FALL 2024 Midterm II ECO 1002 Microeconomics

November 20TH 2024

INSTRUCTIONS

1. This IS NOT an OPEN BOOK exam.

2. Students may use calculators.

3. The total mark is 100 points.

4. Write your name on your answer.

Good luck!

1) If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then
the price elasticity of demand for cheese is equal to
A) 30.
B) 0.30.
C) 0.333.
D) 3.

2) A firm that produces a good with many substitutes will most likely find that
A) lowering its price will increase total revenue.
B) lowering its price will decrease total revenue.
C) raising its price will increase total revenue.
D) lowering its price will not affect total revenue.
3) Since there are many different brands of tablet computers to choose from, demand in the
tablet market is

A) inelastic.
B) elastic.
C) unitary elastic.
D) perfectly inelastic.

4) If the Sunset Café reduces their prices by 20%, and the number of customers increases by
40%, what is the elasticity of demand?

A) 0.5
B) 2.0
C) 20
D) 40

5) After the imposition of a per unit tax on production, consumers pay $5.00 per unit and
producers receive $4.95 per unit. What is the value of the per unit tax?

A) $0.05
B) $0.50
C) $5.00
D) $0.01
6) Suppose the imposition of a per unit tax on sellers shifts the supply curve from S0 to S1.
With the tax, buyers pay _____ and sellers receive _____.

A) $6; $6
B) $6; $3
C) $3; $6
D) $3; $4

7) If a tax is imposed on a market with inelastic demand and elastic supply:

A) buyers will bear most of the burden of the tax.

B) sellers will bear most of the burden of the tax.
C) the burden of the tax will be shared equally between buyers and sellers.
D) neither the buyer nor the seller will bear the burden of the tax.
8) A price ceiling is a(n):

A) illegally established minimum price that can be charged for a good.

B) legally established minimum price that can be charged for a good.
C) legally established maximum price that can be charged for a good.
D) illegally established maximum price that can be charged for a good.

9) The government enacts a price control, causing a shortage of 15 units of the good.
Therefore, the _____ is set at _____.
price ceiling; $17
price floor; $17
price floor; $31
price ceiling; $10

10) What links the flower growers in Kenya with romantic American teenagers who give
flowers as gifts of affection?

A) hierarchical authority
B) central planners
C) markets
D) the U.S. Senate
11) Lumber from pine trees can be used to produce hardwood flooring or to make ladders.
Rising ladder prices will cause a(n) _____ in the supply of hardwood flooring, resulting in
_____ home prices.

A) decrease; lower
B) decrease; higher
C) increase; lower
D) increase; higher

12) One of the biggest problems with centrally planned economies is that:

A) they fail to reach economic efficiency because their policies limit global trade.
B) workers have little incentive to work for the central planner.
C) central planners have limited information on the true value of the various ways to utilize
scarce resources.
D) they typically have higher levels of corruption compared with market economies.

13)Millions of producers working across the world cooperate to ensure that many more
millions of consumers can have the goods and services they desire. These producers do
not know one another and are not coordinated by a central agency. Their actions are
directed simply by:

A) robotic technology
B) self-interest.
C) their governments.
D) computer technology.

14) Markets coordinate in a way that links buyers and sellers who rely primarily on:

A) voluntary cooperation and undirected actions.

B) management directing economic actions.
C) governmental policies to direct economic actions.
D) the benevolence and good will of the market participants.

15) The “great economic problem” is to:

A) create unlimited resources to satisfy as many of our infinite wants as possible.

B) equally allocate resources to satisfy as many of our limited wants as possible.
C) arrange our scarce resources to satisfy as many of our infinite wants as possible
D) increase resources to satisfy as many of our limited wants as possible.

16) Speculators _____ prices today and _____ prices in the future.

A) decrease; do not change

B) increase; increase
C) decrease; decrease
D) increase; decrease
17) Which economist described the market as being driven by “an invisible hand”?

A) Adam Smith
B) John Locke
C) Friedrich Hayek
D) Milton Friedman

18) Markets work well because of the information delivered by:

A) prices.

B) the supply curve.

C) the demand curve.

D) the government.

19) Price ceilings create five important effects:

A)shortages, reductions in product quality, wasteful lines, a loss of gains from trade, and a

misallocation of resources.

B)surpluses, increases in product quality, search costs, gains from trade, and resource attrition.

C)excess demand, long lines, poor service, efficiency, and arbitrage.

D)shortages, reduced time costs, low vacancy rates, blat, and deadweight loss.

20) When airlines were regulated, many offered wider seats and fancy meals. This is an

example of:

A) producer surplus

B)consumer surplus.

C) quality waste.

D) lost gains from trade.

21) The presence of price floors in a market is usually an indication that:

A) the sellers of the good or service outnumber the buyers.

B) the forces of supply and demand are unable to establish an equilibrium price.
C) there is an insufficient quantity of a good or service being produced.
D) policymakers believe the price floor does not involve inequities.
22) In the context of the price system, what role do prices play in the economy?

a) Prices regulate the profits earned by producers.

b) Prices determine the quantity of goods and services available in the market.
c) Prices act as signals for resource allocation and decision-making.
d) Prices are primarily influenced by government regulations.

23) In the price system, a shortage of a product typically leads to:

a) A decrease in price and a decrease in quantity supplied.

b) A decrease in price and an increase in quantity supplied.
c) An increase in price and an increase in quantity supplied.
d) An increase in price and a decrease in quantity demanded

24) Which of the following goods is likely to have the most elastic demand?

A) gasoline

B) insulin

C) water

D) diamonds

25) A tax on a good will:

A) increase the price paid by consumers and decrease the price received by producers.

B) decrease the price paid by consumers and increase the price received by producers.

C) increase the price paid by consumers and increase the price received by producers.

D) decrease the price paid by consumers and decrease the price received by producers.

26) The bankruptcy of firms:

A) frees up resources to higher-valued uses, a vital role in capitalism.

B) should not occur in a well-functioning economy.
C) is not possible in monopoly markets.
D) is procyclical with economic activity, as measured by gross domestic product.
27) If a tax is imposed on a market with inelastic demand and elastic supply:

A) seller will bear most of the burden of the tax.

B) buyers will bear most of the burden of the tax.
C) the burden of the tax will be shared equally between buyers and sellers.
D) neither the buyer nor the seller will bear the burden of the tax.