Econ 1 Fall 2024 Midterm Exam Sample PDF

Econ 1, 01 & 02, Fall, 2024: Midterm Exam – Practice Questions I. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. (50 points total) 1) Which of the following best describes equilibrium? A) A situation where no economic agent would ben...

Econ 1, 01 & 02, Fall, 2024: Midterm Exam – Practice Questions I. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. (50 points total) 1) Which of the following best describes equilibrium? A) A situation where no economic agent would benefit by changing his or her behavior B) A situation where only one individual or firm makes an optimal decision C) A situation where economic agents do not optimize as they do not have perfect information D) A situation where the government intervenes to allocate resources 2) While making a purchase decision, a buyer should buy the good that yields the highest ________. A) marginal benefit per dollar spent B) average benefit plus marginal benefit per dollar spent C) total utility per dollar spent D) average benefit per dollar spent ----- The following table shows the total benefit that Jenny derives from consuming different quantities of chocolate. Quantity of Chocolate Consumed Total Benefit ($) 0 0 1 10 2 18 3 24 4 29 5 30 3) Refer to the table above. What is the marginal benefit that Jenny derives from the second unit of chocolate? A) $0 B) $8 C) $9 D) $18 ----- 4) When the price of a bar of chocolate is $2, Sharon consumes 10 chocolates. If the elasticity of demand for chocolates is −1, how many bars of chocolates will she consume when the price increases to $4? A) 5 B) 6 C) 8 D) 9 1  Econ 1 – Gracic, Fall 2024 5) In a perfectly competitive market, sellers ________. A) coordinate to set the market price B) are told the price to charge by the government C) each have the power to set the price D) are price takers 6) If the percentage change in the quantity supplied of a good is less than the percentage change in the price of the good, the price elasticity of the good is likely to be ________. A) less than one B) equal to one C) equal to two D) equal to infinity 7) Consider the following graph, which depicts a competitive market. The producer surplus in this market is equal to ________. A) $500 B) $1,000 C) $750 D) $0 8) Which of the following is likely to shift the demand curve for coffee workers to the left, assuming all else equal? A) An increase in the wage rate of coffee workers B) An increase in the price of coffee C) A decrease in the wage rate of coffee workers D) A decrease in the price of coffee 2  Econ 1 – Gracic, Fall 2024 9) A price control is ________. A) a market-determined equilibrium price B) a non-market price imposition C) the price at which quantity demanded equals quantity supplied D) the price that maximizes social surplus 10) If prices are held below the equilibrium price, ________. A) there will be a surplus in the market B) there will be a shortage in the market C) social surplus will be maximized D) all firms will earn positive economic profits ----- The following figure shows the demand and supply curves for a good. The initial demand curve is D1 and the supply curve is S. Later, due to an external shock, the demand curve shifts to D2. 11) Which of the following is likely to happen if the government imposes a price control at $60, when the demand curve shifts to D2? A) There will be a shortage of 15 units of the good in the market. B) There will be a surplus of 15 units of the good in the market. C) There will be a shortage of 10 units of the good in the market. D) There will be a surplus of 10 units of the good in the market. ----- After the imposition of the price controls, consumer surplus is represented in the graph below. 3  Econ 1 – Gracic, Fall 2024 12) In the graph, producer surplus for Argentine beef retailers after the imposition of the price control is given by which areas? A) F B) D + F C) D + E + F D) A + B + D ----- 13) Efficiency is achieved in competitive markets because ________. A) producer surplus is maximized B) consumer surplus is maximized C) social surplus is maximized (the economic pie is made as large as possible) D) deadweight loss is maximized 14) Imagine that the economy resembles a pie. In this analogy, ________ concerns with growing the size of the pie, while ________ concerns with how the pie if distributed among the people. A) equity; efficiency B) equity; optimization C) efficiency; optimization D) efficiency; equity 15) A ________ occurs when government spending exceeds tax revenue. A) budget deficit B) negative externality C) consumer surplus D) positive externality 16) A restaurant charges its customers 12 percent of the total food price in tax. This is an example of a ________ tax. A) payroll B) wealth C) property D) sales ----- The table below shows the tax brackets for different income groups in a country: Taxable Income Tax Rates $0-$10,500 10 percent $10,501-$40,200 15 percent $40,201-$98,000 20 percent $98,001-$145,000 25 percent Above $145,000 30 percent 4  Econ 1 – Gracic, Fall 2024 17) Refer to the table above. This is an example of a ________ tax system. A) progressive B) regressive C) proportional D) cardinal 18) Refer to the table above. If Beth earns $60,000 per year, she has to pay a tax of ________. A) $9,465.05 B) $1,600.50 C) $1,000.50 D) $24,000 ----- 19) This table shows the output per month of two people, Fred and Barney. They can either devote their time to making bicycles or making unicycles. Which of the following is true? A) Barney has a comparative advantage in making bicycles and Fred in making unicycles. B) Fred has a comparative advantage in making both products. C) Barney has a comparative advantage in making both products. D) Barney has a comparative advantage in making unicycles and Fred in making bicycles. ----- 20) 10 apples are sold when the price is $5 and 6 apples are sold when the price is $7. What is the price elasticity of demand (use midpoint formula)? A) -1 B) 2/3 C) - 3/2 D) - 2/3 21) Suppose the value of the price elasticity of demand is -5 for coke. If the