Instructions: use a RED scantron and bubble in your answers. Turn in your scantron along with your typed answers to the written portion of the exam. 1. When private ownership rights are well-defined and enforced, owners a. can ignore the wishes of others, without bearing the cost. b. have little incentive to take care of things. c. can do anything they want with their property. d. can be held accountable for damage to others through misuse of their property. 2. Criteria for rationing goods and resources must be established because of a. the law of comparative advantage. b. the use of capitalism as a form of economic organization. c. the inability of politicians to develop efficient forms of economic organization. d. scarcity imposed by nature. 3. When we say the cost of production is $50, what is meant according to economic principles? a. A firm had to spend $50 in order to purchase the resources required to make the good or service. b. A value to society of this good or service was $50, so its cost is said to be $50. c. A firm could have made something else with the resources that was worth $50 in the market. d. $50 represents the maximum willingness to pay from market participants. 4. For markets to be efficient in production, what must be true? e. All profitable opportunities must be exhausted f. No firm is doing something where MC>MB g. All of the above h. None of the above Use the production possibilities data below for Honduras and Nicaragua to answer the following question(s). Table 2-2 Honduras Oranges Apples 0 16 1 12 2 8 3 4 4 0 Nicaragua Oranges Apples 0 8 1 6 2 4 3 2 4 0 5. Refer to Table 2-2. Which of the following is correct? a. Honduras has the comparative advantage in both goods. b. Nicaragua has the comparative advantage in oranges. c. Honduras has the comparative advantage in oranges. d. It would be impossible for Honduras and Nicaragua to gain from trade. Figure 2-2 6. Which of the following would most likely cause the production possibilities curve for breadfruit and fish to shift outward from AA to BB in Figure 2-2? a. a decrease in the labor force of the country b. a sudden change in consumer preferences for more fish and less breadfruit c. a major technological advance d. a decrease in the capital stock Figure 2-10 7. Refer to Figure 2-10. A movement from point C to point D could be caused by a. unemployment. b. a decrease in society's preference for bananas. c. fewer resources available for production of bananas. d. All of the above are correct. 8. Which of the following results in more elastic demand? a. Fewer substitutes b. Less time in which to respond to a price spike c. A higher proportion of income spent on the good d. Good considered a luxury good rather than a necessity 9. Two points on a demand curve are P=60,Q=10 and P=30,Q=30. What is the elasticit.

1. Instructions: use a RED scantron and bubble in your answers.
Turn in your
scantron along with your typed answers to the written portion of
the exam.
1. When private ownership rights are well-defined and enforced,
owners
a. can ignore the wishes of others, without bearing the cost.
b. have little incentive to take care of things.
c. can do anything they want with their property.
d. can be held accountable for damage to others through misuse
of their
property.
2. Criteria for rationing goods and resources must be
established because of
a. the law of comparative advantage.
b. the use of capitalism as a form of economic organization.
c. the inability of politicians to develop efficient forms of
economic organization.
d. scarcity imposed by nature.
3. When we say the cost of production is $50, what is meant
according to economic
principles?
a. A firm had to spend $50 in order to purchase the resources
required to make the
good or service.

2. b. A value to society of this good or service was $50, so its cost
is said to be $50.
c. A firm could have made something else with the resources
that was worth $50 in
the market.
d. $50 represents the maximum willingness to pay from market
participants.
4. For markets to be efficient in production, what must be true?
e. All profitable opportunities must be exhausted
f. No firm is doing something where MC>MB
g. All of the above
h. None of the above
Use the production possibilities data below for Honduras and
Nicaragua to answer the
following question(s).
Table 2-2
Honduras
Oranges Apples
0 16
1 12
2 8
3 4
4 0

3. Nicaragua
Oranges Apples
0 8
1 6
2 4
3 2
4 0
5. Refer to Table 2-2. Which of the following is correct?
a. Honduras has the comparative advantage in both goods.
b. Nicaragua has the comparative advantage in oranges.
c. Honduras has the comparative advantage in oranges.
d. It would be impossible for Honduras and Nicaragua to gain
from trade.
Figure 2-2
6. Which of the following would most likely cause the
production possibilities curve for
breadfruit and fish to shift outward from AA to BB in Figure 2-
2?
a. a decrease in the labor force of the country

