FEEDBACK TUTORIAL LETTER ASSIGNMENT 1 INTERMEDIATE MICRO-ECONOMICS IMI611S

Size: px
Start display at page:

Download "FEEDBACK TUTORIAL LETTER ASSIGNMENT 1 INTERMEDIATE MICRO-ECONOMICS IMI611S"

Transcription

1 FEEDBACK TUTORIAL LETTER 1 st SEMESTER 2017 ASSIGNMENT 1 INTERMEDIATE MICRO-ECONOMICS IMI611S 1

2 Solutions and explanations to the questions are provided in italics Question One [30 marks] The current world production of oil is 100 million barrels per day and the current world price of oil is $40 per barrel. The price elasticity of demand (ε) is -0.5 and the elasticity of supply (η) is 0.4. Kati Investment is planning to enter the world oil market with a daily production of 0.9 million barrels of oil per day. For simplicity, assume that the supply and demand curves are linear. a) Use a well labelled diagram to analyze the effect of Kati Investment production on the world price and quantity. This question asks what is the effect of Kati Investment production on the world market for oil. What we know is that the current equilibrium quantity is 100 million barrels and the current equilibrium price $40 per barrel. If Kati Investment comes into the market, it will increase market supply by 0.9 million barrels per day. Thus we can analyse the effect of Kati Investments through a shift in the supply curve: an increase in supply will result in the supply curve shifting to the right. This is reflected in the graph below: 2

3 Please take note: A graph only means something if it is labelled fully. Thus you need to fully label your graphs to show understanding (and to get any marks). You must always fully label graphs, including: The axes (i.e. price and quantity) The curves (i.e. the demand and supply curve) The points of the graphs (i.e. e1 with P1 and Q1 and e2 with P2 and Q2). In addition to labelling graphs, if the question involves a shift in either the demand or supply curve, you need to show the shift. You do this by labelling the new supply curve differently (e.g. S2, whereas the first supply curve was labelled S1 1 ) and showing the direction of the shift with an arrow. You should also show the new equilibrium price and quantity by labelling the new points as P2 and Q2 respectively and showing the direction of the shift in price and quantity with arrows. Beyond presenting the graph, the question asks you to analyse the effect on the increase in supply due to Kati Investment entering the market on the world prices. Thus in addition to drawing the graphs, you need to provide an explanation of the shift. Tip: Get into the practice of labelling graphs fully and providing explanations of the shift. When it comes to exam time, presenting a graph fully labelled should come naturally to you. Explanation of the shift: When the new firm enters the oil market, the total supply will increase which will cause the supply curve to shift to the right. An increase in supply will result in a decrease in the equilibrium price from P1 (40) to P2, and an increase in the equilibrium quantity from Q1 (100) to Q2. b) Use the information provided above to determine the long-run demand and supply functions that are consistent with pre-kati Investment world output and price. [10 marks] You need to make use of the information provided to determine the demand and supply functions. The general demand function form is Qd = a - bp, so we need to find a and b (note the negative relationship between Q and P for the demand function, shown as b). We have been told that the price elasticity of demand (ε) is We also know that b = the slope of the demand curve is = P / Q, and (ε) = (P/Q)( P / Q). 1 You could also use S0 and S1 annotations 3

4 So, P / Q = 0.5 (Q/P) = 0.5 (100/40) = 1.25 Then, solve for a by plugging in values for P & Q: Let P = 40, Q =100 Qd= a -1.25P 100 = a 1.25(40) 100 = a -50 a = 150 So the demand function, Qd = a bp Qd = P The general supply function form is Qs = c + dp, so we need to find c and d (note the positive relationship between Q and P for the supply function, shown as +d). We have been told that the elasticity of supply (η) is 0.4. We also know that c = the slope of the supply curve is = P / Q, and (η) = (P/Q)( P / Q). So, P / Q = 0.4 (Q/P) = 0.4 (100/40) = 1 Then, solve for c by plugging in values for P & Q: Let P = 40, Q =100 Qs= c + 1P 100 =c + 1(40) 100 = c + 40 C = = 60 So the supply function, Qs = c + dp Qs = 60+ P c) Determine the post-kati Investment long-run linear supply function The post-kati Investment supply function is the supply function after Kati Investment has entered the market. Thus we need to take into account Kati Investment s supply into the total market supply. We do this simply by adding Kati Investment s to the market supply. So: Qs = 60 + P +0.9 Qs =60.9+P As simple as that! d) Use the demand function and the post-kati Investment supply function to calculate new equilibrium price and quantity. 4

