny spends all of her income on shoes and cheesecakes. If the price of shoes falls and her demand for them is inelastic, what will happen to the quantity of cheesecakes that she buys? Explain clearly. 11. (4%) If the cross-price elasticity of demand between two products is negative, are the products substitutes, complements or unrelated goods? Explain.