February 28th, 2005
Practice Questions for First Midterm Exam
1. STUDY YOUR NOTES.
2. At a time when the equilibrium price of gas is $1.00/gallon, he government passes a law saying that it is only legal to sell gas for exactly $1.00/gallon: no more, no less. T, F, and Explain: If demand increases, there will be a shortage of gas; if demand falls, the law will have no effect.
3. A restaurant's supply curve stays the same throughout the day, but the demand for its food differs for lunch and dinner:
T, F, and Explain: The equilibrium price of lunch is somewhere between $6 and $8; the equilibrium price of dinner is somewhere between $8 and $10.
4. T, F, and Explain: University textbooks are a good example of a good with almost perfectly inelastic supply.
5. Crusoe is a sailor on a ship. The captain picks the number of chores he has to do, but Crusoe picks which chores he does. He ranks various chores in the following order of unpleasantness:
cleaning cannons 1 (most unpleasant)
swabbing deck 2
brewing rum 3
look-out 4 (least unpleasant)
T, F, and Explain: The law of diminishing marginal utility says that if the captain tells Crusoe to do 3 chores, he will brew rum, swab the deck, and clean the cannons.
6. When Mother Teresa accepted the Nobel Prize for Peace in October 1979 and decided to use the $190,000 award to construct a leprosarium, was she acting in her own interest? Was she behaving selfishly? Was she economizing?
7. Someone has calculated that American women with 4 years of college have twice as many babies on average as women with 5 years of college. Assume the data are correct. What conclusions would you draw?...