5 Here, you needed to be careful in reading the question and determining what was being asked. Some students solved for the Pe (equilibrium price) & Qe (equilibrium quantity) with the supply function before Kati Investment (i.e. Qs = 60 + P), however this gave you Pe = 40 and Qe = 100, which are the figures that were provided to you! What the question was asking for was the new Qe and Pe. To solve for Qe and Pe, equate the Qd and the Qs (post- Kati Investment). So: Qd = P = Qs P = 2.25P 2.25 P = 89.1 So new Pe = N$ Find new Qe: Qd = P Qe = (39.6) = So new Qe = Please take note: You needed to show your workings in terms of how you got Qe and Pe. You would have lost marks even if you had the right answers but you did not show your workings. In general, always show your workings, first to demonstrate to the marker that you understand the question, and secondly if you go wrong, you may get part-marks from your workings. e) Explain why the equilibrium quantity increases with less than 0.9 million. [5 marks] Note that when Kati Investment entered the market, there was an increase in market supply by 0.9 million barrels, however the equilibrium quantity increased by = 0.5 million (so less than the supply increase). This is because when the quantity supplied increased with Kati Investment entering the market, the equilibrium price decreased (this effect is covered in (a)). In response to the decrease in the equilibrium price, existing firms in the market reduced their supply (by 0.4 million). Thus due to the suppliers price elasticity of supply - the equilibrium quantity did not increase one for one with the increase in quantity supplied. Question Two [25 marks] a) People makes trade-offs because they can t have everything. State three tradeoffs a society faces. [3 marks] The trade-offs society faces due to the scarcity of resources are: 5

6 Which goods and services to produce If society chooses to focus production on one type of good or service, it must produce fewer other goods and services due to the scarcity of resources. How to produce To produce a given level of output, a firm must use more of one input if it uses less of another input. Who gets the goods or services The more of society s goods and services one individual / group gets the less another individual / group gets. Please take note: Trade-off means giving up something to get something else. In economics, we consider the trade-offs in resource allocation and distribution as it helps us think about how economic decisions impact on society. For example, if the government decides to spend its entire budget on national defence, there is no budget available for infrastructure development or social grants. a) The demand function for roses is Q = p, and the supply function is Q = p + 0.5t, where p is the price of roses and t is the average temperature in a month. Show how the equilibrium price varies with temperature. In order to show how the equilibrium price varies with the temperature, we need to find the relationship between the equilibrium price and the temperature. So we should solve for Pe. Qd = p = Qs = p t = 0.4 p p + 0.5t 0.8 p t = 100 Make Pe the subject of the formula: 0.8 p = t Pe = t So now that we have a formula that expresses Pe in terms of temperature, we can determine the relationship: There is a negative relationship between Pe and temperature, indicated by the negative sign relating the two variables. The question asked for us to show how the equilibrium price varies with temperature, so we need to directly answer what the question asks: The equilibrium price varies negatively with the temperature. E.g. If temperature increases, Pe will decrease. 6

7 Please take note: You could have shown the negative relationship in another way. For example, by plugging in different values for t, you could have shown that Pe decreases as t increases. Tip: You should be able to tell the relationship (negative or positive) between variables based on the functional relationship between the variables. For example: Qd = a bp: There is a negative relationship between Qd and P (when P increases, Qd decreases) Qs = c + dp: There is a positive relationship between Qs and P (when P increases, Qs increases). b) The demand function for processed pork is Q = 100 P + 5P b + P c + 8Y and supply function for processed pork is Q = 50 + P 6P h where Pb is the price of beef, Pc is the price of chicken, Ph is the price of hog and Y is the consumer income. Initial values are Pb=N$2, Pc=N$5, Y=N$100 and Ph=N$3. Draw the demand and supply curve for processed pork. [8 mark] In order to draw the demand or supply curves, you need to first determine the demand and supply functions. So: Qd = 100 P + 5P b + P c + 8Y Plug in the values provided: Qd = 100 P +5(2) (100) Qd = 100 P Qd = 915 P Demand function for processed pork Qs = 50 + P 6Ph Qs = 50 + P 6(3) Qs = 32 +P Supply function for processed pork You could have also determined the equilibrium price and quantity of processed pork (although this was not required): Qd = 915 P = Qs = 32 +P 883 = 2P Pe = Qe = = With the demand and supply functions, you can draw the demand and supply curves. 7

