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Check the SECTION you regularly attend (that is where you will pick up your prelim):
Daniel Chin Lay Lau (dcl253)
____________6545 DIS 210 T 08:00AM - 08:50AM URH 202
____________6546 DIS 211 T 09:05AM - 09:55AM URH 202
____________6547 DIS 212 T 10:10AM - 11:00AM URH 202
Yanan Li (yl2294)
____________6548 DIS 213 T 12:20PM - 01:10PM RCK 112
____________6549 DIS 214 T 01:25PM - 02:15PM RCK 112
____________6550 DIS 215 T 02:30PM - 03:20PM RCK 112
Todd Jones (trj25)
____________6551 DIS 216 R 08:00AM - 08:50AM RCK 122
____________6552 DIS 217 R 09:05AM - 09:55AM RCK 122
____________6553 DIS 218 R 10:10AM - 11:00AM RCK 122
Zhenda Yin
____________6554 DIS 219 F 08:00AM - 08:50AM GSH G22
____________6555 DIS 220 F 09:05AM - 09:55AM GSH G22
____________6556 DIS 221 F 10:10AM - 11:00AM GSH G22
Mehreen Mookerjee
____________9603 DIS 222 T 08:00AM - 08:50AM IVS 219
____________9604 DIS 223 T 09:05AM - 09:55AM IVS 219
____________9605 DIS 224 T 10:10AM - 11:00AM IVS 219
GRADING
MC (out 56 points)=___________________
Q1 (out of 22 points)=_________________
Q2 (out of 22 points)=_________________
mupe1_1110_s2014_OV
7. Four sellers are in the market willing to sell their tickets to see
the NCAA Final Four Basketball Championships. Suppose the
following reservation selling price for each person:
Jennys=$1,000, Daves=$550, Marianas=$675 and Gregs=$890.
If the current market price of a ticket is $800, what is the total
producers surplus over these four people in this situation?
A.
B.
C.
D.
E.
$3,115
$-85
$1,600
$375
$2,265
Quantity
Demanded
(Ice Creams)
4000
3500
3000
2500
2000
1500
1000
500
0
Quantity
Supplied
(Ice Creams)
1000
1100
1200
1300
1400
1500
1600
1700
1800
$1.25
$1.50
$2.00
$2.50
$2.75
12. A fall in the price of lemons from $10.50 to $9.50 per bushel
raises the quantity demanded from 19,200 to 20,800 bushels.
Using the midpoint arc formula, the own price elasticity of demand
in this part of the lemon demand curve is approximately equal to
A.
B.
C.
D.
E.
-8.00.
-1.25.
-0.80.
-1.20.
0
Market X
Market Y
Market Z
We do not have enough information to know.
The same amount of dead weight loss is generated in each
market.
14. Assume the demand curve for tires is linear. Which of the
following results in an increase in total consumer expenditures on
tires?
A. Demand for tires is currently unitary elastic and the price falls
slightly.
B. Demand for tires is currently price elastic and the price rises
slightly.
C. Demand for tires is currently price inelastic and the price falls
slightly.
D. Demand for tires is currently price inelastic and the price rises
slightly.
E. None of the above.
16. The exact value of the own price elasticity of demand at point
A in the diagram is
P ($/unit)
8
6
3
A.
B.
C.
D.
E.
-1
-3
-3/4
-4/3
None of the above.
KEEP GOING!
Q
12 (units/wk)
mupe1_1110_s2014_OV
Part II: Make sure you read and do ALL parts of each question. Show as much work as
possible. TRY to get started on every question. Show us something. Write legibly and
remember to label all graphs and axes in diagrams.
1. Suppose the demand and supply curves for bagels in Ithaca are given by the following
equations:
QD = 100 - 10P and QS = -20 + 30P where
QD = quantity of bagels demanded per day in Ithaca,
QS = quantity of bagels supplied per day in Ithaca, and
P = price per bagel.
a. Graph the demand and supply curves. Make your graph BIG enough to play around with for
the rest of the problem. For full credit you must label intercept values on the vertical and
horizontal axes.
b. What are the equilibrium price and quantity in this market? Illustrate and label the values in
the graph.
c. Assume the demand equation changes to: QD = 130 - 10P. Is this an increase in demand or a
decrease in demand? Briefly explain.
d. Suppose, adding to part c, that the supply of bagels changes to: QS = -30 + 30P. Offer one
reasonable explanation to what might have generated this change in supply.
e. Using the information in (c) and (d) graphically show what occurs in the market for bagels.
Calculate the new equilibrium price and equilibrium quantity. Illustrate and label the values
of P* and Q* in the graph.
f. Suppose the Ithaca Bagel Eaters Society gets the mayor to impose a price ceiling on bagels
equal to the ORIGINAL bagel equilibrium price. Analyze the likely impact of this policy
using your graphs and some calculations.
