Quiz 1

Economics 101-300

Quiz 1
Section 3xx

Quiz 1
Winter 2007

INSTRUCTIONS: You have 45 minutes to complete the quiz. Please put away all papers,
books, cell phones and calculators. Please make sure to fill in your name on the line below.
Please read each question carefully, answer it fully, and write your answer directly on this
document. If the question is multiple choice, circle the letter of the answer you believe is
correct. For analytical questions, work out your answer on the paper in the space given.
We can give partial credit if we see some correct work and the answer is incorrect. Each
question is worth 4 points.
When you have finished, turn in the document directly to your GSI (not to a pile of quizzes,
etc.). Turn in this entire document with the exception of the scratch page which you may use
during the exam. Take your time, and good luck.
Your name___________________________________________
1) (3 points) The graph below refers to a firm that produces olive oil. Which of the following
statements is TRUE?
a)
b)
c)
d)
e)

Fixed cost is greater than total cost when output equals zero
Output is closest to the profit maximizing level at Q4
Profit is the same at Q1 as it is at Q4
Profit is greater than zero when output equals zero
Marginal cost is greater than marginal revenue at Q2
Total Cost

Total
Revenue/Cost

Q1 Q2

Q3

Q4

Total
Revenue

Quantity

2) (3 points) Suppose youll need $2000 to buy a laptop for the MBA program you hope to
enroll in next year. If you receive an interest rate of 10% a year (interest only paid once at the
end of the year), how much money do you need to put in the bank today in order to buy the
laptop next year (choose the closest value)?

Quiz 1
Economics 101-300
a)
b)
c)
d)
e)

Quiz 1
Section 3xx

Quiz 1
Winter 2007

$2000
$2727
$1800
$1818
$1990

3) (3 points) Suppose the price of a University of Michigan t-shirt is currently $15 and the price
of a piece of sushi is currently $2. Both U of M t-shirts and sushi are normal goods and they
are the only goods on which you can spend your money. Suppose further that you are a
utility maximizer. What is the income effect on your consumption of t-shirts and sushi if the
price of sushi decreases to $2?
a)
b)
c)
d)
e)

There is not enough information to predict the outcome.

Youll consume more t-shirts and more sushi.
Youll consume fewer sushi and more t-shirts.
Youll consume fewer t-shirts and more sushi.
Youll consume fewer sushi and fewer t-shirts.

4) The PPF below describes how Andres can spend his 6 hours of free time each day. He can
either grade Econ 101 quizzes or he can learn to play more songs on his guitar. Currently he
is at point A.
a) (2 points) Suppose that Professor Kossoudji would like the quizzes to be graded sooner
than he expected. As a result, Andres spends more time grading quizzes than before,
moving from point A to point B on his PPF. What is the opportunity cost of grading more
quizzes between these points?

30
28

B
A

Econ 101 22
Quizzes 20
Graded
10

Songs learned on guitar

Quiz 1
Economics 101-300

Quiz 1
Section 3xx

Quiz 1
Winter 2007

b) (1 point) Now suppose Andres has to spend his non-free time on research. Although he
has the same amount of free time each day, his brain is fried and so it is harder for him to
grade quizzes. Draw the impact of this scenario on his PPF on the graph above. Label the
curve PPFb.
c) (1 point) Andres discovers that he really enjoys research. As a result, he decides to spend
more time working, leaving him with less free time each day. Depict in the graph above
what happens to his PPF now. Label the curve PPFc.
5) Suppose that Josh has $16 and consumes only yogurt and bagels. The price is $2 per bagel
and $4 per large tub of yogurt. His marginal willingness to pay for bagels and yogurt can be
represented in the table below.
Quantity Joshs total
consumed willingness
to pay for
yogurt
1
2
3
4
5
6
7

Joshs
total
willingness
to pay for
bagels

Joshs
marginal
willingness
to pay for
yogurt
20
18
16
14
12
10
8

Joshs
marginal
willingness
to pay for
bagels
32
24
20
16
14
10
6

a) Please fill in Joshs total willingness to pay for yogurt and bagels in the table above.
b) How many bagels and tubs of yogurt will Josh have to maximize his total utility given his
budget constraint? Show your work.
6) (3 points) Eric is writing a paper for an economics journal. He can both write the paper and
collect the data faster than anyone else in the economics department. However, he pays an
undergraduate to download US Census data for his research. Does this make sense? Explain.

Quiz 1
Economics 101-300

Quiz 1
Section 3xx
a) Scratch Paper

Quiz 1
Winter 2007