8 Please take note: A graph only means something if it is labelled fully. Thus you need to fully label your graphs to show understanding (and to get any marks). You must always fully label graphs, including: The axes (i.e. price and quantity) The curves (i.e. the demand and supply curve) The points of the graphs (e.g. the points of equilibrium) c) Use a well labelled diagram to analyse the effect of an increase in the price of chicken on the equilibrium price and quantity of pork assuming chicken and pork are substitutes. [4 marks] Chicken and pork are substitutes, and thus an increase in the price of chicken will cause customers to substitute pork for chicken. Thus an increase in the price of chicken will cause an increase in the quantity demanded for pork. This will cause the demand curve for pork to shift to the right. Let s show this graphically. 8

9 Beyond presenting the graph, the question asks you to analyse the effect of the increase in the price of chicken on the equilibrium price and quantity of pork. So the increase in the price of chicken, which is a substitute, will cause the quantity demanded of pork to rise. The demand curve for pork will shift to the right from D1 to D2 in the above graph. Equilibrium quantity will increase from Q1 to Q2 and equilibrium price will increase from P1 to P2. Please take note: A graph only means something if it is labelled fully. Thus you need to fully label your graphs to show understanding (and to get any marks). You must always fully label graphs, including: The axes (i.e. price and quantity) The curves (i.e. the demand and supply curve) The points of the graphs (i.e. e1 with P1 and Q1 and e2 with P2 and Q2). d) Suppose that the inverse demand function for music show is P = Q and the supply function for music show is Q = 50 + P. Calculate elasticity of demand at equilibrium for this music show. The formula for price elasticity of demand is (Pe / Qe )(Slope of demand curve) Thus we need to find those three points in order to determine elasticity of demand. 9

10 First, find the demand function from the inverse demand function given (i.e. make Qd the subject of the formula). So: P = Qd Qd = P -100 Qd = -4P So Qd = 400 4P Thus the slope of the demand curve is -4 Now, lets find Qe and Pe (equilibrium quantity and price) Qd = Qs 400 4P = 50 + P 350 = 5P Pe = 70 Qe = = 120 Now we can solve for the price elasticity of demand as: (ε) = -b (Pe/Qe) (ε) = -4 (70/120) (ε) = Please take note: The price elasticity of demand is always negative as there is a negative relationship between price and quantity demanded. We can interpret this as: Since (ε) is greater than one, the price elasticity of demand for the music show is elastic (i.e. a small change in price would result in a big change in demand). Question Three [25 marks] a) Explain the following economics concepts: - Economies of scale This is a property of a cost function whereby the average cost of production falls as output expands. Economies of scale are the cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. - Diseconomies of scale This is a property of a cost function whereby the average cost of production rises when output increases. Diseconomies of scale are an economic concept referring to a situation in which economies of scale no longer functions for a firm. With this principle, rather than experiencing continued decreasing costs and increasing output, a firm sees an increase in marginal costs when output is increased. 10

11 - Economies of scope A proportionate saving gained by producing two or more distinct goods, when the cost of doing so is less than that of producing each separately. - Production possibility frontier - The production possibility frontier (PPF) is a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors. The PPF assumes that all inputs are used efficiently. Tip: You can also use graphs to illustrate theoretical concepts. For example, the PPF is illustrated below: Source: Policonomics, 2012 b) The production function for the automotive industry is Q(K, L) = 2K 0.4 L 0.6, where K and L are inputs in the production. i. If you double the inputs, what will happen to the outputs? Show your works. You must show what happens to outputs by plugging in 2 K and 2 L into the production function. So: Input 2K and 2L: Q(2K, 2L) = 2(2K) 0.4 (2L) 0.6 Raise each of the components in the brackets to the respective powers: Q(2K, 2L) = 2(2) 0.4 (K) 0.4 (2) 0.6 (L)

12 Q(2K, 2L) = 2(2) (K) 0.4 (L) 0.6 Q(2K, 2L) = 2(2) 1 (K) 0.4 (L) 0.6 Note that 2 to the power of 1 equals 2 Q(2K, 2L) = 4K 0.4 L 0.6 So, if we double both inputs (e.g. increase K and L to 2 K and 2 L), we increase Q from 2K 0.4 L 0.6 to 4K 0.4 L 0.6. Thus if we double inputs, we double outputs. Please take note: The question asks what happens to output, so you need to explicitly state that output doubles when inputs double. Tip: Some of you lost the 2 in the original production function which is given as Q(K, L) = 2K 0.4 L 0.6. Be careful in your calculations. ii. What kind of return to scale does this production exhibit? Explain your answer We have already shown this in part (i); since output doubles when inputs double, output is proportional to inputs, and thus the function exhibits constant return to scale. We could also show this by adding the exponents: = 1. This indicates constant returns to scale. Tip: Remember to explain your answer, as specified in the question. General tips: While this assignment was on average answered well (with an approximate average mark of 70%), many students lost marks for not labelling graphs, for not showing workings and for not providing an explanation. In addition to the actual answers, you also need to pay attention to how you answer the questions; such as labelling graphs, showing workings and providing explanations, otherwise you will lose marks. Note that this is true for exams as well; you will lose marks for not labelling your graphs, showing workings or providing explanations in the exam. All the best for assignment 2. Remember to read the question carefully and be sure to answer what the question asks. Always label graphs and show workings. Don t hesitate to contact your tutor if there is a question that requires clarity or as explanation. Also, engage with your study guide and the textbook to obtain an understanding. Good luck! [END] 12