PLEASE DRAW YOUR GRAPH ON THE NEXT PAGE.
Answer space
2. Momma Bear, Poppa Bear and Baby Bear make two goods: beds and porridge. In a weeks
time Poppa Bear can make 15 beds and no porridge, or 5 bowls of porridge and no beds, or any
linear combination. Baby Bear can make 3 beds and no porridge, or 3 bowls of porridge and no
beds, or any linear combination. Momma Bear is different. She can make 12 beds and no
porridge, 8 beds and 8 bowls of porridge, or any linear combination between these two points.
She can also make 8 beds and 8 bowls of porridge and no beds and 12 bowls of porridge, or any
linear combination between these two points.
The PPF for each bear is illustrated below.
a. Who has the absolute advantage in porridge? Defend your position.
b. Between Baby Bear and Poppa Bear, who has the comparative advantage in the production
of porridge? Defend your position.
c. The Bear family wants to determine the efficient joint production possibilities frontier.
Putting BEDS on the VERTICAL, sketch out the efficient joint production possibilities
frontier. For full credit, if there are any kink points in your graph label the number of units of
each task at any/all kink points. Also label the endpoints of the PPF.
d. If the Bear Family is efficiently making 10 bowls of porridge, how many beds are they
making? Explicitly tell us how many units of each activity each bear is doing.
Answer space
Answer space
2 B
Draw each persons PPF and notice the following with respect to the marginal opportunity cost of milkshakes in
terms of bananas: George Michaels = , Tobiass=5/6, Maebys=2 and Gobs=3. So if Tobias is doing some of
both, by now you have George Michael doing only milkshakes, and Maeby and Gob doing only bananas.
3 C
Derek has an absolute advantage in both tennis ball and baseballs. The opportunity cost of make one tennis ball is 1
baseball for Derek, and baseball for Roger. So Roger has a comparative advantage in making tennis balls. They
would be mutually benefit if they specialize and trade.
4 D
This would be MONOPOLY. By definition, parts A, B, C and E are characteristics of perfect competition.
5 E
Sun tan lotion is a complement to sunglasses, whose price impacts demand not supply. Demand increases with the
number of consumers in the market, not decreasing. Increase in input prices will decrease supply. A parasol is a
substitute to sunglasses. An increase in its price will increase demand for sunglasses.
6 B
When demand increases and supply decreases at the same time, price rises unambiguously. However, since they are
going in the opposite direction (in terms of going right and left, which measure quantity), the effect on the
equilibrium quantity is uncertain. Depending on the relative degree of shift in the demand curve and the supply
curve, equilibrium quantity may increase, decrease, or stay the same.
7 D
Only Dave and Mariana will sell their tickets. Producers surplus=$(800-550)+$(800-675)=$375
8 E
The increase in supply shifts the supply curve to the right. This moves the equilbrium point down the demand curve
so that wages fall and employment increases.
9 E
The quota is 1000 (=20*50) ice creams per day. The demand price for this quantity is $2.75 while the supply price is
$1.25.
10 D
Since the demand and supply curves have the same steepness, the tax is equally shared.
11 C
With the price ceiling, quantity demanded is 60 and quantity supply is 20. Thus there will be a shortage of 40. The
quantity sold will be min{20, 60}=20 pound of jelly bean. The DWL=1/2*(30-10)*(40-20)=$200
12 C
Set it up as [(19200-20800)/20000]/[(10.50-9.50)/10] = 0.80
13 B
Market Y has a DWL of $30*t, while Market X has a DWL of *t*a, where a is the decrease of quantity traded.
a<30, so DWL of X is smaller than Y. Similarly, the DWL of Market Z is *t*b, where b is the decrease of quantity
traded, which is less than 30. So DWL of Z is smaller than Y.
14 D
We know that firm can earn more (i.e. consumers spend more) by increasing price when demand is inelastic, or by
decreasing price when demand is elastic, so D is correct, B C: wrong. Also note for linear demand curve (typically
shaped) when demand is unitary elastic, portion above it is elastic, and below it inelastic.
15 D
When there are more substitutes of a good available, consumers are more able to switch to other goods when the
price of the good increases. Therefore, demand is more inelastic for a broadly defined market and more elastic for a
narrow market definition. So the demand for yogurt would be relatively more price inelastic than for some narrower
definition like a particular flavor of yogurt.
16 B
From the diagram we get inverse demand: P = 8 2Q/3, so demand is Q = 12 3P/2; dQ/dP = -3/2;
elasticity = dQ/dP X P/Q = -3/2 X 6/3 = -3