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Michael Rizzo
February 28th, 2005
Practice Questions for First Midterm Exam
Economics 1101. 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:
 
Meal Price
Supply
Lunch Demand
Dinner Demand
$16
220
5
30
$14
210
25
60
$10
200
80
120
$8
190
150
250
$6
180
250
400
$4
170
400
600
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:
 
Chore                            Rank
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?…

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