Econ 200 Lecture 4 April 12, 2016

Econ 200 Lecture 4 April 12, 2016 Econ 200 Lecture 4 April 12, 2016 0. Learning Catalytics Session 62335486 1. Change in Demand 2. Supply and the Law of Supply 3. Changes in Supply 4. Equilibrium Putting Supply and Demand Together 5. Impact

More information

ECON 251. Exam 1 Pink. Fall 2013

ECON 251. Exam 1 Pink. Fall 2013 ECON 251 1. By definition, opportunity cost is a. The value of the best alternative b. The sum of the value of all available alternatives c. The amount of money it takes to buy an item d. Always greater

More information

Recitation #3 Week from 01/26/09 to 02/01/09

Recitation #3 Week from 01/26/09 to 02/01/09 EconS 101, Section 1 Professor Munoz Recitation #3 Week from 01/6/09 to 0/01/09 1. For each of the following situations in the table below, fill in the missing information: first, determine whether this

More information

EconS Perfect Competition and Monopoly

EconS Perfect Competition and Monopoly EconS 425 - Perfect Competition and Monopoly Eric Dunaway Washington State University eric.dunaway@wsu.edu Industrial Organization Eric Dunaway (WSU) EconS 425 Industrial Organization 1 / 47 Introduction

More information

Multiple Choice Part II, A Part II, B Part III Total

Multiple Choice Part II, A Part II, B Part III Total SIMON FRASER UNIVERSITY ECON 103 (2007-2) MIDTERM EXAM NAME Student # Tutorial # Multiple Choice Part II, A Part II, B Part III Total PART I. MULTIPLE CHOICE (56%, 1.75 points each). Answer on the bubble

More information

I. Price Elasticity of Demand: Amy s demand for cheesecakes is Q d = 90 4P.

I. Price Elasticity of Demand: Amy s demand for cheesecakes is Q d = 90 4P. Economics 101 Homework #3 Fall 2008 Due 10/28/2008 at beginning of lecture Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on

More information

AP Microeconomics Review With Answers

AP Microeconomics Review With Answers AP Microeconomics Review With Answers 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry (which means show

More information

HW #1: Solutions QUESTIONS FOR REVIEW

HW #1: Solutions QUESTIONS FOR REVIEW HW #1: olutions QUETION FOR REVIEW 1. uppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new market-clearing level?

More information

ECON 1010 Principles of Macroeconomics Exam #1. Section A: Multiple Choice Questions. (30 points; 2 pts each)

ECON 1010 Principles of Macroeconomics Exam #1. Section A: Multiple Choice Questions. (30 points; 2 pts each) ECON 1010 Principles of Macroeconomics Exam #1 Section A: Multiple Choice Questions. (30 points; 2 pts each) #1. The figure Sam and DiMitri s Production Possibilities depicts production frontiers for Sam

More information

1. You are given the following joint PPF for 3 individuals: Sarah, John, and Michael.

1. You are given the following joint PPF for 3 individuals: Sarah, John, and Michael. Economics 102 Fall 2017 Answers to Homework #2 Due 10/10/17 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework

More information

Econ 001: Midterm 1- Stein October 6th, 2011

Econ 001: Midterm 1- Stein October 6th, 2011 Econ 001: Midterm 1- Stein October 6th, 2011 Instructions: This is a 60-minute examination. Write all answers in the blue books provided. Show all work. Use diagrams where appropriate and label all diagrams

More information

Econ 200: Lecture 6 October 14, 2014

Econ 200: Lecture 6 October 14, 2014 Econ 200: Lecture 6 October 14, 2014 0. Learning Catalytics Session: 47811348 1. Economic Efficiency 2. Price Ceilings and Floors and Efficiency 3. Start Taxes (if time) Reminder: Article Response Writing

