Exam #1 2/22/17. Problem Number Points

Transcription

1 Exam #1 2/22/17 Economics 108 Landsburg NAME: There are 9 problems, with the following point values: Total Points: 125 Problem Number Points

2 1. Which of the following could cause a change in the demand for wool coats? I. An unusually cold winter. II. An increase in the cost of raising sheep. (Remember that wool comes from sheep!) III. An increase in the price of wool coats. IV. An increase in the price of leather coats. N ) I only. R ) II only. U ) III only. X ) IV only. A ) I and II only. L ) I and III only. E ) I and IV only. H ) II and III only. K ) II and IV only. M ) III and IV only. Q ) I, II and III only. T ) I, II and IV only. W ) I, III and IV only. C ) II, III and IV only. B ) All of I, II, III and IV. D ) None of I, II, III and IV. Enter the LETTER corresponding to the correct answer:

3 2. For each question below, choose one of the following answers: N R U X A L E H K M Q An increase in demand An increase in supply A decrease in demand A decrease in supply Either N or R Either N or U Either N or X Either R or U Either R or X Either U or X None of the above a) What could cause both the price and quantity of widgets to rise? b) What could cause the price of widgets to rise and the quantity of widgets to fall? c) What could cause the price of widgets to fall?

4 3. The graph below shows the demand and supply for widgets. Price ($ per widget) Quantity (Widgets) Answer each of the following questions by entering letters according to the following scheme: R8 a) If widgets are subject to a sales tax of $3 per widget, what is the price of a widget? (Note: As always, price in this context means price not including tax.) b) If widgets are subject to an excise tax of $3 per widget, what is the price of a widget? c) Suppose widgets are subject to a sales tax of $3 per widget. If the sales tax were eliminated, how much additional surplus would consumers gain? d) Suppose widgets are subject to a sales tax of $3 per widget. If the sales tax were eliminated and replaced with an excise tax of $3 per widget, how much additional surplus would consumers gain? e) Suppose widgets are subject to a sales tax of $6 per widget. How many widgets are produced?

5 4. Alvin, Simon and Theodore have the following marginal value curves for carrots: Alvin Q MV Simon Q MV Theodore Q MV 1 $20 1 $15 1 $ Answer the following questions by entering letters according to the following scheme: R8 a) On the market demand curve, what quantity goes with a price of $10? b) If the price of a carrot is $10, how much total consumer surplus is earned?

6 5. A competitive widget producer has fixed costs of $5 and faces the following variable cost curve: Q V C 1 $ Answer the following questions, entering letters according to the following scheme: a) What is the total cost of producing 5 widgets? b) What is the marginal cost of producing the fourth widget? R8 For the remaining parts of this problem, assume that widgets sell for a going price of $10. c) How many widgets does this producer supply? What are his profit and his producer surplus? (Enter letters!) QUANTITY: PROFIT: PRODUCER SURPLUS: d) If the producer s fixed costs increase from $5 to $8, what will happen to the PRICE of widgets supplied by this producer? N ) The price goes down. R ) The price might either go down or remain the same. U ) The price remains the same. X ) The price might either go up or remain the same. A ) The price goes up. e) If the producer s fixed costs increase from $5 to $8, what will happen to the QUANTITY of widgets supplied by this producer? N ) The quantity goes down. R ) The quantity might either go down or remain the same. U ) The quantity remains the same. X ) The quantity might either go up or remain the same. A ) The quantity goes up.

7 6. Widgets are produced by three competitive firms with the following marginal cost curves: Firm A Q MC Firm B Q MC Firm C Q MC 1 $1 1 $1 1 $ Assume that the going price of a widget is $4. Answer the following questions, using letters to represent numbers according to the following scheme: R8 a) How many widgets are produced? b) What is the social variable cost of producing those widgets? c) How much producer surplus is earned? d) What would be the lowest possible social variable cost for producing 3 widgets? e) On the market supply curve, what quantity goes with a price of $3? Please double check your arithmetic!!

8 7. The following graph (not drawn to scale) shows the market for widgets. The numbers in the various regions indicate the areas of those regions. P $ S 5 3 $ D Answer the following questions, using letters to represent numbers according to the following scheme: 7 For parts a) through d), assume that widgets are not taxed. a) In equilibrium, how many widgets do consumers buy? b) What is the total value to consumers of those widgets? c) What is the variable cost of producing those widgets? d) What is the social gain? Q R8 For the remaining parts, assume that widgets are subject to a sales tax of $3 each. e) What is the new quantity of widgets? (Hint: There is enough information in the graph to answer this question!) f) How much surplus do consumers and producers lose as a result of the sales tax? CONSUMERS LOSE: $ (Enter a letter!) PRODUCERS LOSE: $ (Enter a letter!) g) How much tax revenue is collected? h) What is the deadweight loss? Remember to check your arithmetic!!

9 8. In the widget market there are TWO demanders and THREE competitive suppliers. Each of the two demanders has the same marginal value curve, and each of the three suppliers has the same marginal cost curve, as follows: One person s MV curve Q MV 1 $ One firm s MC curve Q MC 1 $ Answer the following questions using LETTERS to represent numbers, according to the following scheme: R8 a) What is the equilibrium price of a widget? (Hint: Remember that there are two demanders and three suppliers.) b) If widgets are subject to a sales tax of $5 per widget, what is the new price of a widget (as always, not including tax)? c) Enter letters to represent numbers in the following chart. (Once again, remember that there are two demanders and three suppliers!) NO TAX $5 / WIDGET SALES TAX CS PS TAX RECIPIENTS d) What is the amount of the deadweight loss due to the tax of $5 per widget? Please double check your arithmetic!!

10 THIS PAGE IS FOR THE GRADERS. PLEASE DO NOT WRITE ON IT. Problem Number Score 1 /6 2 /9 3 /15 4 /8 5 /21 6 /15 7 /27 8 /24 Total /125