Temple University
Department of Economics
Economics 52
Principles of Microeconomics
Fall 2005

Name _________________________________________

Directions: You have 50 minutes to complete this exam.  You must do all questions.  You may NOT use your cell phone as a calculator.  This is a closed book exam.  Your answers must be your own work; you may neither give nor receive help.

	1.	When some factors of production are fixed, equal sized increases in production will eventually require 
	A)	larger increases in the variable factor. 
	B)	smaller increases in the variable factor. 
	C)	higher profits. 
	D)	larger increases in the fixed factors. 
	E)	equal sized increases in the variable factor. 

	2.	In general, if the price of a fixed factor of production increases, 
	A)	the profit maximizing level of output falls. 
	B)	total costs are unchanged. 
	C)	marginal costs are unchanged. 
	D)	marginal costs increase. 
	E)	price rises. 

	3.	The fewer the number of alternative factors of production that can be used to produce a good, the ________  will be. 
	A)	less inelastic supply 
	B)	more elastic demand 
	C)	less elastic demand 
	D)	less elastic supply 
	E)	more elastic supply 

Use the following to answer question 4:

	4.	The general relationship between employee-hours and output is 
	A)	reciprocal. 
	B)	negative. 
	C)	declining. 
	D)	positive. 
	E)	inverse. 

Use the following to answer question 5:

	5.	The total costs of the trades that do not occur after the tax equal to EG is represented by the area 
	A)	JFBC. 
	B)	0KCB 
	C)	0GJF. 
	D)	IFBC. 
	E)	0LIF. 

Use the following to answer question 6:

	6.	Suppose a $1 per unit tax is imposed on sellers. The share of the tax burden borne by consumers is 
	A)	20 cents. 
	B)	$1. 
	C)	80 cents. 
	D)	60 cents 
	E)	40 cents. 

	7.	In general, a $1 tax placed on each unit a producer sells will be 
	A)	entirely borne by the producers. 
	B)	entirely borne by the consumers. 
	C)	shared between producers and consumers. 
	D)	entirely shifted to consumers. 
	E)	split 50/50 between producers and consumers. 

	8.	Price ceilings always result in 
	A)	too much production. 
	B)	a surplus. 
	C)	fewer mutually beneficial trades taking place. 
	D)	quantity supplied exceeding quantity demanded. 
	E)	increased access to price controlled goods. 

	9.	The efficient-market hypothesis indicates the stock price of 
	A)	well managed companies will not necessarily rise faster than poorly managed companies. 
	B)	well managed companies must rise faster than poorly managed companies. 
	C)	well managed companies will rise faster than the average. 
	D)	poorly managed companies are usually undervalued. 
	E)	poorly managed companies will rise more slowly than the average. 

10.  	Jose receives an offer that will pay him $1500 two years from now.  If the interest rate is 7%, the most Jose would be willing to pay for this offer is 
	A)	$882. 
	B)	$519. 
	C)	$1402. 
	D)	$1499. 
	E)	$1310. 

	11.	Payments to an input above the supplier's reservation price is termed 
	A)	implicit rent. 
	B)	accounting rent. 
	C)	input surplus. 
	D)	economic rent. 
	E)	economic profit. 

Use the following to answer question 12:

	12.	An output level of 25 units results in 
	A)	normal profits. 
	B)	positive accounting profits. 
	C)	accounting profits of -$8. 
	D)	economic profits of zero. 
	E)	an economic loss of $8. 

	13.	If a firm collects $100 in revenues when it sells 5 units and $114 when it sells 6 units, one can infer the firm is 
	A)	a perfect competitor. 
	B)	probably a perfect competitor. 
	C)	either a perfect competitor or a monopolist. 
	D)	a monopolist. 
	E)	unknown; insufficient information. 

	14.	Pure monopoly exists when 
	A)	a single firm produces a good with many close substitutes. 
	B)	a single firm produces a good with no close substitutes. 
	C)	a single firm is present in the market. 
	D)	a few firms dominate an industry. 
	E)	many firms produce a good with no close substitutes. 

