Micro-Econ

Name:          ID:      Class Day/Time: 

1. TYPE your answers to each of the questions below. Cut and paste the question when providing your answer. You do not need to cut and paste the tables. If you need to include a graph, you may draw it in by hand if you prefer.

2. The test is formatted so I can grade it faster. There are 3 sections for this part of your midterm. Each section should be answered on one page (front and back).

3. Make sure to included your ID number on each page. Just fill out the info in the header.

4. You must turn in a printed copy to me by the deadline for your class: MW classes on 3/9 and TuTh classes on 3/10.

Name:          ID:      Class Day/Time: 

Section 1 (make your answers fit on 1 typed, double sided page)

Instructions: Based on what you learned in your book and in class, each of the following statements is false in some way. Use economic principles and concepts to explain why each statement is false. Use graphs and examples if you feel they will add to your explanation. 1 point each question

1. Measles has become an epidemic here in Orange County. About 1 in 1000 people will die after contracting the disease. Because this is such a high rate, health officials in Orange County would be well advised to pay for anyone to get a vaccination.

2. When prices fall, the best thing for suppliers to do is to produce more output to

try to protect profits from falling. 3. Because a steep demand curve indicates prices can increase quickly when the

quantity demanded rises only a little bit, steep demand curves represent goods that are very elastic.

4. When price controls are implemented, one group wins at the expense of the other

group, but society as a whole doesn’t suffer. For instance, when you raise the minimum wage, it simply represents a transfer from producers to workers, and has no real effect on total economic activity.

5. In order to create more revenues for government, taxes should be implemented

on either wealthy individuals or on the luxury items they buy (i.e. jewelry, yachts, stocks and bonds, expensive cars) because they can afford them the most.

Name:          ID:      Class Day/Time: 

Section2 (make your answers fit on 1 typed, double sided page)

Use the table to answer questions 6-12. Assume that the demand and supply relationships are linear between any two prices. For all questions, show some work that explains how you arrived at your answer, or provide a written explanation. Answers by themselves will not receive any credit.

P Qd Qs 12 0 52 10 20 48 8 30 44 6 40 40 4 44 30 2 48 20 0 52 0

6. What is the equilibrium price and quantity in the market? 1 point

7. What is the initial consumer surplus in the market? the initial producer surplus? 1 point

8. A tax of $2 per unit is imposed onto the sellers in this market. Construct the new

supply schedule and determine the new equilibrium price and quantity. If you cannot get the exact answer, then draw a graph that illustrates the new equilibrium for less points.2 points

9. How much deadweight loss is associated with this tax? 1 point

10. Which side of the market bears more of the burden of the tax? 1 point

11. Calculate the tax revenue generated. 1 point

12. Calculate the elasticity of demand.Use the pre and post tax market equilibrium

to calculate. 1 point

Name:          ID:      Class Day/Time: 

Section3 (make your answers fit on 1 typed, double sided page)

Use the table to answer questions 13-18. Assume that both demand and supply are linear between any two points. For all questions, show some work that explains how you arrived at your answer, or provide a written explanation. Answers by themselves will not receive any credit.

Market for Bread P Qd Qs 50 0 40 40 10 30 30 20 20 20 30 10 10 40 0 0 50 0

13. What is the equilibrium price and quantity in this market? 1 point 14. Suppose that the price of butter falls dramatically (due to lower butter

production costs) so that the quantity demanded for bread increases by 40 units at any price. By how much does the price of bread change? By how much does quantity change? 1 point

15. ow imagine that after the shock, the government imposes a price ceiling so that the original price is the maximum price a firm can charge for bread. Describe the consequences of such a policy.2 points

16. Suppose that bread buyers are forced to wait in long lines in order to buy bread. If the value of their time can be estimated at $10/ hour, about how long would you expect people to be waiting in line to get a loaf of bread? 1 point

17. Do consumers benefit from the price ceiling? Use the concept of consumer surplus in your answer. [1 points]

18. Suppose the government wishes to alleviate the problems caused by upward price pressure due to the price ceiling by taking all fresh bread off the market; all bread sold must be at least 1 day old. Would you expect this regulation to achieve the desired effect? Explain your answer? 1 point