Introductory Microeconomics Midterm Test, Exams of Microeconomics

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ECON 1B03 - Introductory Microeconomics

Midterm Test VERSION 1 possible questions

and answers McMaster University

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ECONOMICS 1B

Introductory Microeconomics Fall 2022

Midterm Test VERSION

1 ANSWERS

Date: Wednesday, October 19, 2022

Time: 7:30pm - 8:50pm

Instructions:

This test paper contains 10 pages including the title page and 40 questions + 1 Bonus. You are respon- sible for ensuring that your copy of the paper is complete. Please bring any discrepancy to the attention of your invigilator.

Only the McMaster Standard (Casio - FX991 MS or MS PLUS) Calculator may be used. This test

paper must be returned along with the scan sheet.

Write your name and student number on the test paper and the scan sheet. Bubble in

your student number and version on the scan sheet.

YOU HAVE 80 MINUTES TO COMPLETE THE TEST.

Total Marks Available: 41

Instructions Identify the choice that best completes the statement or answers the question.

Refer to Figure. What is the opportunity cost to society of the movement from point C to point A? a. 1/3 computer b. 3 computers c. 3 apples d. 1/3 apple

2. Suppose that you are in charge of pricing at a local sandwich shop. The business needs to increase revenue and your job is on the line. What should you do? a. If the demand for sandwiches is inelastic, decrease the price of sandwiches. b. If the demand for sandwiches is inelastic, do not change the price of sandwiches c. If the demand for sandwiches is elastic, increase the price of sandwiches d. If the demand for sandwiches is elastic, decrease the price of sandwiches
3. When is a good excludable? a. when one person's use of the good increases another person's enjoyment of it b. when the government can regulate its availability c. when one person's use of the good diminishes another person's enjoyment of it d. when people can be prevented from using it
4. If the cross-price elasticity of demand of two goods is -1.25, what would the two goods be? a. substitutes b. complements c. normal goods d. luxuries

The next five questions are related to the following scenario:

Market demand is given as QD = 2400 – 3P Market supply is given as QS = 2P - 500

5. Refer to the scenario. What legally imposed price would constitute a binding price ceiling? a. $ b. $ c. $ d. $
6. Refer to the scenario. Suppose the government implements at tax of $20 on consumers. What is the new equilibrium price, after the tax? a. $ b. $ c. $ d. $
7. Refer to the scenario. How is the burden of the above tax divided between consumers and producers? a. producers bear a larger burden of the tax because the supply curve is more inelastic than the demand curve b. consumers bear a larger burden of the tax because the demand curve is more inelastic than the supply curve c. consumers bear a larger burden of the tax because the tax was placed on consumers

d. producers bear a larger burden of the tax because the supply curve is more elastic than the demand curve

8. Refer to the scenario. What is the value of deadweight loss due to this tax? a. $ b. $ c. $ d. $
9. Refer to the scenario. What is the value of consumer surplus after this tax? a. $101, b. $72, c. $104, d. $67,

15. Refer to Table 2-1. What is the opportunity cost of one cell phone for Apple? a. 8 tablets b. 1/2 tablet c. 2 tablets d. 4 tablets
16. Refer to Table 2-1. What does each producer have an absolute or comparative advantage in? a. Samsung has an absolute advantage in both goods, and Apple has a comparative advantage in tablets. b. Samsung has an absolute advantage in tablets, and Apple has a comparative advantage in neither good. c. Samsung has an absolute advantage in neither good, and Apple has a comparative advantage in cell phones. d. Samsung an absolute advantage in cell phones, and the Apple has a comparative advantage in tablets.
17. Refer to Table 2-1. What price of trade might both Apple and Samsung agree to? a. 1 cell phone = 1.8 tablets b. 1 tablet = 0.8 cell phone c. 1 cell phone = 2.5 tablets d. 1 tablet = 1 cell phone
18. Suppose that Danny has a change in his tastes such that he values bananas less than before. If the market price is the same as before, then what would happen to Danny? a. Danny's consumer surplus would decrease since his willingness to pay increases. b. Danny's consumer surplus would increase since his willingness to pay increases. c. Danny's consumer surplus would increase since his willingness to pay decreases d. Danny's consumer surplus would decrease since his willingness to pay decreases.
19. How are public goods classified? a. excludable but not rival in consumption b. neither excludable nor rival in consumption c. rival in consumption but not excludable d. both excludable and rival in consumption
20. When would demand for a good tend to be more inelastic? a. when the time period considered is longer b. when there are fewer available substitutes c. when the good is considered more of a luxury good d. when the market is more narrowly defined

