Econ 101 Midterm

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Exam number: _________

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Midterm: Spring 2010

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Greetings.

  1. Please write your name above, and do not write it anywhere else on the exam.
  2. Please check to be sure that the exam number on the next page matches the exam number on this page.
  3. Please answer each of the exam questions as well as you can. Keep in mind that you can get partial credit for partial answers.

To receive credit for numerical answers, you must show appropriate computations. If you use a calculator, at least indicate what key formulas you used.

Points are distributed in proportion to the number of minutes recommended for each question. The recommended times sum to 60 minutes.

You may use page 1 (this page) as a scratch sheet. I remove it before grading the exam, so do not use either the front or the back of page 1 for anything that you want to me grade. At the end of the exam is a blank page that may use for additional space for your answers to any of the exam questions.

Consider reading over all of the exam questions before you start to write your answers. And try not to get bogged down on any particular question--move on and come back to the question later on.

Good luck!

Exam number: _________

Midterm: Spring 2010

1.

(5 minutes) This question concerns the benefit-cost decision of going to college versus going to work with just a high-school degree, and it compares the situation I faced years ago with the decision you face now.
Adjusted for inflation, high school graduates these days can expect to earn less than they could back when I graduated from high school. All else equal, how does this change affect
(1) the benefits of a college degree, and
(2) the economic (opportunity) cost of pursuing a college degree?
. Explain your answers.

2.

(9 minutes) Suppose the diagram to the right depicts the market for raw milk in California (milk before it's processed for retail sale). Initially raw milk is available only from California suppliers (S(ca) in the diagram). Then supply increases to S(ca+az) when Arizona suppliers enter the market.
a. Does consumer surplus change when Arizona suppliers enter the market? If so, which direction does it go, and by how much?
b. Does producer surplus for California suppliers change when Arizona suppliers enter the market? If so, which direction does it go, and by how much?
c.Does social welfare for California consumers and producers change when Arizona suppliers enter the market? How did you decide?

3.

(6 minutes)Please answer each of the following:
a. If price rises by 30% and total revenue rises by only 10% then demand is (1) elastic. (2) inelastic. (3) unit elastic. Explain briefly.
b. Two drivers--Tom and Jerry--each drive up to a gas station. Without looking at the price, each places an order. Tom says, 'I'd like 10 gallons of gas.' Jerry says, 'I'd like $10 of gas.' What is the numerical value of each driver's price elasticity of demand? Explain briefly.

4.

(12 minutes) Suppose the price of coffee rose sharply last month, but the quantity sold was the same as ever. For each person quoted below, explain whether the explanation offered could be right and use a diagram to support your answer. Consider each person separately, and note that more than one person might be right.

a. Person 1: 'The wage rate of coffee workers rose, while the price of coffee cake fell, and the quantity effects offset each other.'

b. Person 2: 'Unusually good weather led to a large coffee crop, while the economy came out of a recession (causing income to rise), and the quantity effects offset each other.'

c. Person 3: 'Supply shifted left, but the demand for coffee is inelastic, with the size of the price elasticity of demand equal to 0.3.'

5.

(9 minutes) Consider the following passage from 'My Preferred Fiscal Stimulus,' posted by N. Gregory Mankiw on his blog on February 5, 2009:
Let me reiterate what I would do right now if I were the fiscal king.
I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.
a. Use the diagrams below to illustrate how Mankiw's proposed policy would work. For simplicity, assume that the policy imposes a tax on gasoline and eliminates a tax on worker wages.
Labor market Gasoline market
b. Use your diagrams to illustrate how Mankiw's policy can accomplish each of the following:

(1)

'create-jobs,'
(2) 'save-the-environment [and] reduce-traffic-congestion,' and
(3) be a 'budget-neutral tax shift.'
Use the space below for any explanations that you would like to add.
6.

(10 minutes)

a. Suppose the diagram to the right depicts the market for cable TV service.
(1)Indicate the welfare loss which results if a monopoly provider reduces the quantity sold from the efficient level down to 10 units in order to charge a higher monopoly price.
(2)Suppose that the government instituted a price ceiling of $30 for cable TV services. Would the policy raise or lower efficiency compared to part (1)? Use your diagram to support your answer.
(3)What size tax would have the same effect on the quantity sold as in part (1)?
b.

