ECON1210 Intorductory Microeconomics

University of Hong Kong

Midterm Examination
Date: March 21, 2021, 14:30-15:30p.m. (+ 10 minutes of grace period)

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> > Ka-fu WONG (UID=1234566890) < <

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1. My university ID number is [ Answer01 = 1234566890 ].

2. The equation below shows Ben’s benefit of consuming n cups of tea and tea is perfectly divisible and
can be consumed at any arbitrary quantity (say, 3.14 cups).

Total benefit: T B(n) = 122n − 10n2

Average benefit: AB(n) = 122 − 10n
Marginal benefit: M B(n) = 122 − 20n

Suppose the price is HKD38 per cup. Ben’s economic surplus from consuming tea would be HKD [
Answer02 = 176.40 ].

3. Alvin is thinking of going to an e-sport match online which will last 1.5 hours. He could tutor students
for HKD 100 per hour if he does not go to the match. Alternatively, he could use the same time to
work as a part-time waiter in a restaurant instead and earn a total of HKD 295. He enjoys the tutoring
job and waiter job just enough that he is willing to pay for his additional MTR fare of HKD 10, to
reach either job and do it for free. If the price of the e-sport match ticket is HKD 210, his opportunity
cost of going to the e-sport match is HKD [ Answer03 = 505.00 ].

4. The equations below show Felicia’s benefit of consuming n cups of tea and of consuming m cups of
coffee, and tea and coffee are perfectly divisible and can be consumed in any arbitrary quantity (say,
1.25 cups).

Total benefit of tea: T B(n) = 101n − 10n2

Average benefit of tea: AB(n) = 101 − 10n
Marginal benefitof tea: M B(n) = 101 − 20n

Total benefit of coffee: T B(m) = 125m − 5m2

Average benefit of coffee: AB(m) = 125 − 5m
Marginal benefitof coffee: M B(m) = 125 − 10m

Suppose Felicia can only drink 3 cups in total. Felicia would consume [ Answer04A = 0.20 ] cups of
tea and [ Answer04B = 2.80 ] cups of coffee.

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5. Isaac has two years of free time. He could do one of the three things:

A. Write a book about gravitation that might earn him 102 pounds at the end of these two years.
B. Spend 1200 pounds on materials to test a theory of alchemy that would let him create gold he
could sell for 1303 pounds at the end of these two years.
C. Earn an annual salary of 80 pounds as the Master of the Royal Mint.

Isaac would be indifferent between doing one or the other of these things for free. We would predict that
Isaac will choose to do [ Answer05A = C ] (A, B or C), at an opportunity cost of [ Answer05B
= 103.00 ] pounds.

6. Marty bought a ticket to a tennis match and Jack bought a ticket to a charitable fundraiser. Both
events will be held at the same time, tickets sell for USD 247 for the match and USD 350 for the
fundraiser, and tickets are non-refundable. Jack is in the mood to watch a tennis match and offers to
directly swap tickets with Marty. Suppose that Marty values the match at USD 442 and the fundraiser
at USD 515. Marty should choose to attend [ Answer06A = B ] (A. tennis match, B. charitable
funraiser) and the opportunity cost of attending the chosen activity is USD [ Answer06B = 442.00 ].

7. The United Kingdom and Germany trade cars and trucks. The United Kingdom can produce one car
with 50 man hours, and one truck with 260 man hours. Germany can produce one car with 30 man
hours, and one truck with 144 man hours. You are on the United Kingdom team bargaining over the
terms of trade under a new trade deal. You inform your team that the best terms of trade the UK can
reasonably ask for are [ Answer07A = 4.80 ] cars per truck and the worst terms of trade the UK
can accept are [ Answer07B = 5.20 ] cars per truck.

8. Boat rides and brunches are the only services in the world that are traded. In Comma, a small island
economy, Ben and Tom make their production and consumption decisions together. Ben can produce
either 5 boat rides or 10 brunches per day. Tom can produce either 14 boat rides or 13 brunches per
day. Comma trades with the world economy as well, where the price of boat rides is HKD 240 per ride
and the price of brunches is HKD 160 per brunch. Suppose Comma is small enough that its trade
does not affect world prices. If Ben and Tom take 2 boat rides per day, then they could consume up
to a total of [ Answer08 = 28.00 ] brunches. (Assume boat rides and brunches don’t have to be
consumed in whole numbers.)

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 9. Carla and Connie produce gin and juice. The table below shows their productivity (hours per gallon).

Gin Juice
Carla 925 37
Connie 560 16

In order for both Carla and Connie to engage in trade and for each to specialize in the production in
which they have a comparative advantage, the terms of trade must be larger than [ Answer09A =
25.00 ] gallons of juice per gallon of gin and less than [ Answer09B = 35.00 ] gallons of juice per
gallon of gin.

