Gregory Clark Econ 1A, Winter 2000 FIRST MIDTERM VERSION #1 A total of 100 points are possible. Last Name: First Name: Your Student ID Number: - - Please check your TA and the section number you were assigned to: #01 Nichole Renda MW 4PM #07 Seungjoon Lee TR 5PM #02 Nichole Renda MW 5PM #08 Jennifer Wood TR 6PM #03 Brian Rosario MW 5PM #09 Helen Han TR 8AM #04 Brian Rosario MW 4PM #10 Seungjoon Lee TR 4PM #05 Jared Rodecker TR 4PM #11 Jennifer Wood TR 5PM #06 Jared Rodecker TR 5PM Part A: Multiple Choice Questions (15 questions, each of which is worth 5 points) Instructions: Answer these multiple choice questions on your Scantron. Write on the Scantron your name (last name first), student ID number, date, exam version number, and your section number in the name, subject, date, test no. and hour boxes respectively. For example, NAME McComb, Madeline SUBJECT 530-66-6271 TEST NO. Vers. 1 DATE 2/4/2000 HOUR Sect 4 ** Warning ** If you first fill in an answer and then erase it to fill in a different one, and the first answer is not fully erased, the Scantron reader may detect two answers and not accept either one. Do not fill in an answer till you are sure this is the one you want to give, or you may not receive credit for the question.
1. Markets distribute goods to those who have the highest money demand for them. Poor people will thus often not get goods even though they have a higher real desire for them. Economists still support the use of market systems of distribution because. A. They believe people are poor are mainly because they are lazy. B. They assume that the government can redistribute income at low cost through the tax system C. They believe people have a right to do what they want with their own money. D. Most economists are Republicans E. The income elasticity of demand for most goods is positive 2. Suppose demand de-café lattes is given by Q d = 10 2P. Suppose that the market price is P= $2. What is consumer surplus? A. 6 de-café lattes B. $6 C. 9 de-café lattes D. $9 E. 6 de-café lattes plus $9 3. The total surplus realized in any market is: A. Consumer surplus B. Consumer surplus + producer surplus C. Consumer surplus + producer surplus + rent seeking loss D. Consumer surplus + producer surplus + deadweight loss E. Consumer surplus + producer surplus + deadweight loss + rent seeking loss 4. Suppose demand for copies of War and Peace is given by Q d = 100 2P while supply is Q s = -60 + 5P. At a price of P=$20 there is an excess demand of A. -40 B. -20 C. 0 D. 20 E. 40
5. Which of the following is NOT a requirement for an efficient outcome in an economy? A. Prices equal marginal costs B. No trades are possible which would make at least someone better off C. Production is on the production possibilities frontier D. The value of total surplus has been maximized E. The value of consumer surplus has been maximized 6. Suppose the income elasticity of demand for copies of War and Peace is 0.2. This implies A. Poor people are more likely to buy War and Peace than rich people. B. Rich people find War and Peace more boring than poor people. C. War and Peace is a necessity but not a luxury. D. War and Peace is both a normal good and an inferior good. E. War and Peace is boring for both rich and poor people. 7. Which of the following is NOT a formula for the price elasticity of demand A. % change in quantity % change in price B. % change in price % change in quantity C. (?Q/Q) (?P/P) D. (?Q/?P) (Q/P) E.?Q. P?P.Q 8. Goods which take a long time to consume, such as books, are likely to have the following characteristics: A. High income elasticity of demand. B. Low income elasticity of demand. C. High price elasticity of demand. D. Low price elasticity of demand. E. Made by Russians.
9. Which of the following statements is normative? A. A competitive market is efficient. B. In a competitive market goods go to those who value them most highly, measured in $. C. In a competitive market goods go to those who value them most highly, measured in psychic satisfaction. D. Attempts to interfere with a competitive market will generally results in inefficiencies. E. Because competitive markets are efficient, the government should not interfere in them. 10. Which of the falling statements is false? A. A competitive market is efficient. B. In a competitive market goods go to those who value them most highly, measured in $. C. In a competitive market goods go to those who value them most highly, measured in psychic satisfaction. D. Attempts to interfere with a competitive market will generally results in inefficiencies. E. Because competitive markets are efficient, the government should not interfere in them. 11. Suppose that a tax of $0.25 is placed on soft drinks. Suppose also that the supply and demand curves for soft drinks are given as below. In which case is there the LEAST deadweight loss. A. Q d = 100 5P, Q s = -100 + 5P B. Q d = 100 5P, Q s = -50 + 5P C. Q d = 100 5P, Q s = -100 + 2P D. Q d = 100 5P, Q s = 50 E. Q d = 200 5P, Q s = -100 + 5P 12. Taxes in competitive markets create: A. Only deadweight costs B. Only rent seeking costs C. Only revenue costs D. Both deadweight and rent seeking costs E. Both deadweight and revenue costs 13. Which of the following is the most efficient tax? A. A tax on consumers of $2 per bushel of wheat purchased B. A tax on producers of $2 per bushel of wheat sold C. A tax of $1000 per farm tractor sold D. A tax of $1000 per farm tractor purchased by farmers E. A tax of $100 per acre of land
14. Suppose for South West Airlines the average capital cost per mile flown per passenger is $0.21, the average fuel cost is $0.11, and the average labor cost is $0.22. When a plane is about to leave and has empty seats the efficient price to a passenger for the trip is (in $ per mile): A. $0 B. $0.11 C. $0.22 D. $0.33 E. $0.54 15. Which of the following is not a possible demand curve for a good if the Law of Demand holds? A. Q d = 100 5P B. Q d = 100 C. P = 4 D. Q d = 100 + 5P E. Q d = 100 1000P
Part B: Short Answer Question (Worth 25 points. Points for each part in parentheses.) Instructions: Write your answers on this exam sheet. Show any calculations needed to derive your answer. Suppose that in San Francisco the demand for taxi rides per hour is given by Q d = 100 5P, while the supply is given by Q s = -20 + 10P. The market is competitive. (a) Draw the supply curve and demand curve on the diagram below, labelling the curves, showing the value of the intercepts, and labelling the axes. (4)
(b) What is the equilibrium price of a taxi ride, and the quantity per hour? (4) (c) In an effort to raise drivers incomes the mayor mandates a $12 minimum fare. What is the new quantity of rides? (3) (d) Show the area of deadweight loss from this policy on your diagram and calculate the amount per hour. (5)
(e) Explain what form the rent seeking loss will take? (5) (f) Calculate the rent seeking loss. (2) (g) Explain what happens to the drivers producer surplus as a result of the fare rise? (2)
13. Suppose that income is 100, and the consumer consumes only food and clothing. The price of food is $1, and of clothing $2. Which of the following is NOT in the consumers budget set A. 0 units of food, 0 units of clothing B. 100 units of food, 0 units of clothing C. 0 units of food, 100 units of clothing D. 40 units of food, 30 units of clothing E. 60 units of food, 20 units of clothing