Principles of Microeconomics (Econ 002) Signature:
Drake University, Spring 2008
William M. Boal Printed name:
MIDTERM EXAMINATION #2 VERSION B
"Applications of Supply and Demand"
March 11, 2008
INSTRUCTIONS: This exam is closed-book, closed-notes. Simple calculators are permitted, but graphing
calculators or calculators with alphabetical keyboards are NOT permitted. Numerical answers, if rounded, must
be correct to at least 3 significant digits. Point values for each question are noted in brackets. Maximum total
points are 100.
I. Multiple choice: Circle the one best answer to each question. [1 pt each, 12 pts total]
(1) If the government wants to raise the price of
wheat, it should try to shift
a. the demand for wheat to the left.
b. the supply of wheat to the right.
c. both (a) and (b).
d. neither (a) nor (b) will raise the price of wheat.
(2) Suppose the government institutes a new, more
rigorous security system at train stations that
increases the time that passengers must spend before
boarding trains. By itself, this would shift
a. the supply of train travel down.
b. the supply of train travel up.
c. the demand train travel down.
d. the demand train travel up.
(3) In the last few decades, the supply of electronic
goods has shifted right in Asia. Since electronic
goods are traded internationally, this has caused the
price of electronic goods in the U.S. to
a. rise.
b. fall.
c. remain constant.
d. Cannot be determined from information given.
(4) The price of peanuts is higher in the United
States than in developing countries. If restrictions
on trade in peanuts were phased out, this change
would benefit
a. Developing-country peanut producers and
developing-country consumers.
b. Developing-country peanut producers and U.S.
consumers.
c. U.S. peanut producers and developing-country
consumers.
d. U.S. peanut producers and U.S. consumers.
(5) Arbitrageurs buy and sell because they want to
a. keep markets orderly.
b. ensure that all consumers face a fair price.
c. make money.
d. enforce the Law of One Price.
e. all of the above.
(6) Arbitrage will not guarantee that people in Iowa
and Chicago pay similar prices for
a. theatre tickets.
b. foreign currency.
c. government or corporate bonds.
d. gold.
(7) Suppose the price of apples in Washington State
is $0.80 per pound and that the cost of shipping
apples between Washington and Iowa is $0.30 per
pound. The market is in equilibrium if the price of
apples in Iowa is
a. $0.35 per pound.
b. $0.40 per pound.
c. $0.90 per pound.
d. $1.20 per pound.
e. none of the above.
(8) Suppose for some reason the futures price of
petroleum for delivery next September were $100,
but you believed that the spot price would be $110
next September. You could make money by
a. selling petroleum futures now and selling
petroleum on the spot market in September.
b. buying petroleum futures now and selling
petroleum on the spot market in September.
c. selling petroleum futures now and buying
petroleum on the spot market in September.
d. buying petroleum futures now and buying
petroleum on the spot market in September.
