1. ECON 100 Lecture 14
Wednesday, March 19

2. Review for Midterm exam#1
Solve midterm Spring 2013

3. Announcements
Classrooms/seating arrangements will be announced by later in the week.
Please check your s.
Extended office hours for midterm (CASE 248)
Today (Wednesday) 2:45 P.M. to 5:00 P.M.
Thursday 11 A.M. to and 2 P.M. to 4:30 P.M.
Friday 11 A.M. to and 1:30 P.M. to 3:30 P.M.

4. “Econ 100 dersi zor ve anlaşılamayacak bir ders değildir
“Econ 100 dersi zor ve anlaşılamayacak bir ders değildir.” Koç Uzman Destek – tutoring services

5. Bring a pocket calculator
Don’t stay up late to study
Do the questions in the problem sets
Solve the past exams
Go over the questions in the lecture notes

6. Saturday March 22 at 10:00
The midterm exam will be more like the Spring 2103 exam: multiple choice questions + possibly a short explanation/graph drawing question worth 10 points 45 MC + one short answer question or 50 MC questions Time: minutes

7. Topics

8. Introduction
Do x if B(x) > C(x)
Opportunity cost (going to concerts etc)
Sunk cost (costs that cannot be recovered)
Marginal cost – marginal benefit (growing tomatoes etc)
People respond to Incentives

9. Chapter 3: A simple model of division of labor, specialization, & trade – 2 individuals who produce (and consume) two goods with labor (with their bare hands)
PPF
Comparative advantage
Absolute advantage
Gains from trade
Chapter 4 Demand Supply Market equilibrium
Chapter 5 Elasticity

10. Small parts from Chapters 6 and 7
Producers’ surplus
Consumers’ surplus
Efficiency and welfare of the competitive equilibrium
Inefficiency of price controls (price floors – price ceilings)

11. MIDTERM EXAM#1 Spring 2013

12. You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $30. You would be willing to pay up to $50 to see Dylan. There are no other costs of seeing either performer. Based on this information, the opportunity cost of seeing Eric Clapton is a. $10 b. $50 c $30 d $20 ANS: D

13. Same as above, [Tickets to Dylan are $30, you would pay maximum $50 to see Dylan] except now you can sell your “free” Clapton ticket for $35. The opportunity cost of seeing Eric Clapton is
a. $55
b. $50
c. $30
d. $15
ANS: A

14. The opportunity cost of an activity is
a. the amount of money spent on the activity.
b. the next-best use of the resources devoted to the activity.
c. any cost that cannot be recovered.
d. the value of the time spent on that activity.
ANS: B

15. The economy has the ability to produce at which point or points?
a. B, D, E
b. A, B, D, E
c. D, C
d. D
ANS: A

16. At which point or points can the economy not produce?
a. A
b. C
c. A, C
d. A, C, D
ANS: B

17. At which point is the opportunity cost of tractors (defined as the number of tubas that must be given up to produce 1 more tractor) is lowest?
a. B
b. D
c. E
d. both D and E
ANS: B

18. A large scale study of the ultimatum game in 15 small, indigenous societies on 4 continents found that (i) in the ultimatum game people behaved as if they are only motivated by material/financial self-interest. (ii) The initial offer was higher in cultures where people must work cooperatively rather than separately to earn a living. (iii) The initial offer was higher in cultures where people commonly exchange products and labor in markets. a. all three statements are true b. only the first statement is true c. the third statement is false. d. only the second and third statements are true. ANS: D

19. To say that "people respond to incentives" is to say that
a. changes in costs (but not changes in benefits) influence people's decisions and behavior.
b. changes in benefits (but not changes in costs) influence people's decisions and behavior.
c. changes in benefits or changes in costs influence people's decisions and behavior.
d. tradeoffs can be eliminated by rational people who think at the margin.
ANS: C

20. Economists believe that people respond to incentives
Economists believe that people respond to incentives. Almost all scientific research finds that people
a. only respond to financial/monetary incentives
b. reward those who act in a cooperative manner, and punish those who do not, even if these actions are costly to themselves
c. people do not respond to incentives
d. people can always be encouraged towards good behavior (like donating blood, doing volunteering work) by using monetary rewards.
ANS: B

21. Suppose Susan can wash three windows per hour or she can iron six shirts per hour. Paul can wash two windows per hour or he can iron five shirts per hour.
a. Susan has an absolute advantage over Paul in washing windows.
b. Susan has a comparative advantage over Paul in washing windows.
c. Paul has a comparative advantage over Susan in ironing shirts.
d. All of the above are correct.
ANS: D

22. Kelly and David can both repair cars and cook meals
Kelly and David can both repair cars and cook meals. Which of the following scenarios is not possible?
a. Kelly has a comparative advantage in repairing cars; David has a comparative advantage in cooking meals.
b. Kelly has an absolute advantage in repairing cars; David has an absolute advantage in cooking meals.
c. Kelly has a comparative advantage in repairing cars and in cooking meals.
d. Kelly has an absolute advantage in repairing cars and in cooking meals.
ANS: C