4. b. a sudden change in consumer preferences for more fish and
less breadfruit
c. a major technological advance
d. a decrease in the capital stock
Figure 2-10
7. Refer to Figure 2-10. A movement from point C to point D
could be caused by
a. unemployment.
b. a decrease in society's preference for bananas.
c. fewer resources available for production of bananas.
d. All of the above are correct.
8. Which of the following results in more elastic demand?
a. Fewer substitutes
b. Less time in which to respond to a price spike
c. A higher proportion of income spent on the good
d. Good considered a luxury good rather than a necessity
9. Two points on a demand curve are P=60,Q=10 and
P=30,Q=30. What is the elasticity of
demand?
i. Elastic
j. Inelastic
k. Unit Elastic
l. Need more information

5. 10. What good would have a more inelastic supply in the short
run?
a. Housing
b. Toothpick
11. If the price of gasoline increases and we observe that
demanders purchase less gasoline,
then we would say that
a. Demand decreased
b. Quantity demanded decreased
c. Supply decreased
12. If the price of substitute increased the result would be
__________ prices, and we would
say__________
a. an increase in prices, quantity demanded increased
b. an increase in prices, demand increased
c. a decrease in prices, demand decreased
d. a decrease in prices, supply increased
13. Select the scenarios that result in lower prices if they were
to occur in isolation?
a. Higher technology, fall in the price of a substitute, decrease
in the price of a
complement
b. Higher productivity, lower taxes on corporations, lower
expected future prices
c. Higher income for inferior goods, higher subsidies for firms,
increase in tastes and
preferences
d. Lower costs of production, fall in the price of substitute,
reduction in consumer

6. subsidies
14. Which of the following is an indication that resources are
allocated efficiently in an
industry?
a. High profits
b. Long lines
c. Qs = Qd
d. Consumer surplus = producer surplus
15. When lanlords are prevented from charging market rates,
which of the following is a
predictable consequence?
a. Deterioration of the quality of housing over time
b. Lower prices in the black market
c. The future supply of rental units will increase
d. Rents in neighboring cities without rent controls will fall
16. Demand elasticity tends to be larger in the long run than in
the short run. We would
expect that shortages caused by price ceilings to be
________________ in the short run
than in the long run.
a. Larger
b. Smaller
17. A new tax is placed on a good that results in the equilibrium
price rising from $5 to $6.
Sellers receive $3.50 after paying the tax. The market quantity
shrinks from 12 billion
units to 10 billion units. Which side of the market bears more
burden of the tax?
a. Buyers
b. Sellers

7. 18. In the question above, the effect of the tax on the quantity
sold would have been larger
if the tax was placed on the buyer instead of the seller.
a. True
b. False
19. If a government wants to tax a good so that there is
maximum revenue generated and
the least dead weight loss, it should tax a good with relatively
_______________ demand
and it should tax ___________ side of the market to achieve the
most efficient results.
a. Inelastic, the demand
b. Inelastic, either
c. Elastic, the demand
d. Elastic, the supply
20. When a negative externality is present in a market
a. Marginal social cost is greater than marginal social benefit
b. Marginal social cost is less than marginal social benefit
c. The market will push prices up to the efficient level
d. There is too little produced from an efficiency standpoint
21. What is the main reason why a tiger is near extinction but
chickens are nowhere near
extinction?
a. Chickens are a source of food and tigers are not
b. Tigers are larger and require more resources to keep alive
c. Tigers and tiger habitat are non-excludable but chickens and
chicken habitat are
excludable
d. Consuming chickens is non-rival but consuming tigers is not
22. Consumers can make costly mistakes when not enough

8. information is available. Which
of the following represents a market solution to obtaining costly
information?
a. Franchises
b. Advertising
c. Third party verification
d. All of the above
23. Comic villans have many tasks to perform. Suppose
Soloman Grundy can smash 10
buildings per hour and destroy 20 planes per hour. Lex Luthor
can smash 20 buildings
per hour and destroy 20 planes per hour. If Soloman Grundy and
Lex Luthor team up,
who should specialize in smashing buildings?
a. Soloman Grundy
b. Lex Luthor
24. In the previous example, what is the opportunity cost of
smashing a building for
Soloman Grundy?
a. ½ plane
b. 2 planes
c. ½ building
d. 2 buildings
25. An efficient provision of public goods is difficult for the
market to achieve because
m. the presence of free-riders
n. lack of enough information
o. lack of competition for public goods
p. externalities associated with public goods