More information

Chapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions

Chapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions Chapter 2: The Basic Theory Using Demand and Supply Multiple Choice Questions 1. If an individual consumes more of good X when his/her income doubles, we can infer that a. the individual is highly sensitive

More information

Intermediate Microeconomics Midterm

Intermediate Microeconomics Midterm Econ 201 Spring 2016 Name: Student ID: Intermediate Microeconomics Midterm Thursday April 21, 2016 Beomsoo Kim There are 7 questions and 130 possible points. There are 2 pages to this exam. Please write

More information

Ch. 7 outline. 5 principles that underlie consumer behavior

Ch. 7 outline. 5 principles that underlie consumer behavior Ch. 7 outline The Fundamentals of Consumer Choice The focus of this chapter is on how consumers allocate (distribute) their income. Prices of goods, relative to one another, have an important role in how

More information

Unit 2 Economic Models: Trade-offs and Trade

Unit 2 Economic Models: Trade-offs and Trade Unit 2 Economic Models: Trade-offs and Trade Objectives Why models simplified representations of reality play a crucial role in economics Two simple but important models: the production possibility frontier

More information

ADVANCED PLACEMENT MICROECONOMICS COURSE SYLLABUS

ADVANCED PLACEMENT MICROECONOMICS COURSE SYLLABUS ADVANCED PLACEMENT MICROECONOMICS COURSE SYLLABUS Economics is a way of looking at the choices people make regarding their time, money, and talent. Studying economics shows how goods and services are produced,

More information

2007 Thomson South-Western

2007 Thomson South-Western Elasticity... allows us to analyze supply and demand with greater precision. is a measure of how much buyers and sellers respond to changes in market conditions THE ELASTICITY OF DEMAND The price elasticity

More information

Consumer and Producer Surplus and Deadweight Loss

Consumer and Producer Surplus and Deadweight Loss Consumer and Producer Surplus and Deadweight Loss The deadweight loss, value of lost time or quantity waste problem requires several steps. A ceiling or floor price must be given. We call that price the

More information

STATISTICAL TECHNIQUES. Data Analysis and Modelling

STATISTICAL TECHNIQUES. Data Analysis and Modelling STATISTICAL TECHNIQUES Data Analysis and Modelling DATA ANALYSIS & MODELLING Data collection and presentation Many of us probably some of the methods involved in collecting raw data. Once the data has

More information

. This function gives the supplier s behavior with respect to price and quantity.

. This function gives the supplier s behavior with respect to price and quantity. Demand and supply functions are used to describe the consumer and manufacturer behavior with respect to the price of a product or service and the quantity of a product or service. Different textbooks may

More information

Economics 102 Summer 2015 Answers to Homework #2 Due Tuesday, June 30, 2015

Economics 102 Summer 2015 Answers to Homework #2 Due Tuesday, June 30, 2015 Economics 102 Summer 2015 Answers to Homework #2 Due Tuesday, June 30, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly).

More information

ECMC02H Intermediate Microeconomics - Topics in Price Theory

ECMC02H Intermediate Microeconomics - Topics in Price Theory 1 ECMC02H Intermediate Microeconomics - Topics in Price Theory Answers to the Term Test June 23, 2010 Version A of the test Your name (Print clearly and underline your last name) Your student number 1.

More information

ECON MACROECONOMIC PRINCIPLES Instructor: Dr. Juergen Jung Towson University. J.Jung Chapter Introduction Towson University 1 / 69

ECON MACROECONOMIC PRINCIPLES Instructor: Dr. Juergen Jung Towson University. J.Jung Chapter Introduction Towson University 1 / 69 ECON 202 - MACROECONOMIC PRINCIPLES Instructor: Dr. Juergen Jung Towson University J.Jung Chapter 2-4 - Introduction Towson University 1 / 69 Disclaimer These lecture notes are customized for the Macroeconomics

More information

Changes in Equilibrium Price and Quantity: The Four-Step Process

Changes in Equilibrium Price and Quantity: The Four-Step Process OpenStax-CNX module: m48631 1 Changes in Equilibrium Price and Quantity: The Four-Step Process OpenStax College This work is produced by OpenStax-CNX and licensed under the Creative Commons Attribution

More information

The goods market. Screen 1

The goods market. Screen 1 The goods market Screen 1 In this presentation we take a closer look at the goods market and in particular how the demand for goods determines the level of production and income in the goods market. There

More information

Supply and Demand Basics

Supply and Demand Basics Supply and Demand Basics I. Demand A. Demand is a schedule that shows the various amounts of a product consumers are willing and able to buy at each specific price in a series of possible prices during

