1. Today: review for Midterm exam#1
Classrooms for Exam #1 will be announced by later in the day.
Please check your s.
Office hours (CASE 248)
Today 1:30 to 4:30
Tomorrow 10 to 11:45, and 1:30 to 4:30.

2. REVIEW
MIDTERM EXAM#1 2012

3. In the market for eggs, consumer incomes increase and the price of chicken feed (input in the production of eggs) increases. Assume eggs are a normal good. What will happen in the market for eggs?
Both equilibrium price and equilibrium quantity will increase.
Equilibrium price will decrease, but the impact on equilibrium quantity will be ambiguous.
Equilibrium quantity will decrease, but the impact on equilibrium price will be ambiguous.
Equilibrium price will increase, but the impact on equilibrium quantity will be ambiguous.

4. If Murat’s income increases, Murat’s demand for
each good he purchases will increase.
normal goods will decrease.
luxury goods will decrease.
inferior goods will decrease.

5. Price controls such as price ceilings and price floors
are desirable because they make markets more efficient as well as equitable (fair, just).
cause surpluses and shortages to persist since price cannot adjust to bring the market to the equilibrium price.
can be used to bring a market to equilibrium.
are used because they can make the poor in the economy better off without causing negative effects.
If the price of a good is above the equilibrium price we expect a
shortage to exist and the demand for this good to decrease.
shortage to exist and the market price of the good to decrease.
surplus to exist and the supply of the good to increase.
surplus to exist and the market price of the good to decrease.

6. At the equilibrium price
sellers would eventually require a higher price.
there will be no pressure on price to rise or fall.
there can still be upward or downward pressure on price.
buyers would not be willing to purchase the output sellers desire to sell.
If there is no substitutes for good A, then
supply of good A will be price elastic.
demand for good A will be income inelastic.
demand for good A will be price inelastic.
demand for good A will be income elastic.  

7. When demand is inelastic, a decrease in price will cause
no change in total revenue.
an increase in total revenue.
a decrease in total revenue.
There is insufficient information to answer this question.
If there is a shortage of apples, we expect
the price of apples to increase.
the price of apples to decrease.
the demand for apples to decrease.
the supply of apples to increase.

8. The equilibrium in a competitive market
maximizes the profits of producers.
minimizes the costs incurred by consumers.
maximizes the total benefits received by buyers and sellers.
minimizes the expenditures of buyers.
The correct answer is…

9. In the figure shown, at the equilibrium price, consumer surplus will be
$240.
$300.
$450.
$600
In the figure shown, at the equilibrium price, producer surplus will be

10. In the figure shown, the efficient price-quantity combination is
$19 and a quantity of 30.
$14 and a quantity of 30.
$14 and a quantity of 60.
$10 and a quantity of 30.

11. Which of the following will NOT shift the supply curve for a good or service?
a change in technology
a change in the price of an input
a change in the price of the good or service
a change in expectations about the price of the good or service
Scarcity exists when
the price of a good rises.
society can meet the wants of every individual.
there is less of a good or resource available than people wish to have.
there is less than an infinite amount of a resource or good.

12. Murat spends one hour studying instead of going for a bike ride. For Murat, the opportunity cost of studying is
the improvement in his grades from studying for the hour.
the enjoyment and exercise he would have received from a bike ride.
the difference between the improvement in his grades from studying minus the enjoyment of a bike ride.
zero. Since Murat decided to study rather than to ride his bike, the value of studying must be greater than the value of the bike ride.

13. SHORT ANSWER QUESTIONS

14. 8 buyers, 8 sellers. Everyone buys or sells at most 1 unit.
The equilibrium price is 4 and the equilibrium quantity is 6 units. When the government puts a minimum price (PRICE FLOOR) of 6, 4 units of the good will be bought and sold The consumers surplus with the minimum price is = 6. The producers surplus with the minimum price is = 14.
???

15. Labor Hours needed to make one unit of:
CLOCKS
UMBRELLAS
GREECE 4 2
TURKEY 9 3
a. The opportunity cost of 1 clock in GREECE is
2 UMBRELLAS
b. The opportunity cost of 1 clock for TURKEY is
3 UMBRELLAS
c. The opportunity cost of 1 umbrella for GREECE is
½ CLOCKS

16. d. The opportunity cost of 1 umbrella for TURKEY is
1/3 clocks.
 e. GREECE has an absolute advantage in
clocks and umbrellas
TURKEY has an absolute advantage in
nothing.
f. GREECE has a comparative advantage in
clocks
and,
TURKEY has a comparative advantage in
umbrellas.
g. If GREECE and TURKEY trade based on the principle of comparative advantage, GREECE will export
clocks,
and TURKEY will export

17. Elasticity
Price, income, etc.,

18. Murat’s consumption of good X
Price of good X
Murat’s Income 24 8
400 20 10 14
250
300
a. Murat’s price elasticity of demand for good X at P = 10 is:
P = 10, Q = 20, then P = 8, Q = 24 (no change in income)
ΔP = 2, ΔQ = 4,
%Δ in P is 2/10 = 20%
%Δ in Q = 4/20 = 20%
EP = 1 (unit elastic demand at P = 10)

19. b. Murat’s income elasticity of demand for good X when Income = 250 is.
I = 250, Q = 10, then I = 300, Q = 8 (no change in price)
ΔI = +50, ΔQ = -2,
%Δ in I is 50/250 = 20%
%Δ in Q = 2/10 = =20%
EI = (negative income elasticity at I = 250)

20. Shifts in demand and supply
Changes in the equilibrium price and quantity

21. Consumers’ incomes are rising (milk is an inferior good) and
the price of cow feed (input for milk production) is increasing.
How will the equilibrium quantity and price of milk will change?
Use one well-labeled demand and supply diagram in your explanation.
Well labeled means: Put price and quantity on the correct axis, indicate which curve is the supply which one is the demand, and clearly show the shifts in the curves, if there are any shifts. Also show in the graph clearly the old and the new equilibrium price and quantities.

22. incomes are rising (milk is an inferior good) price of cow feed is also rising (input for milk production) Increase in Demand Affects the Equilibrium
Price of milk D1
Initial equilibrium
Supply2
Shift in demand
New equilibrium D2
Supply1
???
Shift in Supply
Quantity of milk
Copyright©2003 Southwestern/Thomson Learning

23. The equilibrium price is 4 and the equilibrium quantity is 6 units
The equilibrium price is 4 and the equilibrium quantity is 6 units. When the government puts a minimum price (PRICE FLOOR) of 6, 4 units of the good will be bought and sold The consumers surplus with the minimum price is = 6. The producers surplus with the minimum price is = 14.
???