Economics I
Fall 1997
First Midterm Exam, Make-up

Instructions:
	1.	Answer all sections of this test. This is a 60 minute exam (including
10 minutes for review).
	2.	Graphs are necessary where noted. In general, they are
always helpful.
Carefully label all graphs that you use.
	3.	Write all answers in the blue books provided. Show all work.
	4.	Write your name and your instructor's name in every blue
book that
you use.
	5.	This exam is given under the rules of the Penn's Honor System.
	6.	All blue books, blank or filled, must be handed in at the
end of this
exam. No blue books may be taken from this room.


Part I (Total 28 points, 4 points each question)

Explain whether the statement is True, False or Partially True. The grade
will be based on the quality of the explanation.

1) In his article, "Roofs and Ceilings," Milton Friedman places the blame
for urban housing shortages on rent control.

2) A good is inferior if it has an income elasticity of less that one.

3) Assuming that cookies and milk are complementary goods, an increase in
the price of cookies will shift the demand curve for milk outwards
(rightwards). (Graph)

4) For a consumer who behaves so as to achieve the highest possible total
utility, the marginal rate of substitution between two goods is higher
than the relative price of the two goods.

5 ) An increase in consumer's income will lead to a decrease in the amount
purchased of an inferior good.

6) The average and marginal costs are equal when average cost is at its
minimum.
(Graph)

7) An increase in the prices of inputs to wheat production will decrease
the equilibrium quantity of wheat and increase its equilibrium price . (Graph)

Part II (Total 12 points, 4 points each question)

The following expression gives the Short Run Total Cost function of
producing Q units of output for a firm:

TC(Q) = 100 + Q^2

Thus the firm's Marginal Cost function is given by
MC(Q) = 2Q


	(i)	Calculate the Total Fixed Cost for this firm.
	(ii)	Write the expressions (equations) for the Average Total
Cost (ATC) and Average Variable Cost (AVC) functions for this firm.

(iii)        Explain intuitively why the Marginal Cost function does not
depend on the Total
Fixed Cost


Part III ( Total 10 points, 5 points each question )


Suppose that the market demand and the market supply of Bikes in the
Philadelphia area is given by the following equations:

Supply of Bikes    Q^s = 5 + P
Demand for Bikes   Q^d = 9

(i) Draw the graphs for the Supply and the Demand Curves. Calculate the
Equilibrium Price and the Equilibrium Quantity of Bikes for this market.

(ii) Now suppose that the city government imposes a sales tax of $ 2 per
bike. Write down the equation for the post-sales tax supply curve. For
each bike purchased, calculate the burden tax borne by the consumer. (
Show all calculation steps).