Economics 103 Midterm

Name

1.
For each item, please state
whether the item is Price Elastic or Inelastic in Demand, and explain why. (4 points each)

a.
The purchase of a Home

b.
The purchase of Emergency Room
Service?

c.
The purchase of gasoline for
your car when your tank is empty

d.
The purchase of Drinking
Alcohol?

e.
The purchase (in general) of
laundry detergent to wash your clothes.

2.
What does the Law of Demand
state? (5 points)

3.
What does the Law of Supply
state? (5 points)

4.
Please name the type of market
that exist for each situation (2 points each)

a.
There are only 5 firms, and
they are price setters

b.
There are many firms, and they
differentiate their products thru advertising

c.
The market for passenger
airlines

d.
Public utilities such as the
electric company in your local market

e.
A market where there are many
firms and their products can’t be differentiated

5.
Please choose the correct
answer and explain your answer. The price of steak decreases causing the
quantity demanded of A1 sauce to increase , thus steak and A1 sauce are:

(10 points)

a.)
Substitutes

b.)
Complements

c.)
Not related

d.)
Superior goods

6.
Which of the following is an
example of a change in the quantity demanded? (Hint. For which items is there a
direct change in price that leads to a change in quantity demanded) (5 points)

a.
An increase in salary leads to
increased spending on clothing.

b.
A sale on shoes leads to higher
purchases of shoes.

c.
A rise in the price of peanut
butter leads to higher demand for cheese sandwiches

d.
An outbreak of e-coli in
chicken leads to higher demand for beef.

7.
Markets are more efficient when
information is perfect; an example of this is: (5 points)

a)
Insider information on the
release of a new block-buster drug

b)
CARFAX reports that reveal the
accident and repair history of a used car.

c)
A fortune-tellers prediction of
future interest rate movements

d)
A readily available heating
degree days and cooling degree days report from NOAA

8.
Please choose the correct
answer and explain your answer. The
price of gasoline rising increasing the quantity demanded of the Toyota hybrid
Prius, thus gasoline and the Toyota Prius are: (10 points) (Hint: What is the
key fuel of the Toyota Prius)

a.)
Substitutes

b.)
Complements

c.)
Not related

d.)
Superior goods

9.
Shown below are Bill and CJ’s demand for buckets of ice cream.
Bill and CJ make up the total market of people willing to buy ice cream. The tables below show quantity demanded by
Bill and CJ at each price point. (10 points)

Bill		CJ
Price	Quantity Demanded		Price	Quantity Demanded
$1.00	7		$1.00	5
$2.00	6		$2.00	4
$3.00	5		$3.00	3
$4.00	4		$4.00	2
$5.00	3		$5.00	1

a.
Please construct the market demand curve and draw the demand
curve?

Market Demand
Price	Quantity Demanded
$1.00
$2.00
$3.00
$4.00
$5.00

10.
Now suppose that Haagan-Daz and Brier’s Ice Cream are each
willing to sell buckets of ice cream to Bill and CJ. The tables below show how many
buckets of ice cream each company is willing to sell at various prices. (10
points)

Haagan Daz		Brier’s
Price	Quantity Supplied		Price	Quantity Supplied
$1.00	2		$1.00	0
$2.00	4		$2.00	1
$3.00	6		$3.00	2
$4.00	8		$4.00	3
$5.00	10		$5.00	4

a.
Please construct and draw the
supply curve?

Market Supply
Price	Quantity Supplied
$1.00
$2.00
$3.00
$4.00
$5.00

11.
What is the equilibrium
quantity demanded and supplied? What is the equilibrium price? How many buckets
of ice cream does Bill buy at this price? How many buckets does CJ buy at this
price? How many buckets does Haagan-Daz sell at this price? How many buckets
does Brier’s sell at this price? (10 points)