23. Trade between countries
a. allows each country to consume at a point outside its production possibilities frontier.
b. limits a country’s ability to produce goods and services on its own.
c. must benefit both countries equally; otherwise, trade is not mutually beneficial.
d. can best be understood by examining the countries’ absolute advantages.
ANS: A

24. Canada and the U. S. both produce wheat and computer software
Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if
a. Canada requires fewer resources than the U.S. to produce a ton of wheat.
b. the opportunity cost of producing a ton of wheat is lower for Canada than it is for the U.S.
c. the opportunity cost of producing a ton of wheat is lower for the U.S. than it is for Canada.
d. the U.S. has an absolute advantage over Canada in producing computer software.
ANS: B

25. Which of the following demonstrates the law of demand?
a. Relative to last month, Jon buys more pretzels at $1.50 per pretzel since he earns more money at work this month.
b. Melissa buys fewer muffins at $0.75 per muffin than at $1 per muffin, other things equal.
c. Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal.
d. Kendra buys fewer Snickers at $0.60 per Snickers since the price of Milky Ways fell to $0.50 per Milky Way.
ANS: C

26. An inferior good is one for which demand:
a. rises as income rises.
b. falls as income rises.
c. is low because of the low quality of the good.
d. is high because the good must be replaced often.
ANS B

27. The movement from D to D1 can be caused by
a. an increase in price.
b. a decrease in the price of a complement.
c. a technological advance.
d. a decrease in the price of a substitute.
ANS: D

28. The supply of a good increases if
a. price of inputs used to make the good decrease.
b. demand for the good by consumers increases.
c. price of the good increases.
d. amount of profit a firm can expect to receive from selling the good decreases.
ANS: A

29. The supply curve slopes upward because
a. as more is produced, total cost of production falls.
b. an increase in input prices increases supply.
c. the quantity supplied of most goods and services increases over time.
d. an increase in price gives producers an incentive to supply a larger quantity.
ANS: D

30. Each of the events listed in the next THREE questions below has an impact on the market for bicycles. For each event, which curve is affected (supply or demand for bicycles), and what direction is it shifted?
Consumers' incomes decrease, (bicycles are a normal good).
a. demand increases
b. demand decreases
c. supply increases
d. supply decreases
ANS: B

31. Which curve is affected (supply of bicycles or demand for bicycles), and what direction is it shifted?
The price of steel used to make bicycle frames increases.
a. demand increases
b. demand decreases
c. supply increases
d. supply decreases
ANS: D

32. Which curve is affected (supply of bicycles or demand for bicycles), and what direction is it shifted?
An environmental movement shifts tastes toward bicycling.
a. demand increases
b. demand decreases
c. supply increases
d. supply decreases
ANS: A

33. The price of coal fell and the quantity sold also fell
The price of coal fell and the quantity sold also fell. Which of the following events can be the reason?
(A.) Decrease in the price of natural gas (natural gas and coal are substitutes).
(B.) Large increase in the wages of coal miners.
(C.) Installation of technologically more advanced coal mining equipment.
a. C
b A
c B
d. A and C
ANS: B

34. When the price of the good is $1
When the price of the good is $1.00, the quantity demanded in this market is
a. 42 units.
b. 31 units.
c. 24 units.
d. 14 units.
ANS: B

35. Whose demand does NOT behave according to the law of demand?
a. Aaron’s
b. Angela’s
c. Austin’s
d. Alyssa’s
ANS: C

36. If only 14 units are available (the quantity supplied is fixed at 14 units for all prices), what will be the equilibrium price?
a. $0.50
b. $1.00
c. $1.50
d. $2.00
ANS: D

37. Buyers of computers and printers see those two goods as complements
Buyers of computers and printers see those two goods as complements. An increase in the price of computers will cause
a. a decrease in the demand for printers and a decrease in the quantity supplied of printers.
b. a decrease in the supply of printers and a decrease in the quantity demanded of printers.
c. a decrease in the equilibrium price of printers and an increase in the equilibrium quantity of printers.
d. an increase in the equilibrium price of printers and a decrease in the equilibrium quantity of printers.
ANS: A

38. Health officials say that eating too much red meat is bad for human health. As a result, there were significant decreases in the amount of beef (dana eti) produced. Which of the following best explains this decrease in production?
a. Beef producers, concerned about the health of their customers, decided to produce less beef.
b. Government officials, concerned about consumer health, ordered beef producers to produce less beef.
c. Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the price of beef, making it less attractive to produce.
d. Anti-beef protesters have made it difficult for both buyers and sellers of beef to meet in the marketplace.
ANS: C

39. Equilibrium price and quantity are,
a. $35 and 200.
b. $35 and 600.
c. $25 and 400.
d. $15 and 200.
ANS: C

40. At a price of $35,
a. there will be a shortage of 400 units.
b. there will be a surplus of 200 units.
c. there will be a surplus of 400 units.
d. there will be an excess supply of 200 units.
ANS: C