More information

Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2

Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2 Economics 2 Spring 2016 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 2 1.a. Recall that the price elasticity of supply is the percentage change in quantity supplied divided

More information

Chapter 6 Lecture - Elasticity: The Responsiveness of Demand and Supply

Chapter 6 Lecture - Elasticity: The Responsiveness of Demand and Supply Chapter 6 Lecture - Elasticity: The Responsiveness of Demand and Supply 1 The Price Elasticity of Demand and Its Measurement We define price elasticity of demand and understand how to measure it. Although

More information

Lesson-9. Elasticity of Supply and Demand

Lesson-9. Elasticity of Supply and Demand Lesson-9 Elasticity of Supply and Demand Price Elasticity Businesses know that they face demand curves, but rarely do they know what these curves look like. Yet sometimes a business needs to have a good

More information

Market Equilibrium, the Price Mechanism and Market Efficiency. Chapter 3

Market Equilibrium, the Price Mechanism and Market Efficiency. Chapter 3 Market Equilibrium, the Price Mechanism and Market Efficiency Chapter 3 Equilibrium Equilibrium is defined as a state of rest, self-perpetuating in the absence of any outside disturbance. Example: a book

More information

Chapter. The Economic Problem CHAPTER IN PERSPECTIVE

Chapter. The Economic Problem CHAPTER IN PERSPECTIVE The Economic Problem Chapter CHAPTER IN PERSPECTIVE Chapter studies the production possibilities frontier, PPF. The PPF shows how the opportunity cost of a good or service increases as more of the good

More information

CHAPTER 2 Production Possibilities Frontier Framework

CHAPTER 2 Production Possibilities Frontier Framework CHAPTER 2 Production Possibilities Frontier Framework Chapter 2 introduces the basics of the PPF, comparative advantage, and trade. This is not exactly a tools of economics chapter; instead it explores

More information

PICK ONLY ONE BEST ANSWER FOR EACH BINARY CHOICE OR MULTIPLE CHOICE QUESTION.

PICK ONLY ONE BEST ANSWER FOR EACH BINARY CHOICE OR MULTIPLE CHOICE QUESTION. Econ 101 Summer 2015 Answers to Second Mid-term Date: June 15, 2015 Student Name Version 1 READ THESE INSTRUCTIONS CAREFULLY. DO NOT BEGIN WORKING UNTIL THE PROCTOR TELLS YOU TO DO SO You have 75 minutes

More information

1. T F The resources that are available to meet society s needs are scarce.

1. T F The resources that are available to meet society s needs are scarce. 1. T F The resources that are available to meet society s needs are scarce. 2. T F The marginal rate of substitution is the rate of exchange of pairs of consumption goods or services to increase utility

More information

The total final is worth 30 points. Each question is worth 2 points, and each sub question is worth an equal share of the two points.

The total final is worth 30 points. Each question is worth 2 points, and each sub question is worth an equal share of the two points. Final PPA 723, Fall 2002 Professor John McPeak December 9 th, 2002 Name: The total final is worth 30 points. Each question is worth 2 points, and each sub question is worth an equal share of the two points.

More information

Discussion Handout 2 6/22/2016 TA: Anton Babkin

Discussion Handout 2 6/22/2016 TA: Anton Babkin Consumer and Producer Surplus In economics, we assume that trade is mutually beneficial for both the suppliers and consumers of a good. This benefit is typically placed into two categories, consumer and

More information

Elasticity. Shape of the Demand Curve

Elasticity. Shape of the Demand Curve Lecture 4 Elasticity Eric Doviak Principles of Microeconomics Shape of the Demand Curve When prices change, change in quantity demanded depends on shape of demand curve Consumer 1 has a very elastic demand

More information

Biol Lecture Notes

Biol Lecture Notes Biol 303 1 Evolutionary Forces: Generation X Simulation To launch the GenX software: 1. Right-click My Computer. 2. Click Map Network Drive 3. Don t worry about what drive letter is assigned in the upper

More information

ECONOMICS (Povletich) Unit 1 Review Sheet Introduction to Economics

ECONOMICS (Povletich) Unit 1 Review Sheet Introduction to Economics ECONOMICS (Povletich) Unit 1 Review Sheet Introduction to Economics There will be 30-40 multiple choice questions and 4-5 free-response questions on your test that will take place on Tuesday 2/9 (periods

More information

Ecn Intermediate Microeconomic Theory University of California - Davis December 10, 2009 Instructor: John Parman. Final Exam

