DO NOT BEGIN WORKING UNTIL YOU ARE TOLD TO DO SO. READ THESE INSTRUCTIONS FIRST.

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1 Midterm Exam #1; Page 1 of 10 Economics 101 Professor Scholz Practice Midterm #1, Version #1 October 1, 2009 DO NOT BEGIN WORKING UNTIL YOU ARE TOLD TO DO SO. READ THESE INSTRUCTIONS FIRST. You have 75 minutes to complete the exam, which consists of 33 multiple-choice questions. The exam is worth 100 points. Each question is worth 3 points: you get 1 point for filling in the requested information correctly. Please answer the questions on your coding sheet with a #2 pencil. Be sure to fill in the coding sheet carefully and accurately. How to fill in the coding sheet: 1. Fill in the bubbles on your answer sheet with your last name, first name, and middle initial. 2. Fill in the bubbles so we know your student identification number. 3. Fill in the bubbles under "Special Codes" spaces ABC so we know the discussion section number for which you are officially registered. Discussion sections are listed below: 4. Finally, after filling in your section code, please put the exam version in the Special Codes spaces. You will end up with a 4-digit Special Codes number a three digit section number followed by a one digit exam number. Georgy Loginov William Nicholson Jiao Shi Fumihiko Suga 305 F 1: W 4: F 2: W 3: W 4: F 11: F 12: F 8: W 3: F 8: F 11: F 9: F 9:55 Carly Urban Matthew Friedman Irina Merkurieva Michael Pistone 310 F 2: W 3: F 1: F 2: F 12: W 4: F 9: F 12: F 8: F 8: F 11: F 1: F 2:25 Evangelos Stravelas Yuan Yuan 330 W 3: F 11: W 4: F 12: F 1: F 9: F 2: F 8:50 If you have a question during the exam, stay seated and please raise your hand. To show respect to your fellow students, please stay seated in your exam seat for the full 75 minutes. All exams and answer sheets must be turned in as you leave the exam. The exam will be discussed in section next week. Relax. Stop, take a deep breath, and think carefully before you answer any questions. Good luck!

2 Exam, Sample; Page 2 of 10 Answer these multiple choice questions on the scantron sheet, selecting the best answer. 1. Suppose the demand curve for Jonathan's snow sculptures is Q D = 900-5P, where Jonathan supplies snow sculptures according to Q S = P. The equilibrium price and quantity in the market for Jonathan's snow sculptures is a) P=80, Q=400 b) P=100, Q=600 c) P=80, Q=500 d) P=100, Q=500 e) None of the above. 2) Back before he had taken any economics, Jonathan charged $100 for each of his snow sculptures. Demand and supply were the same back then as they are now. Did a surplus or shortage exist, and if so, how large was it? a) Shortage, 300 units. b) Surplus, 300 units. c) Shortage, 200 units. d) Surplus, 100 units. e) None of the above. 3) Suppose the demand for apartments in Lincoln, Nebraska is Q=1000-P and the supply of apartments is Q=P. The city government of Lincoln is worried about rents being excessive, and so it passes a law that rents cannot exceed $600. a) The effects of this price ceiling will be to create apartment shortages. b) The price floor will create excess supply of apartments and high vacancy rates. c) The policy will have no effect. d) The price floor will result in excess demand for apartments. e) This price ceiling will result in excess supply of apartments.

3 Midterm Exam #1; Page 3 of 10 Use the following to answer question 4: Fish and Coconut Production Possibilities Fish Coconuts Tom 12 8 Hank The accompanying table shows the maximum amounts of fish and coconuts that Tom and Hank can produce if they only produce one good. Tom produces and consumes 9 fish and 2 coconuts, and Hank produces and consumes 3 fish and 2 coconuts. Now they decide to engage in trade. Which of the following statements is INCORRECT? A) For both to become better off, each should specialize in the production of some good. However, since Hank is equally productive in both goods, it doesn't matter which good each specializes in. B) For both to become better off, each should specialize completely in the production of the good in which he has a comparative advantage. C) After trade it is possible for Tom to consume 9 fish and 2.5 coconuts, and for Hank to consume 3 fish and 2.5 coconuts. D) For each individual, the consumption point after trade can lie outside that individual's production possibility frontier. Use the following to answer questions 5-7: Figure: Market for Hamburgers P $3.60 $2.00 $1.60 $1.20 $ D Hamburger Q 5. (Figure: Market for Hamburgers) The accompanying figure shows the weekly market for hamburgers at the Tasty Burger Palace. If the price of a hamburger is $1.20 and 300 hamburgers are supplied, producer surplus will equal: A) $60. B) $240. C) $180. D) E) $360. $120.