In the diagram to the right, how large must the external benefits associated with vaccinations be in order for it to be efficient to offer them for free?
(1) Size of external benefits = $____
(2) Illustrate your answer in the diagram.

7.

(9 minutes) For each of the following situations, decide what microeconomic policy covered in class, if any, you would recommend, and carefully explain the economic basis for your decision in each case: Note: you do not have to draw any diagrams for this question, just provide a careful explanation based on relevant economic concepts.
a. Non-biodegradable plastic diapers cause landfill disposal problems.
b. Legislators decide that they would like to make health insurance more accessible and affordable for low-income families.
c. Residential electricity is provided by monopolies because it is inefficient for more than one firm to string electrical wires to serve the same neighborhoods.

You may use this page for additional space for your answers to any of the exam questions.

  • Finals Week Office hours: Monday, Tuesday, and Wednesday, 10 AM to 11 AM (link)

  • Midterm I:

    • Review (questions) (key)

    • Past exams:

      • 2020 (exam) (key)

      • 2019 (exam) (key)

  • Midterm II:

    • Review (questions) (key)

    • Past exams:

      • 2020 (exam) (key)

      • 2019 (exam) (key)

  • Final:

    • Review (questions) (key)

    • Past exams:

      • 2020 (exam) (key)

      • 2019 (exam) (key)

Week 1: Opportunity cost; absolute & comparative advantage

  • Textbook chapter: 1

  • Lecture notes (week 1 and 2)

  • Discussion Handout: Original, Solutions, Mark-up

Week 2: Production possibility frontier, comparative advantage, and trade

  • Textbook chapter: 2

  • Lecture notes (week 1 and 2)

  • Discussion Handout: Original, Solutions, Mark-up

Week 3: The supply and demand model; market equilibrium

  • Textbook chapters: 3 & 4

  • Lecture notes

  • Discussion Handout: Original, Solutions, Mark-up

Midterm

Week 4: Elasticity

  • Textbook chapter: 5

  • Discussion Handout: Original, Solutions, Mark-up

Week 5: Consumer Theory I: Budget constraints and utility maximization

  • Textbook chapter: 6 (plus appendix)

  • Lecture notes (weeks 5 and 6)

  • Discussion Handout: Original, Solutions, Mark-up

Week 6: Consumer Theory II: Demand curve derivation; substitution and income effects

  • Textbook chapter: 6 (plus appendix)

  • Lecture notes (weeks 5 and 6)

  • Discussion Handout: Original, Solutions, Mark-up

Week 7: Producer Theory I: Product curves, short run costs, and short-run costs

  • Textbook chapters: 7 & 8

  • Lecture notes

  • Discussion Handout: Original, Solutions, Mark-up

Week 8: Producer Theory II: Equilibrium in the short and long run; economies of scale

  • Textbook chapters: 8 & 9

  • Lecture notes

  • Discussion Handout: Original, Solutions, Mark-up

Week 9: Producer Theory III: Input markets

  • Textbook chapter: 10

  • Discussion Handout: Original, Solutions, Mark-up

Week 10: Pareto efficiency and general equilibrium under perfect competition

101
  • Textbook chapter: 12

  • Discussion Handout: None

Amu econ 101 midterm

Week 11: Monopoly and price discrimination

  • Textbook chapter: 13

  • Discussion Handout: Original, Solutions, Mark-up

Week 12: Oligopoly and price discrimination

  • Textbook chapters: 13 & 14

  • Discussion Handout: Original, Solutions, Mark-up

Week 13: Game theory and monopolistic competition

  • Textbook chapter: 15

  • Lecture notes:

  • Discussion Handout: Original, Solutions, Mark-up

Week 14: Public Goods, Externalities, and Tax Incidence

Econ 101 Midterm Quizlet

  • Textbook chapter: 16

  • Discussion Handout: Original, Solutions, Mark-up