10. How many of the following statements are correct?

(i) If income decreases, the demand curve of an inferior good shifts leftward.
(ii) If the price of a complement rises, the demand curve of a normal good shifts leftward.
(iii) Producer surplus equals additional units produced beyond what consumers demand at a price.
(iv) The demand curve of a normal good is always downward sloping, vertical or horizontal.

A) 0
B) 1
C) 2
D) 3
E) 4
[ Answer10 = C ]

11. Charlie sells hamburgers to tourists on Rockaway Beach. He faces a market demand curve given by the
equation

Demand: Q = 150 − 3.5P thousand hamburgers

If Charlie sets a price of 34 dollars per hamburger, he will obtain a total revenue of [ Answer11 =
1054.00 ] thousand dollars.

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12. Consider the following demand relation:

Qx = 180 − 1.9Px − 0.5Py + income−0.9

We conclude that
A) x is a normal good; x and y are substitutes
B) x is a normal good; x and y are complements
C) x is an inferior good; x and y are substitutes
D) x is an inferior good; x and y are complements
E) None of the above
[ Answer12 = D ]

13. Consider the market for soybeans in China. After the occurrence of the following two events

(1) Joe Biden signs an executive order which prohibits exporting soybeans to China.
(2) The price of potatoes, a complement for soy vegetable oil when used in french fries, falls.

we would expect the equilibrium price to [ Answer13A = A ] and the equilibrium quantity will [
Answer13B = C ].
A) increase
B) decrease
C) be undetermined

14. 4.270 billion shares of Exxon Corporation (stock ticker: XOM) are available for trading on the New
York Stock Exchange. On December 30th, 2019 the demand for shares of Exxon is given by the equation
Q = 5.5 − 0.0105P billion shares, yielding P = 117.14 dollars per share. A few weeks later, informed
traders, anticipating an oil price war between Saudi Arabia and Russia, are willing to sell 0.28 billion
shares they own at any price, shifting demand downward. (Other buyers, unaware of the situation, are
still willing to pay what they would have beening willing to pay before.) The new market price becomes
[ Answer14 = 90.48 ] dollars.

15. Suppose that at the end of 2016, Carnival Corporation (stock ticker: CCL) had 0.725 billion shares
outstanding. The demand for shares was given by the equation Q = 1.43 − 0.0137P billion shares,
yielding P = 51.46 dollars per share. If the demand for shares did not change by the end of 2017, but
Carnival bought back 0.07 billion shares (to get to a new total of 0.655 billion shares), we know that
the new price is [ Answer15A = 56.57 ] and Carnival paid [ Answer15B = 3.78 ] billion dollars
in total.

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16. How many of the following statements are correct?

(i) If two linear demand curves have a point in common, the steeper curve must be more price elastic
at that common point.
(ii) Complements have a positive cross-price elasticity of demand.
(iii) The demand curve QP 2 = constant is more elastic than the demand curve QP = constant.
(iv) For a downward-sloping linear demand curve, a firm’s revenue is always maximised at the midpoint
of the demand curve.

A) 0
B) 1
C) 2
D) 3
E) 4
[ Answer16 = C ]

17. In how many of the following product pairs is the demand for the first product likely more price elastic
than that for the second product?

(i) Fancy coffee vs. Fancy cars

(ii) Vehicle license plates containing “28” vs. Vehicle license plates
(iii) Chocolate bars vs. Ghana chocolate bars
(iv) Two-year room rentals vs. Two-day room rentals

A) 0
B) 1
C) 2
D) 3
E) 4
[ Answer17 = C ]

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 Please refer to the background information below to answer the following seven questi-
ons.
In country A, the market supply and demand curves of milk are given by the following equations.