4 Exam, Sample; Page 4 of (Figure: Market for Hamburgers) The accompanying figure shows the weekly market for hamburgers at the Tasty Burger Palace. If the Palace lowers the price of a burger from $2 to $1.60, the gain in consumer surplus to consumers who are persuaded to buy by the lower price (and who were not buying when the price was $2) is equal to: A) $10. B) $20. C) $40. D) $60. E) $80 Figure: Consumer and Producer Surplus 7. (Figure: Consumer and Producer Surplus) In the accompanying figure, if an effective price ceiling exists in this market, then producer surplus, and total surplus. A) decreases; decreases B) increases; stays the same C) increases; stays the same D) increases; decreases 8. How does the new equilibrium price and quantity compare to the old price and quantity bought and sold in the oats market if a new strain of oat is developed that is more resistant to pests and gives higher yields. a) P up, Q ambiguous b) P up, Q up c) P down, Q up. d) P down, Q ambiguous e) P down, Q down

5 Midterm Exam #1; Page 5 of How does the new equilibrium price and quantity compare to the old price and quantity bought and sold in the oats market if high wheat production results in a fall in wheat price (assume wheat and oats are substitutes). a) P up, Q ambiguous b) P up, Q up c) P up, Q down. d) P down, Q ambiguous e) P down, Q down 10. Suppose that a binding price floor is in place in a particular market. If the market is deregulated, and the price floor is removed, then which of the following effects could occur? A) The quantity demanded would decrease and the quantity supplied would increase. B) An excess demand would develop. C) There would be a decrease in the quantity of the good supplied. D) There would be an increase in the quantity of the good supplied. 11. Some baseball fans leave the game in the seventh or eighth inning in order to avoid the postgame traffic. The fans are: A) not considering they have already paid the cost of their tickets. B) making marginal decisions by comparing the cost of staying another inning to the benefit of leaving early. C) thinking only about the benefits of avoiding traffic. D) underestimating the value of staying for the rest of the game. 12. A recent news story reported that OPEC is expected to decrease the supply of oil next summer. Summer is traditionally a time of increased demand for oil because of the many families driving and flying to vacation sites. What would be the combined effect of these two events on the summer market for gasoline? A) an increase in the price and the quantity B) an increase in the price and an unpredictable change in the quantity C) an unpredictable change in both the price and the quantity D) an unpredictable change in the price and a decrease in the quantity 13. An ambiguous change in price and a decrease in quantity is most likely caused by: A) no shift in supply and a shift to the left in demand. B) a shift to the left in supply and a shift to the left in demand. C) a shift to the right in supply and a shift to the left in demand. D) a shift to the left in supply and a shift to the right in demand.

6 Exam, Sample; Page 6 of Frank Zappa is a musician who has a daughter named Moon Unit. Consider the collector s market for Frank Zappa memorabilia on E-Bay (a quick check on E-Bay when I wrote this question had an old autographed Guitar Player Magazine and some concert photos, with a minimum bid of $300.99). What do you expect happened to the price of Zappa memorabilia when 1) he entered the Rock and Roll Hall of Fame in 1995, and 2) suppose Moon Unit decided to sell a bunch of memorabilia she had collected from her famous father at that time. A) P went up and Q fell B) P went up and Q went up C) P is ambiguous and Q went up D) P went down and Q went up E) P went down and Q is ambiguous 15. Consider a situation where there are 2 countries, A and B. They both can produce either clothes or food. Their respective PPFs are shown in the following graph. Food Country A Food Country B Clothes 10 Clothes Which of the following statements is TRUE? A) Country A should sell food in exchange for clothes. B) Country A should sell clothes in exchange for food. C) Country B has a comparative advantage in food production. D) A) and C). E) Not enough information is given to answer the question. 16. A point outside the Production Possibilities Frontier: A) represents inefficient use of resources; B) may be due to unemployment. C) is attainable if all resources are used efficiently. D) requires more resources than are currently available to attain. E) will never be attainable, even if the quantity of resources increases.

7 Midterm Exam #1; Page 7 of The market demand for beef is: Q=180-10P. The market supply for beef is: Q=50P. The equilibrium quantity and price pair is: A) 225 pounds, $4.5. B) 200 pounds, $4. C) 215 pounds, $3.25. D) 150 pounds, $3. E) 175 pounds, $ D 1 Suppose the market demand for shaving cream is given by Q = P+ 10 and the market 2 S supply is given by Q = 2P 5. The equilibrium price and quantity in this market is A) Q=6, P=7 B) Q=1, P=3 C) Q=5, P=10 D) Q=15, P=10 E) Q=7, P=6 19. If a price ceiling is lower than the equilibrium market price, then A) The price ceiling is non-binding, and therefore the price is held at the price ceiling. B) The price ceiling is non-binding, and therefore the price is the equilibrium market price. C) The price ceiling is binding, and therefore the price is held at the price ceiling. D) The price ceiling is binding, and therefore the price is the equilibrium market price. E) None of the above. 20. If the demand for widgets is given by P=10-Q, and supply is given by P=4Q. Suppose the government imposes a price floor of $6. The result will be: A) A shortage of 1 widget. B) A shortage of 1.5 widgets. C) A surplus of 1 widget. D) A surplus of 1.5 widgets. E) None of the above. 21. Consider a market where demand is P=40-10Q d, and supply is P=8+6Q s. Find consumer surplus (CS) and producer surplus (PS). A) CS=16, PS=8. B) CS=24, PS=12. C) CS=20, PS=24. D) CS=20, PS=12. E) CS=12, PS=20.

