Intro Micro Exam 1, Fall 2011
Dr. Dodge NAME:______
Please use the space provided, or additional space on the back, to respond to the following. You may not attach additional paper to this exam.
1. In each of the following situations, identify and explain which of the 12 principles is at work. (5 points each)
a. You need to decide how many hours to spend chatting with your friends on Facebook rather than studying for an exam.
b. State governments mandate that it is illegal to drive without passing a driving exam.
c. Because there is a shortage of parking spots on a college campus, the college charges faculty and students $200 for a parking sticker that allows the student to legally park on campus.
2. Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for potato production, there are fewer resources available for catching fish.
Maximum annualOutput options / Quantity of
Potatoes (pounds) / Quantity of
Fish (pounds)
A / 1000 / 0
B / 800 / 300
C / 600 / 500
D / 400 / 600
E / 200 / 650
F / 0 / 675
a. Can Atlantis produce a combination of 500 pounds of fish and 500 pounds of potatoes? Where would this point lie relative to the production possibility frontier? Explain. (5 points)
b. What does the table above imply about the slope of the production possibility frontier? Does this shape make economic sense? Why or why not? (12 points)
3. Suppose the 2011 market for cigarettes is in equilibrium. Given the following scenarios, predict changes to the equilibrium price and quantity of cigarettes. Explain why these changes are occurring. A diagram is not required, but might be useful to you. (6 points each)
a. All else equal, the price of tobacco has increased.
b. All else equal, the price of chewing tobacco has increased.
c. All else equal, the government announces that the price of cigarettes will be much lower in 2012.
d. Suppose that at the same time, the government announces that cigarettes actually increase your sex appeal and intelligence, and the technology used in producing cigarettes has improved.
4. Suppose a price ceiling is imposed on the market for college degrees. Discuss the expected effects of such a policy. (15 points)
5. The market for textbooks is described by the linear functions below.
Market demand for Textbooks: P = 470 – 2Qd where Qd is units per day and P is the price of a textbook.
Textbooks Market Supply: P = 20 + Qs
a. Draw this market, being sure to label everything, including curves and intercepts. Solve for the equilibrium price and quantity of textbooks and identify in your diagram. (9 points)
b. At the price and quantity found in part (a), calculate consumer and producer surplus. (6 points)
c. Suppose the government passed a law that sets a minimum price of a textbook at $200. Show this price control in the graph. Who would be in favor of this law? Being as specific as possible, how will this law affect the textbook market? (8 points)
d. How would the law affect total surplus in the market? Please be specific. (6 points)
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