ECON 201 – Spring 2017 Midterm Exam – chapters 1, 2, 3, 4, 5, 7, 13 The exam is primarily short answer questions - please briefly explain your answers where relevant. You may use your textbook and refer to the Powerpoints and videos on the course Moodle page. Return completed exam no later than 11 pm Saturday April 29th via email Scenario 1 You have the afternoon free. You have a choice between going to the movies with a friend or studying economics for three hours. If you go to the movies, you will spend $8.00 on a ticket and $4.50 on popcorn. If you choose to study economics for three hours, you will raise your exam grade by 10 points. 1. Refer to Scenario 1. What is your opportunity cost of going to the movies? 2. Refer to Scenario 1. What is your opportunity cost of studying economics? 3. Consider a small family wheat farm. List some examples of explicit costs of farming and implicit costs of farming. 4. Fill in the blank: In the short run, as compared to the long run, both the price elasticity of demand and the price elasticity of supply tend to be more _______________ . Figure 1 5. Refer to Figure 1. In this market for iPhones, the technology improves while all other factors remain constant. Which curve(s) shift(s) and in which direction? 6. Refer to Figure 1. In this market for tablet computers, more suppliers enter the market and the price of laptops, a substitute good, increases, while all other factors remain constant. Explain the change(s) in the equilibrium price and quantity. 7. Suppose a freeze in Florida significantly reduces the supply of oranges this year. As a result, would you expect the total revenue from the sale of orange juice to rise or fall? Explain. Table 1 Mobile Phones 0 200 500 900 1400 2000 Pizzas 10,000 8,000 6,000 4,000 2,000 0 8. Refer to Table 1. Consider the production possibilities table for an economy that produces only mobile phones and pizzas. What is the opportunity cost of increasing production of mobile phones from 200 to 500? 9. Refer to Table 1. Consider the production possibilities table for an economy that produces only mobile phones and pizzas. What is the opportunity cost of increasing production of pizzas from 4,000 to 6,000? 10. Answer the following questions based on Figure 2 that represents J.R.'s demand for ribs per week at Judy's Rib Shack. a. b. c. d. e. f. g. h. Figure 2 At the equilibrium price, how many ribs would J.R. be willing to purchase? How much is J.R. willing to pay for 20 ribs? What is the magnitude of J.R.'s consumer surplus at the equilibrium price? At the equilibrium price, how many ribs would Judy be willing to sell? How high must the price of ribs be for Judy to supply 20 ribs to the market? At the equilibrium price, what is the magnitude of total surplus in the market? If the price of ribs rose to $10, what would happen to J.R.'s consumer surplus? If the price of ribs fell to $5, what would happen to Judy's producer surplus? Scenario 2 The production possibilities frontiers below show how much Greg and Catherine can each produce in 8 hours of time. Greg’s Production Possibilities Catherine’s Production Possibilities 11. Refer to Scenario 2. What is Greg’s opportunity cost of producing ice cream? Explain how you derived your answer. 12. Refer to Scenario 2. What is Greg’s opportunity cost of producing cake? Explain how you derived your answer. 13. Refer to Scenario 2. Which if any good(s) does Greg have an absolute advantage producing? 14. Refer to Scenario 2. Which if any good(s) does Catherine have an absolute advantage producing? 15. Refer to Scenario 2. Is it possible for Greg and Catherine to gain from trade? Defend your answer. Figure 3 Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two. 16. Refer to Figure 3 . Which point(s) on the graph show unemployment of resources? 17. Refer to Figure 3 . Which point(s) on the graph is(are) unattainable given current resources and technology? Figure 4 18. Refer to Figure 4 – pick the best answ er . Suppose the production function shifts from TP1 to TP2. Such a shift in the total product curve is most likely due to an increase in the firm's a. costs of production. b. productivity. c. product price. d. market share. 19. Refer to Figure 4 – pick the best answ er . Which of the following could explain why the total product curve would shift from TP1 to TP2? e. There is less capital equipment available to the firm. f. Labor skills have become rusty and outdated in the firm. g. The firm has developed improved production technology. h. The firm is now receiving a higher price for its product. Table 2 The table below shows the quantities demanded of milk per month by four families at various prices. Price of Gallon of The Berman Milk Family $3.00 9 $4.00 8 $5.00 7 $6.00 6 The Johnson Family 15 12 9 6 The Harris Family 12 10 8 6 The Patel Family 14 10 6 2 20. Refer to Table 2. If the four families listed are the only demanders in this market and the price of a gallon of milk is $4.00, what is the market quantity demanded? 21. Refer to Table 2. If the four families listed are the only demanders in this market and the price of a gallon of milk increases from $4.00 to $5.00, what is the change in the market quantity demanded? 22. Suppose the price elasticity of demand for good A is 1.25. If the price of good A increases by 20%, what will be the resulting percentage change in quantity demanded for good A? 23. If John’s willingness to pay for a good is $20 and the price of the good is $15, how much is John’s consumer surplus from purchasing the good? 24. Which of the following is an illustration of the market for original paintings by deceased artist Vincent Van Gogh? Explain your answer. a. b. c. d. Scenario 3 Suppose that a small family farm sold its output for $100,000 in a given year. The family spent $25,000 on fuel, $40,000 on seed, fertilizer, and pesticides, and $25,000 on equipment, including maintenance. The family members could have earned $20,000 working at other occupations. 25. Refer to Scenario 3. What is the accounting profit for the family farm? 26. Refer to Scenario 3. What is the economic profit for the family farm? 27. Fill in the blank: With regard to elasticity, as a firm nears its production capacity, supply becomes more _______ . Table 3 Labor Output 0 1 2 3 4 5 6 0 200 350 450 Marginal Product Variable Cost Fixed Cost -200 $0 $20 $40 $60 $80 $100 $120 $10 $10 $10 $10 $10 $10 $10 50 25 530 28. Refer to Table 3. What is the average total cost of producing 525 units of output? 29. Refer to Table 3. What is the average variable cost of producing 500 units of output? 30. Refer to Table 3. What is the average fixed cost of producing 450 units of output? 31. Suppose you manage a baseball stadium. To pay the salary for a star player, you would like to increase the total revenue from ticket sales. Should you increase or decrease the price of a ticket to increase revenue? Explain. Table 4 The following table shows the cost of producing a good for the only four producers in a market. Producer W X Y Z Cost $40 $30 $20 $10 32. Refer to Table 4. If the market price is $28, which producers will supply units in the market? 33. Refer to Table 4. If the market equilibrium price is $28, what is total producer surplus in the market? 34. Refer to Table 4. If these four producers bid in an auction to supply one unit to a consumer, at what price will the good be sold? 35. For which of the following goods would demand be most price elastic: a car, a sedan, a Honda sedan, a Honda Accord, a black Honda Accord? Why? Table 5 Number of Workers Total Output 0 0 1 2 3 4 5 Marginal Product -30 45 60 50 40 36. Refer to Table 5. What is total output when 1 worker is hired? 37. Refer to Table 5. What is total output when 2 workers are hired? 38. Suppose goods A and B are complements. If the price of good A increases, will the demand for good B increase or decrease? Draw a graph illustrating your answer. Table 6 Number of Workers 0 1 2 3 4 39. Output 0 90 170 230 240 Fixed Cost $50 $50 $50 $50 $50 Variable Cost $0 $20 $40 $60 $80 Total Cost $50 $70 $90 $110 $130 Refer to Table 6 . At which number of workers does diminishing marginal product begin? 40. Refer to Table 6. If the firm can sell its output for $1 per unit, what is the profit-maximizing level of output? .
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