Name:

An Old Midterm
Econ 200B
Section or TA’s Name:

XX points- Maximum of 80 minutes allowed (Note: Your midterm will have

1. (9 points) Answer the following conceptual questions about economics:

b) (3 points) Which tends to be more elastic, demand for goods with many substitutes or demand
for goods with few substitutes? Please explain your answer using economic terms.

c) (3 points) Who pays the burden of a tax when demand is inelastic relative to supply? Briefly
explain why.

2. (17 points) The figure below represents the market for daily parking in downtown Seattle. The
curve marked S is the supply of parking spots before a $4 “convenience” fee (essentially a tax) is
imposed by the city to help pay for road improvements. After the fee is imposed, the supply of
parking spots is represented by the curve marked S’. Use this graph to answer the following
questions (the figure is not drawn to scale). Show your work.

Price/spot

$20 S’
S

$12.50
$10

$4
D
750 1000 Spots/day
1
 a) (3 points) What percentage of the fee is paid by consumers?
b) (2 points) Calculate the total amount raised by the city as a result of the fee.
c) (4 points) Calculate the loss of Consumer Surplus (CS) due to the fee.
d) (4 points) Calculate the loss of Seller’s Rent (PS) due to the fee.
e) (4 points) Calculate the deadweight loss created by the fee.

3. (14 points) Consider the nation-wide market for Washington (WA) apples and Florida (FL) oranges,
which are considered substitutes.

a) (2 points) Is the cross-price elasticity of demand between apples and oranges positive or negative
if they are substitutes?

b) (6 points) The graph below represents an initial equilibrium in the market for WA apples. On
this graph, draw what happens to market equilibrium when a drought hits Washington apple
growers. Clearly mark any and all curve shifts. Explain, in words, what happens to the
equilibrium price and quantity of apples sold in this market.
Price, $
S

P1

Q1 Qty

c) (6 points) This graph represents the original equilibrium in the market for FL oranges. Show the
effect of the Washington state apple drought on the market equilibrium, clearly marking any and
all curve shifts. State in words what happens to the equilibrium price and quantity of oranges
sold in this market.

Price, $
S

P1

D
Q1 Qty
2
 4. The daily market for cups of chai tea at Suzzalo Espresso is given by the following supply and
demand equations.

𝑄𝑄𝑑𝑑 =160-20P
𝑄𝑄𝑠𝑠 = 20𝑃𝑃

Please answer the following questions about this market:

a. Solve for the equilibrium price and quantity in this market (in dollars and cups per day).
b. Draw the supply and demand curves on the graph below. Be sure to label the y-intercepts of each
graph and the equilibrium and label the supply curve S.
c. What is the consumer surplus in this market?
d. What is the producer surplus?
Now imagine that the UW imposes a $0.50 per cup tax on all hot drinks. This changes the equation
of the supply curve to
𝑄𝑄𝑠𝑠 = 20𝑃𝑃 − 10
Draw this new supply curve on the graph, label it S2.
e. Calculate the new equilibrium price and quantity in the market.
f. What is the deadweight loss of the tax?

5. Rob and Fred are stranded together on an island. Their only food sources are fish and coconuts. Rob
can produce 6 fish or 8 coconuts in a day, while Fred can produce 5 fish or 5 coconuts. Each has a constant
marginal cost of coconut production, in terms of fish.
a. Who has the absolute advantage in production?

b. Calculate the MC of coconut production (in terms of fish) for both Rob and Fred. Who has the comparative
advantage in coconuts?

c. Suppose that Rob and Fred produce for themselves only, and their preferences are such that they each prefer
to consume 4 coconuts per day (and the corresponding number of fish). What could they gain (in terms of
fish and/or coconuts) if they specialize and trade?

d. Do low wages alone explain why we trade with low-wage countries like China? Use the concept of
marginal cost to explain your point.

3
 6. For some agricultural goods, there are price floors, dictating the minimum price for these goods.
Now suppose the government has decided to eliminate the price floor on one such good, wheat.
Use the graphs below to explain the effect of eliminating the price floor on wheat on the
following markets. Be sure to show any curve shifts and explain what happens to Price and
Quantity in both markets in the new equilibrium.

a. The market for wheat (Hint: Remember, the government stops buying the surplus wheat)

Price, $
S

Pw

Qs Qty

b. The wages of farm workers

Wage, $
S

L Qty Labor