8 Exam, Sample; Page 8 of 10 Demand and supply of the economics textbook market (of the introductory microeconomics variety) are given by the following: (demand): Q = 20 - P (supply): P = Q ) Consumer surplus in this market is a) 64 b) 32 c) 24 d) 16 e) None of the above 23) Producer surplus in this market is a) 16 b) 24 c) 32 d) 64 e) None of the above 24) The NFL wants to give the common fan the opportunity to attend the Super Bowl, so it sets Super Bowl prices low -- tickets for a regular seat at Super Bowl XXXVII cost just $400. Scalpers, however, were selling tickets for $1,500 or more. The true cost to the common fan of a regular ticket to Super Bowl XXXVII was at least: a) $400. b) $1,500. c) the monetary price paid to obtain the ticket. d) $1,100 less than the opportunity cost of a ticket. e) None of the above 25) In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can produce 30 tons of steel or 275 automobiles. This information implies that: a) Japan has a comparative advantage in the production of automobiles. b) the United States has an absolute advantage in the production of steel. c) Japan has a comparative advantage in the production of both goods. d) the United States has a comparative advantage in the production of automobiles. e) none of the above 26) The resolution to the escalator puzzle is a) People don t need escalators after technology develops flying carpets. b) If you don t walk on the stairs, you ll never get where you re going. c) When comparing costs and benefits, benefits should be measured in time and not distance. d) Marginal analysis does not always work, though it is often a helpful way to pose problems. e) New building must be built to accommodate requires of the Americans With Disabilities Act.

9 Midterm Exam #1; Page 9 of 10 27) The following factors will shift the demand curve for pizzas in Madison except a) A 50% increase in the number of students admitted to the UW b) Successful pizza advertising c) Higher prices for burgers d) Lower prices for pizzas e) Medical evidence showing pizzas are healthier than burgers 28) Which of the following would most likely cause a fall in the demand for cars a) An increase in the price of steel b) A decrease in the income of car buyers c) An increase in the price of cars d) Auto-workers get a big pay increase e) New research showing car travel is safer than flying 29) The demand and supply curve for a market is 2P = 6Q - 10, and 2Q = - P The equilibrium price for the good is a) $7 b) $1 c) $11 d) $4 e) $2 30) The market for pizza is in equilibrium until a) the price of cheese increases, and b) it is discovered that pizza contains zero net carbohydrates (making pizza a popular diet food). What will happen to equilibrium P and Q in the pizza market? a) Q will rise, and the change in P is ambiguous. b) Q will fall, and P will rise c) The change in Q is ambiguous, and the change in P is ambiguous. d) The change in Q is ambiguous, and P will rise. e) Q will rise and P will rise. 31) The opportunity cost of attending the University of Wisconsin includes... a) both tuition and the value of the students time. b) tuition, but not the value of the student's time, which is an explicit cost. c) the value of the student's time, but not tuition, which is a monetary cost. d) neither tuition nor the value of the student's time, since obtaining a college degree makes one's income higher in the future. e) neither tuition nor the value of the student's time, because the state subsidizes the University.

10 Exam, Sample; Page 10 of Consider the market reflected in the following graph. What is the total (consumer plus producer) surplus given in equilibrium? (Supply and demand are both linear.) Price 12 S 8 D A) $20 B) $40 C) $60 D) $80 E) $ Given the same graph (as in problem 32), a tax levied on producers would: A) decrease consumer surplus. B) decrease producer surplus. C) decrease total surplus. D) both (B) and (C). E) (A), (B), and (C). Extra practice question: 10 Qty. 34) Elmo makes television shows and movies. He (she?) has the following production possibility frontier Quantity of Movies = * (Quantity of Television Shows). Elmo s opportunity cost of one movie and one television show is a) one TV show is 2 movies; and 1 movie is 0.5 TV shows b) one TV show is 0.5 movies; and 1 movie is 2 TV shows c) one TV show is 2 movies; and 1 movie is 2 TV shows d) one TV show is 0.5 movies; and 1 movie is 0.5 TV shows e) None of the above