9. Name: ID: Class Day/Time:
1. TYPE your answers to each of the questions below. Cut and
paste the
question when providing your answer. You do not need to cut
and paste the
tables. If you need to include a graph, you may draw it in by
hand if you
prefer.
2. The test is formatted so I can grade it faster. There are 3
sections for this
part of your midterm. Each section should be answered on one
page (front
and back).
3. Make sure to included your ID number on each page. Just fill
out the info in
the header.
4. You must turn in a printed copy to me by the deadline for
your class: MW
classes on 3/9 and TuTh classes on 3/10.
Name: ID: Class Day/Time:
Section 1 (make your answers fit on 1 typed, double sided page)
Instructions: Based on what you learned in your book and in

10. class, each of the
following statements is false in some way. Use economic
principles and concepts to
explain why each statement is false. Use graphs and examples if
you feel they will
add to your explanation. 1 point each question
1. Measles has become an epidemic here in Orange County.
About 1 in 1000 people
will die after contracting the disease. Because this is such a
high rate, health
officials in Orange County would be well advised to pay for
anyone to get a
vaccination.
2. When prices fall, the best thing for suppliers to do is to
produce more output to
try to protect profits from falling.
3. Because a steep demand curve indicates prices can increase
quickly when the
quantity demanded rises only a little bit, steep demand curves
represent goods
that are very elastic.
4. When price controls are implemented, one group wins at the
expense of the other
group, but society as a whole doesn’t suffer. For instance, when
you raise the
minimum wage, it simply represents a transfer from producers
to workers, and

11. has no real effect on total economic activity.
5. In order to create more revenues for government, taxes
should be implemented
on either wealthy individuals or on the luxury items they buy
(i.e. jewelry,
yachts, stocks and bonds, expensive cars) because they can
afford them the most.
Name: ID: Class Day/Time:
Section2 (make your answers fit on 1 typed, double sided page)
Use the table to answer questions 6-12. Assume that the demand
and supply
relationships are linear between any two prices. For all
questions, show some work
that explains how you arrived at your answer, or provide a
written explanation.
Answers by themselves will not receive any credit.
P Qd Qs
12 0 52
10 20 48
8 30 44
6 40 40
4 44 30
2 48 20
0 52 0

12. 6. What is the equilibrium price and quantity in the market? 1
point
7. What is the initial consumer surplus in the market? the initial
producer surplus?
1 point
8. A tax of $2 per unit is imposed onto the sellers in this
market. Construct the new
supply schedule and determine the new equilibrium price and
quantity. If you
cannot get the exact answer, then draw a graph that illustrates
the new
equilibrium for less points.2 points
9. How much deadweight loss is associated with this tax? 1
point
10. Which side of the market bears more of the burden of the
tax? 1 point
11. Calculate the tax revenue generated. 1 point
12. Calculate the elasticity of demand.Use the pre and post tax
market equilibrium
to calculate. 1 point

13. Name: ID: Class Day/Time:
Section3 (make your answers fit on 1 typed, double sided page)
Use the table to answer questions 13-18. Assume that both
demand and supply are
linear between any two points. For all questions, show some
work that explains how
you arrived at your answer, or provide a written explanation.
Answers by
themselves will not receive any credit.
Market for Bread
P Qd Qs
50 0 40
40 10 30
30 20 20
20 30 10
10 40 0
0 50 0
13. What is the equilibrium price and quantity in this market? 1
point
14. Suppose that the price of butter falls dramatically (due to
lower butter
production costs) so that the quantity demanded for bread
increases by 40 units

14. at any price. By how much does the price of bread change? By
how much does
quantity change? 1 point
15. ow imagine that after the shock, the government imposes a
price ceiling so that
the original price is the maximum price a firm can charge for
bread. Describe the
consequences of such a policy.2 points
16. Suppose that bread buyers are forced to wait in long lines in
order to buy bread.
If the value of their time can be estimated at $10/ hour, about
how long would
you expect people to be waiting in line to get a loaf of bread? 1
point
17. Do consumers benefit from the price ceiling? Use the
concept of consumer
surplus in your answer. [1 points]
18. Suppose the government wishes to alleviate the problems
caused by upward
price pressure due to the price ceiling by taking all fresh bread
off the market;
all bread sold must be at least 1 day old. Would you expect this
regulation to
achieve the desired effect? Explain your answer? 1 point