Demand: Q = 20 − 1.5P million boxes per year

Supply: Q = 2P − 20.47 million boxes per year

18. Given the supply and demand, we conclude that the market equilibrium price and quantity are,
respectively, [ Answer18A = 11.56 ] dollars per box and [ Answer18B = 2.66 ] million boxes per
year.
19. At this equilibrium price, we would have a consumer surplus of [ Answer19A = 2.35 ] million dollars,
a producer surplus of [ Answer19B = 1.76 ] million dollars, and hence a total economic surplus of [
Answer19C = 4.11 ] million dollars.
20. Country A is considering opening up its milk market to its neighboring country B. If the market is
opened up, Country B is expected to buy one million boxes per year from country A at any price. We
expect the new market equilbirum price and quantity to be [ Answer20A = 11.85 ] dollars per box
and [ Answer20B = 3.23 ] million boxes per year, respectively.
21. At this new equilibrium, we would expect a consumer surplus to the local consumers (Country A’s
consumers) of [ Answer21A = 1.65 ] million dollars, a producer surplus to the local producers of [
Answer21B = 2.60 ] million dollar, and hence a total economic surplus to the local consumers and
producers of [ Answer21C = 4.26 ] million dollars.
22. The local consumers as a group will be willing to spend up to [ Answer22A = 0.70 ] million dollars
to lobby the government [ Answer22B = A ] (A. against, B. for) the opening of the milk market to
country B.
23. The local producers as a group will be willing to spend up to [ Answer23A = 0.84 ] million dollars
to lobby the government [ Answer23B = B ] (A. against, B. for) the opening of the milk market to
country B.
24. To make the two groups happy about the opening of the milk market to country B, the government can
tax [ Answer24A = B ] (A. local consumers, B. local producers) at least the amount [ Answer24B
= 0.70 ] million dollars and at most [ Answer24C = 0.84 ] million dollars, and transfer the amount
to [ Answer24D = A ] (A. local consumers, B. local producers).

25. At the market equilibrium, the price elasticity of demand is found to be −0.6; the price elasticity of
supply is found to be 1.6. We predict that a small increase in supply will _____ the seller’s revenue,
and a small decrease in demand will _____ the seller’s revenue.
A) raise, raise
B) raise, lower
C) lower, raise
D) lower, lower
[ Answer25 = D ]

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26. Consider the markets of X and Y. X and Y are known to be complements of each other to consumers.
Both markets are unregulated. Which of the following sequence of events will likely be seen after an
increase in the cost of producing Y?

X1 An increase in the price of X.

X2 A decrease in the price of X.
X3 An increase in the demand for X.
X4 A decrease in the demand for X.
X5 An increase in the supply of X.
X6 A decrease in the supply of X.
Y1 An increase in the price of Y.
Y2 A decrease in the price of Y.
Y3 An increase in the demand of Y.
Y4 A decrease in the demand of Y.
Y5 An increase in the supply of Y.
Y6 A decrease in the supply of Y.

Sequence: [ Answer26A = Y6 ] −→ [ Answer26B = Y1 ] −→ [ Answer26C = X4 ] −→ [

Answer26D = X2 ]

Please refer to the background information below to answer the following three questions.
Ricky and Andie form a small economy that produces only two goods: fish and vegetables. We know
that Ricky has the comparative advantage in producing fish and Andie has the comparative advantage
in producing vegetables. If they fully specialize in the production that they have comparative advantage
in, they will produce a total of 57 kgs of fish and 47 kgs of vegetables per week.
27. If the admissible range for terms of trade is between 0.5 kgs of fish per kg of vegetables and 3 kgs of fish
per kg of vegetables, we can infer that Ricky can produce [ Answer27A = 19.00 ] kgs of vegetables
per week and Andie can produce [ Answer27B = 23.50 ] kgs of fish per week.
28. Continue from the previous question. Suppose this small economy opens up its trade with the rest of
the world. The world prices are $1 per kg of fish and $X per kg of vegetables. If both Ricky and Andie
will specialize in the production of fish only, we may infer that X is [ Answer28A = A ] (A. smaller;
B. larger) than [ Answer28B = 0.50 ].
29. Continue from the previous two questions. Suppose the world price of fish remains $1 per kg but the
price of vegetables is $2 per kg. If Ricky and Andie together decide to consume fish and vegetables at
the ratio of 0.2:1 (i.e., for each 1 kg of vegetables, they would want to consume 0.2 kgs of fish), they
will consume [ Answer29A = 13.73 ] kgs of fish and [ Answer29B = 68.64 ] kgs of vegetables per
week.

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 Please refer to the background information below to answer the following two questions.
There are two groups of consumers, A and B, with the following demand relations, respectively:

Demand A: P = 174 − QA
Demand B: P = 87 − QB

The market supply is

P = 0.5Q

30. Given this information, we can compute that the market equilibrium price is [ Answer30A = 65.25
] and the market equilibrium quantity is [ Answer30B = 130.50 ].
31. The total consumer surplus at the equilibrium is [ Answer31 = 6149.81 ].

Please refer to the background information below to answer the following two questions.
Suppose the supply curves for pineapples in East Utopia and West Utopia are given as follows:

Supply (East Utopia): P = 26 + 0.2QE

Supply (West Utopia): P = 7 + 1.7QW

32. If the price of pineapples in Utopia is 12 Utopian dollars per kg, the total quantity supplied from Utopia
as a whole is [ Answer32 = 2.94 ] kgs.
33. If the total quantity supplied from Utopia is 300 kgs, the marginal cost of production the 300-th kg is [
Answer33 = 77.68 ] Utopian dollars per kg.