21. Suppose the price elasticity of demand for basketballs is 1.5. What will result from a 12 percent decrease in price? a. an 18 percent decrease in the quantity of basketballs demanded b. an 8 percent decrease in the quantity of basketballs demanded c. an 8 percent increase in the quantity of basketballs demanded d. an 18 percent increase in the quantity of basketballs demanded
22. Suppose shirts are currently selling for $25 each. The equilibrium price of shirts is $35 each. What would we expect? a. a shortage to exist and the market price of shirts to increase b. a surplus to exist and the market price of shirts to decrease c. a shortage to exist and the market price of shirts to decrease d. a surplus to exist and the market price of shirts to increase

The next four questions are related to the following scenario:

Suppose the market demand for cell phones: Qd = 8,000 - 0.5T + 0.005N - 5P T = price of a tablet, $ N = income measured in dollars, $50,000 P = price of cell phones

Suppose the market supply of cell phones is: Qs = 4P

23. Refer to the scenario. What is the equation for the inverse demand? a. Qd = 8050 - (1/5)P b. Qd = 1800 - 5P c. P = 1610 - (1/5)Qd d. P = 8050 - Qd
24. Refer to the scenario. Which curve is more elastic, supply or demand? a. supply b. demand c. there is not enough information to answer the question d. both curves have the same elasticity
25. Refer to the scenario. What type of good are cell phones? a. normal good b. luxury good c. necessity good d. inferior good

32. What is trade based on? a. comparative advantage b. absolute advantage c. production costs d. relative dollar prices
33. Suppose goods X and Y are complements in production. What can we expect to happen? a. If the price of X rises, the supply of Y will rise. b. If the price of X falls, the price of Y will fall. c. If the price of X rises, the price of Y will rise. d. If the price of X falls, the supply of Y will rise.
34. Which of the following would a microeconomist study? a. the impact of minimum-wage laws on employment in the fast-food industry b. the impact of monetary policy on the rate of inflation c. the effect of changes in saving rates on GDP d. the effect of tax policy on the rate of economic growth
35. Suppose an economy that produces apples and oranges has 110 million workers it can employ and employs only 100 million of them. The firm then hires 5 million workers back. What would this cause an economy to do? a. produce at a point closer to its production possibilities frontier b. produce at a new, higher production possibilities frontier c. produce at a point farther inside of its production possibilities frontier d. produce outside its production possibilities frontier
36. When is the production possibilities frontier bowed outward? a. if opportunity costs are constant b. if the amount of resources increases c. if the level of technology increases d. if resources are not perfectly shiftable
37. If education produces positive externalities, what would we expect? a. people to realize the benefits and therefore cause demand for education to increase b. government to subsidize education c. colleges to relax admission requirements d. government to tax education

38. Which of the following is a normative statement? a. Trade restrictions lower overall income. b. If the price of a good increases, quantity supplied increases. c. Equity is more important than efficiency. d. Higher gasoline prices will reduce gasoline consumption.
39. When is a good considered scarce in a society? a. when the government restricts production of the good b. when everyone in that society cannot have all they want of the good c. when only the richest people in the economy can buy all they want of the good d. when more output of the good is possible
40. If a demand curve is vertical, what are its slope and elasticity? a. Slope is 0 and elasticity is undefined b. Slope is undefined, as is elasticity c. Slope is undefined and elasticity equals 0 d. Slope is 0, as is elasticity

Figure

41. BONUS : Refer to Figure. In which market will the deadweight loss be the largest? a. market (a) b. market (b) c. market (c) d. market (d)