Ecn Intermediate Microeconomic Theory University of California - Davis December 10, 2009 Instructor: John Parman. Final Exam Ecn 100 - Intermediate Microeconomic Theory University of California - Davis December 10, 2009 Instructor: John Parman Final Exam You have until 12:30pm to complete this exam. Be certain to put your name,

More information

Department of Urban Studies and Planning Microeconomics Fall, Answers to the First Midterm

Department of Urban Studies and Planning Microeconomics Fall, Answers to the First Midterm Department of Urban Studies and Planning Frank Levy 11.203 Microeconomics Fall, 2006 Answers to the First Midterm 1) (25 points). At different times, federal, state and local governments have intervened

More information

The Heckscher Ohlin Model

The Heckscher Ohlin Model Econ 165 Winter 2002/03 Setup of the model: The Heckscher Ohlin Model 2 factors: skilled labor S and unskilled labor U Stanford University Gerald Willmann 2 commodities/sectors: hightech H and lowtech

More information

Figure: Profit Maximizing

Figure: Profit Maximizing Name: Student ID: 1. A manufacturing company that benefits from lower costs per unit as it grows is an example of a firm experiencing: A) scale reduction. B) increasing returns to scale. C) increasing

More information

Chapter Summary and Learning Objectives

Chapter Summary and Learning Objectives CHAPTER 11 Firms in Perfectly Competitive Markets Chapter Summary and Learning Objectives 11.1 Perfectly Competitive Markets (pages 369 371) Explain what a perfectly competitive market is and why a perfect

More information

Econ 251 Spring Exam 1 Pink

Econ 251 Spring Exam 1 Pink Exam 1 Pink Susan has only 3 options for dinner: pizza, Subway or pasta. Going out for pizza is worth $10 to her; getting Subway is worth $8; and pasta is worth $12 to her. The purchase price of each dinner

More information

Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good.

Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. McPeak Lecture 10 PAI 723 The competitive model. Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. As we derived a demand curve for an individual

More information

Analyzing Accumulated Change Integrals in Action. Improper Integral

Analyzing Accumulated Change Integrals in Action. Improper Integral Analyzing Accumulated Change Integrals in Action 6.1 -Perpetual Accumulation and Improper Integrals Improper Integral Definite integrals have specific numbers for both the upper limit and the lower limit.

More information

Econ 001: Midterm 2 (Dr. Stein) Answer Key March 31, 2008

Econ 001: Midterm 2 (Dr. Stein) Answer Key March 31, 2008 Instructions: Econ 001: Midterm 2 (Dr. Stein) Answer Key March 31, 2008 This is a 60-minute examination. Write all answers in the blue books provided. Show all work. Use diagrams where appropriate and

More information

E.C.O.-6 Economic Theory

E.C.O.-6 Economic Theory N 1 ASSIGNMENT SOLUTIONS GUIDE (2015-2016) E.C.O.-6 Economic Theory Disclaimer/Special Note: These are just the sample of the Answers/Solutions to some of the Questions given in the Assignments. These

More information

Constant of Proportionality

Constant of Proportionality Constant of Proportionality LAUNCH (6 MIN) Before How can you use the titles on the axes to help you understand the meaning of the graph? Does this graph show a proportional relationship? How can you tell?

More information

UNIT 4 PRACTICE EXAM

UNIT 4 PRACTICE EXAM UNIT 4 PRACTICE EXAM 1. The prices paid for resources affect A. the money incomes of households in the economy B. the allocation of resources among different firms and industries in the economy C. the

More information

Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007

Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007 Instructions: Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007 This is a 60-minute examination. Write all answers in the blue books provided. Show all work. Use diagrams where appropriate and label

More information

VANCOUVER ISLAND UNIVERSITY. ECON211: Principles of Microeconomics, Spring 2013 SAMPLE MIDTERM EXAM. Name (Last, First): ID #: Signature:

VANCOUVER ISLAND UNIVERSITY. ECON211: Principles of Microeconomics, Spring 2013 SAMPLE MIDTERM EXAM. Name (Last, First): ID #: Signature: Important: Please remember it is a sample exam. Number of questions in each section and structure of questions in Part B would vary as discussed in class VANCOUVER ISLAND UNIVERSITY ECON211: Principles

More information

Calculating consumer s surplus and the change in consumer s surplus Calculating compensating and equivalent variations

Calculating consumer s surplus and the change in consumer s surplus Calculating compensating and equivalent variations In this chapter you will study ways to measure a consumer s valuation of a good given the consumer s demand curve for it The basic logic is as follows: The height of the demand curve measures how much