34. Suppose the supply curve of widgets is given by the function Q = a + bP . Suppose after an increase in
demand, the price of widgets increases by 6% and the quantity increases by 7%. Given this information,
we conclude [ Answer34 = B ].
A) a>0
B) a<0
C) a=0
D) not enough information to say anything about the value of a

35. At a gas station, the clerk of the only convenience store found that he can sell 134 packs of chewing
gum when the price is $1.5 and 75 packs of chewing gum when the price is $5.5. Suppose the demand
for chewing gum is linear and downward sloping, and the clerk has been instructed by his boss to set
the price to maximize revenue. Given this instruction, he should set the price at $[ Answer35A =
5.29 ] per pack and sell a total of [ Answer35B = 78.06 ] packs.

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 Please refer the background information below to answer the following two questions.
The demand and supply in the market for wind power are as follows:

Demand: Qd = 5370 − 1000P kWh

Supply: Qs = 1000P − 1470 kWh

To stimulate the development of this environment-friendly industry, the government is considering a

subsidy policy.
36. If the imposed subsidy is $2 per kWh of wind power, the government expenditure on this policy will be
$[ Answer36 = 5900.00 ].
37. Suppose the government has a budget of $5500 for this subsidy. The subsidy that the government sets
can be at most $[ Answer37 = 1.90 ] per kWh.

38. The Hong Kong government hires n workers to pick up the rubbish left on the beach after the celebration
of Mid-Autumn festival in the three districts: “Hong Kong Island”, “Kowloon” and “New Territories”.
For any given n workers, the government always allocates the workers among the three districts to
maximize the amount of rubbish collected. The following table shows the amount (kgs) of rubbish that
will be collected in a district as a function of the number of workers deployed in the corresponding
district. For instance, when 2 workers are sent to New Territories, a total of 189 kgs of rubbish will be
collected there.

Number of Workers Hong Kong Island Kowloon New Territories

1 98 97 96
2 179 162 189
3 243 225 248
4 291 272 291
5 329 302 328
6 355 324 341
7 374 341 346

According to the government’s allocation rule, in order to get at least two workers allocated to New
Territories, n must be at least equal to [ Answer38 = 4 ].

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39. Refer to the following demand curve.
P

4
3

20 60 70 Q
When price changes from 8 to 4, the consumer surplus will increase by [ Answer39 = 160.00 ].

40. Consider a market consisting of three individuals: Amy, Benjamin, and Catherine. The following table
shows their marginal valuation/willingness to pay for apples.

Q Amy Benjamin Catherine

1 6.50 dollars 7.80 dollars 8.00 dollars
2 6.40 5.90 4.30
3 6.30 4.70 3.40
4 4.80 3.70 2.30
5 3.80 3.00 1.10
6 2.60 2.20 0.40
7 1.90 1.30 0.20
8 1.70 0.50 0.10

Think about the market demand curve. When the quantity is 7, the marginal buyer’s willingness to
pay is [ Answer40 = 4.80 ] dollars.

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41. Assume a market for apples with upward-sloping supply and downward-sloping demand. Let the market
equilibrium price be 8 dollars per apple and equilibrium quantity be 800 apples. How many of the
following statements are correct?

(i) Regulating the price slightly below the market equilibrium price will always raise the seller’s
revenue.
(ii) A small increase in supply will always raise the seller’s revenue.
(iii) A small decrease in demand will always lower the seller’s revenue.
(iv) Regulating the price slightly above the market equilibrium price will always raise the seller’s
revenue.

A) 0
B) 1
C) 2
D) 3
E) 4
[ Answer41 = B ]

Please refer to the background information below to answer the following three questions.
Consider the following supply and demand schedule of chocolate.

Price ($ per unit) Quantity Demanded (units) Quantity Supplied (units)

40 295 45
45 270 70
50 245 95
55 220 120
60 195 145
65 170 170
70 145 195
75 120 220
80 95 245
85 70 270
90 45 295
95 20 320

42. Suppose initially the chocolate market is in an unregulated equilibrium. If the government imposes a
tax of $30 for each unit of the chocolate sold, at the new equilibrium, consumers will have to pay $[
Answer42 = 80 ] per unit of chocolate consumption.
43. Following from the previous question, the government’s tax revenue will be $[ Answer43 = 2850 ].
44. Suppose initially the chocolate market is in an unregulated equilibrium. If the government imposes a
subsidy of $20 for each unit of the chocolate sold, the new equilibrium quantity would be [ Answer44
= 220 ] units.

END

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