	15.	The extra revenue collected by selling an extra unit of output is 
	A)	equal to price for both perfect competitors and monopolists. 
	B)	a concept useful only when studying monopoly. 
	C)	less than price for both perfect competitors and monopolists. 
	D)	calculated as total revenue divided by output. 
	E)	equal to price for a perfect competitor but less than price for a monopolist. 

	16.	Given the total cost function, TC = a + b*Q with (a,b) > 0, average costs will 
	A)	rise over the entire range of output. 
	B)	fall over the entire range of output. 
	C)	be approximately constant over most of the output range. 
	D)	rise at first and then fall as output rises. 
	E)	fall at first and then rise as output rises. 

Essay  (18 points)  In your answer to this question you will be graded not only on content, but also spelling, grammar, syntax and style.  A price floor is imposed on the market for gopher wood in Ararat.  Evaluate this policy.  In your answer consider the following questions:  What will happen to consumer surplus as a result of the price floor?  Are all of the same consumers still consuming gopher wood after the imposition of the price floor?  Do consumers feel universally better off? Do any consumers feel better off? After the imposition of the price floor are there any consumers for whom their marginal utility of gopher wood has increased?  Do any producers feel better off as a result of the imposition of the price floor?  Be brief!

Problem (50 points)

The market for runcible spoons is characterized by the following equations:

Q = -100 + 10P    __________________

Q = 200 – 5P    _________________

a.  On the lines to the right of the two equations indicate which is the demand curve and which is the supply curve.

b. What are the equilibrium price and quantity in the market for runcible spoons?  Show your work, but put your answers on the appropriate lines.

P (price) =  __________________________  Q (quantity) = _________________________

c.  In the space below draw a graph showing the supply curve and the demand curve for runcible spoons.  Be sure to label the axes, show the numerical values of the intercepts, and the equilibrium price and quantity.

d. What is the definition of consumer surplus?

e. What is the amount of consumer surplus in the market for runcible spoons?  Put your answer on the indicated line, but also show your work.    

Consumer Surplus = ____________________________

f. What is the definition of producer surplus?

g.  What is the amount of producer surplus in the market for runcible spoons? Show your work, but also put your answer on the indicated line.

Producer Surplus = ____________________________

h. What is the total value of economic surplus? (Your book characterized this as the size of the pie.) Put your answer on the line.

Economic Surplus = ___________________________

It is highly recommended that you draw another picture to aid in answering the following questions. You will find it to add new information to the picture as you proceed through the questions.

i.  A price ceiling of P = 15 is imposed on the market for runcible spoons.  What will be the quantity demanded under the price ceiling?

Quantity demanded = ____________________

j. With a price ceiling of P = 15 what will be the quantity supplied?

Quantity supplied = ____________________

k. At the quantity supplied with the price ceiling of P = 15, what is the price that the marginal customer would pay for a runcible spoon?  Put another way, what is the reservation price for the ‘last’ customer purchasing a runcible spoon? 

Reservation price = _____________________

l. What is the amount of producer surplus when there is a price ceiling of P = 15?

Producer Surplus = _____________________

m. Has producer surplus increased or decreased?  By how much?

Circle one:  increased     decreased

Amount of change = _______________________

n. What is the amount of consumer surplus when there is a price ceiling of P = 15?

Consumer Surplus = ____________________

o. Has consumer surplus increased or decreased? By how much?

Circle one:   increased       decreased 

Amount of change = ____________________

p.  What is the amount of total economic surplus when there is a price ceiling of P = 15?

Economic Surplus = ____________________

q. Has total economic surplus increased or decreased? By how much?

Circle one:   increased      decreased

Amount of change = ___________________

r.  What is the amount of deadweight loss, if any?

Deadweight loss = _____________________

s.  For any consumer has the size of their ‘slice of the pie’ increased as a result of the imposition of the price ceiling? Explain.  (You may draw a picture to aid in your explanation.)

t. For any producer has the size of their ‘slice of the pie’ increased as a result of the imposition of the price ceiling? Explain. (You may draw a picture to aid in your explanation.)

Answer Key

	1.	A	
	2.	C	
	3.	D	
	4.	D	
	5.	A	
	6.	E	
	7.	C	
	8.	C	
	9.	A	
	10.	E	
	11.	D	
	12.	E	
	13.	D	
	14.	B	
	15.	E	
	16.	B