Question

You already have a ticket to see the Rolling Stones. The ticket cost $30, but scalpers without effort are legally selling the same ticket for $100. You must give up your income as a waiter on a Saturday night in order to see the concert. You would have made $70 at your job, which you enjoy enough to do for nothing. What is the opportunity cost of the Rolling Stones concert? PUT YOUR ANSWER ON THE ANSWER SHEET

Use the following to answer questions 2, 3, and 4: Let supply be given by P = 4Q and demand by P = 15 - 2Q. Suppose we now place a tax of $3 per unit of output on the seller.

2. The new supply curve is __________. PUT YOUR ANSWER ON THE ANSWER SHEET 3. The new equilibrium quantity is _____.
4. The new equilibrium price is ______.

5. The indifference curves for $5 bills and $10 bills will be:
A. L-shaped C. A straight line with positive slope B. A straight line with negative slope D. Concave

6. Sue is choosing between wine and cheese. The price of wine is 10 and the price of cheese is 5. If Sue’s current marginal rate of substitution is 1, and if wine is on the horizontal axis and cheese is on the vertical axis then Sue is purchasing:
A. Too much cheese C. Too much wine

B. Just the right amount of both goods D. More than what her income would allow

7. Your income rises from $50,000 a year to $55,000 and your monthly purchases of bottles of wine increase from 3 to 4. What number below most closely approximates your income elasticity over this range?

A. 1 B. .4 C. 3

8. For the demand function P = 20 - 2Q A. Demand is inelastic at price 16
B. Unitary elasticity occurs at price 2

D. 4

C. Total revenue is maximized at price 12 D. Demand is elastic at price 12

E

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9. The above figure shows Bobby's indifference map for soda and juice. B1 indicates his original budget line. B2 indicates his budget line resulting from a decrease in the price of soda. What was change in quantity as a result of the substitution effect? ________.

10. The above figure shows Bobby's indifference map for soda and juice. B1 indicates his original budget line. B2 indicates his budget line resulting from a decrease in the price of soda. What was change in quantity as a result of the income effect? _________.

Questions 11 to 20: (5, 7.5, and 10 point questions) Do all the question. BE SURE TO SHOW YOUR WORK / EXPLAIN YOUR ANSWERS. 70 Points Total (Use Answer Sheet)

11. (5 points) Do a and b.
a. If the demand curve of a market is P = 14 - Q and the supply curve is P = 2 + 2Q, what is the surplus created if a price floor of 11 is imposed in the market?

b. If the demand and supply are identical to the previous question but a price ceiling of 8 is imposed, what will the shortage be?

12. (5 points) Answer a and b
a. The market demand for a gallon of mineral water is P = 20 - .1Q. The producer wants to produce where the elasticity of demand is unity. What price should she charge and what quantity should be sold to achieve that goal?

b. One person in the management group is arguing for a lower price as a way to sell more gallons and increase revenue. Is this a good suggestion?