41. At what price will here be a shortage of 200 units?
d. $35
ANS: B

42. Which of the following events will (100% surely) cause a decrease in the equilibrium price of cotton shirts?
a. an increase in the price of wool shirts and a decrease in the price of raw cotton
b. a decrease in the price of wool shirts and a decrease in the price of raw cotton
c. an increase in the price of wool shirts and an increase in the price of raw cotton
d. a decrease in the price of wool shirts and an increase in the price of raw cotton
ANS: B

43. Which of these statements does not apply to market economies?
a. Prices guide economic decisions and thereby allocate scarce resources.
b. Prices ensure that quantity supplied and quantity demanded are in balance.
c. Prices ensure that anyone who wants a product can get it.
d. Prices influence how much of a good buyers choose to purchase and how much sellers choose to produce.
ANS: C

44. The price elasticity of demand measures how much
a. quantity demanded responds to a change in price.
b. quantity demanded responds to a change in income.
c. price responds to a change in demand.
d. demand responds to a change in supply.
ANS: A

45. Which of the following is not a determinant of the price elasticity of demand for a good?
a. the time horizon
b. the steepness or flatness of the supply curve for the good
c. the definition of the market for the good
d. the availability of substitutes for the good
ANS: B

46. When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $6, the quantity demanded is 90 units per month. The price elasticity of demand at P = $5 is a b c d
ANS: A

47. For which of the following goods is demand most elastic?
a. clothing
b. blue jeans
c. Tommy Hilfiger jeans
d. All three would have the same price elasticity of demand since they are all related.
ANS: C

48. The price elasticity of demand for good X is –2 at price P = $15
The price elasticity of demand for good X is –2 at price P = $15. A small decrease in price of good X will cause
a. an increase in total revenue.
b. a decrease in total revenue.
c. no change in total revenue, but an increase in quantity demanded.
d. no change in total revenue, but a decrease in quantity demanded.
ANS: B

49. A 4% decrease in income results in a 6% increase in the quantity demanded of a good. The income elasticity of demand is
a. negative and therefore the good is an inferior good.
b. negative and therefore the good is a normal good.
c. positive and therefore the good is an inferior good.
d. positive and therefore the good is a normal good.
ANS: A

50. Newspapers report that the number of subway rides declined by nearly 200,000 after jeton prices (subway fares) were increased from 2 lira to 3 lira. The demand for subway use
a. is price elastic
b. is price inelastic
c. cannot be computed from this information
d. is completely inelastic
ANS: C

51. A consumer’s willingness to pay measures
a. the amount of influence advertising and other external forces have on the consumer’s decisions to buy goods and services.
b. the cost of a good to the buyer.
c. how much a buyer values a good.
d. consumer surplus.
ANS: C

52. Marjorie is willing to pay $68 for a pair of dancing shoes
Marjorie is willing to pay $68 for a pair of dancing shoes. She finds a pair at a price of $48. Her consumer surplus
a. is $10.
b. is $20.
c. is $48.
d. is $68.
ANS: B

53. Consumer surplus
a. is a concept that helps us make statements about the efficiency of market equilibrium.
b. is represented on a graph by the area below the demand curve and above the price.
c. is a good measure of welfare of the buyers.
d. All of the above are correct.
ANS: D

54. Which area represents consumer surplus at a price of P2?
a. ABD
b. ACF
c. BCDE
d. DEF
ANS: B

55. Which area represents the increase in consumer surplus when the price falls from P1 to P2?
a. ABD
b. ACF
c. DEF
d. BCFD
ANS: D

56. Producer surplus measures
a. the benefits to sellers of participating in a market.
b. the costs to sellers of participating in a market.
c. the price that buyers are willing to pay for sellers’ output of a good or service.
d. the benefit to sellers of producing a greater quantity of a good or service than buyers demand.
ANS: A

57. End of multiple choice questions

59. In the market for haircuts there are 6 buyers and 6 sellers
In the market for haircuts there are 6 buyers and 6 sellers. Each buyer will buy at most 1 unit; each seller will sell at most 1 unit.

60. Part 1: The competitive equilibrium
The equilibrium price is $_________
The equilibrium quantity is ________units
The consumer surplus in equilibrium is ________
The producer surplus in equilibrium is ________
Total welfare in equilibrium is ___________

61. Part 2: price controls
The government puts a minimum price (PRICE FLOOR) of 30. With the minimum price,
the maximum consumer surplus is ________
the maximum producer surplus is ________
The maximum total welfare is ___________
Because of the minimum price, total welfare decreases by at least______.

62. End of the review

63. Bring a pocket calculator Don’t stay up late to study
Do the questions in the problem sets
Solve the past exams
Go over the questions in the lecture notes
Extended office hours for midterm (CASE 248)
Today (Wednesday) 2:45 P.M. to 5:00 P.M.
Thursday 11 A.M. to and 2 P.M. to 4:30 P.M.
Friday 11 A.M. to and 1:30 P.M. to 3:30 P.M.

64. But before you leave

65. What grade (out of 100) do you expect in the midterm?

66. And also… How many lectures did you miss? (This is Lecture #14!)
How many of your absences were excused (medical, sporting events, competition, family emergency etc)? 
For lectures you attended, please self-evaluate your class participation on scale of 1 to 5 (1 is “poor” 5 is “very strong” participation)