Coca-Cola cuts its prices A) The total revenue will go up B) The total revenue will go down C) Total revenue is unchanged D) We can’t tell without information on prices 22) Which of the following events would, all else being equal, unambiguously increase the equilibrium quantity in the market for gasoline? A) Political instability in oil-producing nations B) Decrease in prices of cars and increase in competition among oil-producing countries C) Wider availability of public transportation D) Increase in prices of cars and decrease in wages of oil industry workers 5  Econ 1 – Gracic, Fall 2024 23) If the current market price of wheat in the United States is $6 per bushel and the federal government sets the maximum price of wheat at $4 per bushel, what happens to the market price and quantity of wheat in the U.S. wheat market? A) There is no change in the market price of wheat or the quantity traded. B) The market price of wheat falls and the quantity traded rises. C) The market price of wheat falls and the quantity traded falls. D) The answer cannot be determined given the information provided. 24) A model refers to ________. A) facts, measurements, or statistics that describe the world B) a set of facts established by observation and measurement C) a simplified description, or representation, of reality D) a perfect replica of reality 25) An expected increase in the market price of oil in the coming year is likely to ________ in the current year. A) shift the supply curve of oil to the right B) cause no changes in the demand and supply curves of oil C) shift the supply curve of oil to the left D) shift the demand curve for oil to the left 6  Econ 1 – Gracic, Fall 2024 II. PROBLEMS. (50 points total) 1) (6 pts) When the price of a coffee mug is $10, the quantity demanded is 700 units. When the price rises to $25, the quantity demanded decreases to 300 units. Additionally, if the price of coffee beans drops by 30 percent, the demand for coffee mugs increases from 300 units to 450 units. a. Calculate the price elasticity of demand. b. Calculate the cross-price elasticity of demand. c. When Emma's income is $500, she buys 5 coffee mugs. When her income increases to $1,500, her quantity demanded rises to 20 mugs. Calculate Emma's income elasticity of demand for coffee mugs. 2) (8 pts) You run a small classroom market experiment with only three buyers and three sellers. The willingness to pay for buyer A is $7; for buyer B it is $5; and for buyer C it is $3. The willingness to accept for seller X is $2; for seller Y it is $4; and for seller Z it is $6. a. Sketch the supply and demand in this market. b. What is the equilibrium quantity? c. What is the social surplus given this outcome? d. What if in your experiment, seller X and buyer C agree to a price of $2.50, seller Y and buyer B agree to a price of $4.50, and seller Z and buyer A agree to a price of $6.50. All participants have managed to find a trade that benefits them individual, and yet this is not an efficient outcome. In terms of social surplus, why not? 3) (6 pts) The equilibrium rent in a town is $500 per month and the equilibrium number of apartments is 100. The city now passes a rent control law that sets the maximum rent at $400. The diagram below summarizes the supply and demand for apartments in this city. 7  Econ 1 – Gracic, Fall 2024 a. Use the figure to complete the table below Before Rent Control After Rent Control Change Consumer Surplus Producer Surplus Social Surplus b. Use your answers to part (a) of this problem to answer the following questions: i. Did consumer surplus definitely rise, definitely remain constant, definitely fall, or is the direction of the change in consumer surplus unclear? ii. Did producer surplus definitely rise, definitely remain constant, definitely fall, or is the direction of the change in producer surplus unclear? iii. Did social surplus definitely rise, definitely remain constant, definitely fall, or is the direction of the change in social surplus unclear? 4) (6 pts) The following table gives the 2019 federal income tax rates for individuals. Taxable Income Marginal Tax Rate $0 – $9,700 10% $9,701 – $39,475 12% $39,476 – $84,200 22% $84,201 – $160,725 24% $160,726 – $204,100 32% $204,101 – $510,300 35% $510,301 and above 37% 8  Econ 1 – Gracic, Fall 2024 a. Calculate total tax for an individual with taxable income of $155,000. b. What is the marginal tax rate? c. What is the average tax rate? 5) (10 pts) Refer to the graph below. a. What is the amount of consumer surplus? b. What is the amount of producer surplus? c. Suppose the government imposes a tax of $3 per burrito on sellers. What are the new equilibrium price and quantity? Graph. d. What is the price paid by the consumers? e. What is the price received by the sellers? f. Who bears the burden of the tax incidence? g. What is the consumer surplus after the imposition of this tax? h. What is the producer surplus after imposition of this tax? i. What is the amount of tax revenue collected by the government? j. What is the deadweight loss associated with this tax? 6) (6 pts) Suppose a firm sells 20,000 units when the price is $16, but sells 30,000 units when the price falls to $14. a. Calculate the price elasticity of demand over this range of prices. State whether demand is elastic or inelastic over this range. b. Suppose the firm's elasticity of demand is constant over a large range of prices, equal to the value found in part a. If the price were to fall another 4%, what should the firm predict will happen to its quantity sold? 9  Econ 1 – Gracic, Fall 2024 7) (8 pts) John is trying to decide between four different jobs, each located in a different city. Each job offers different salaries and requires varying hours of work per week. John values both income and leisure time, and his opportunity cost of time is $20 per hour. The table below shows the weekly salaries and required working hours for each job. Help John determine his optimal job choice by applying: a. Optimization using total value b. Optimization using marginal analysis 10