More information

Market Equilibrium: Part II

Market Equilibrium: Part II Market Equilibrium: Part II Announcements PS #4 is posted on web page. It is big and not all questions are very easy. It is time to start studying. PS#5 will be even bigger. (also more challenging) A sample

More information

APPLICATION 2.1 APPLICATION 2.2. PRICE ELASTICITY OF DEMAND APPLICATION 2.3 How People Buy Cars: The Importance of Brands

APPLICATION 2.1 APPLICATION 2.2. PRICE ELASTICITY OF DEMAND APPLICATION 2.3 How People Buy Cars: The Importance of Brands c02.qxd 7/17/07 2:50 PM Page 22 C H A P T E R 2DEMAND AND SUPPLY ANALYSIS 2.1 DEMAND, SUPPLY, AND MARKET EQUILIBRIUM APPLICATION 2.1 APPLICATION 2.2 The Valentine s Day Effect A Chicken in Every Pot 2.2

More information

Economics 101. Version 1

Economics 101. Version 1 Economics 101 Fall 2017 October 12, 2017 Midterm 1 Name TA Name Discussion Section # Student ID # Version 1 DO NOT BEGIN WORKING UNTIL THE INSTRUCTOR TELLS YOU TO DO SO. READ THESE INSTRUCTIONS FIRST.

More information

Journal of Industrial Organization Education

Journal of Industrial Organization Education Journal of Industrial Organization Education Volume 3, Issue 1 2008 Article 1 Capacity-Constrained Monopoly Kathy Baylis, University of Illinois, Urbana-Champaign Jeffrey M. Perloff, University of California,

More information

ECON Midterm #2 Practice Problems

ECON Midterm #2 Practice Problems ECON 1101 - Midterm #2 Practice Problems Question #1 Suppose that there is a small country known as Econland. Now lets open up Econland to the world economy. Suppose the world price of widgets is $2. Since

More information

ECON 1010 Principles of Macroeconomics. Midterm Exam #1. Professor: David Aadland. Spring Semester February 14, 2017.

ECON 1010 Principles of Macroeconomics. Midterm Exam #1. Professor: David Aadland. Spring Semester February 14, 2017. ECON 1010 Principles of Macroeconomics Midterm Exam #1 Professor: David Aadland Spring Semester 2017 February 14, 2017 Your Name Section 1: Multiple Choice and T/F (60 pts). Circle the correct answer;

More information

Exam 1 Version A A = 4; A- = 3.7; B+ = 3.3; B = 3.0; B- = 2.7; C+ = 2.3; C = 2.0; C- = 1.7; D+ = 1.3; D = 1.0; F = 0

Exam 1 Version A A = 4; A- = 3.7; B+ = 3.3; B = 3.0; B- = 2.7; C+ = 2.3; C = 2.0; C- = 1.7; D+ = 1.3; D = 1.0; F = 0 BA 210 Exam 1 Version A Dr. Jon Burke This is a 100-minute exam (1hr. 40 min.). There are 8 questions (12.5 minutes per question). The exam begins exactly at the normal time that class starts. To avoid

More information

ECON 311 MICROECONOMICS THEORY I

ECON 311 MICROECONOMICS THEORY I ECON 311 MICROECONOMICS THEORY I Profit Maximisation & Perfect Competition (Short-Run) Dr. F. Kwame Agyire-Tettey Department of Economics Contact Information: fagyire-tettey@ug.edu.gh Session Overview

More information

Pricing with Market Power

Pricing with Market Power Chapter 7 Pricing with Market Power 7.1 Motives and objectives Broadly The model of perfect competition is extreme (and hence wonderfully powerful and simple) because of its assumption that each firm believes

More information

a. Find MG&E s marginal revenue function. That is, write an equation for MG&E's MR function.

a. Find MG&E s marginal revenue function. That is, write an equation for MG&E's MR function. Economics 101 Spring 2015 Answers to Homework #5 Due Thursday, May 7, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly).

More information

MICRO-ECONOMIC THEORY I STUDY NOTES CHAPTER ONE

MICRO-ECONOMIC THEORY I STUDY NOTES CHAPTER ONE MICRO-ECONOMIC THEORY I STUDY NOTES CHAPTER ONE UNIT 1 BASIC CONCEPT OF CONSUMER BEHAVIOUR CHAPTER ONE CONTENTS Introduction Objectives Main Content Theory of Consumer Behaviour Consumer Preferences Decisiveness

More information

DEMAND. Chapt er. Key Concepts. Consumption Choices

DEMAND. Chapt er. Key Concepts. Consumption Choices Chapt er 8 UTILITY AND DEMAND Key Concepts Consumption Choices Consumption choices are determined by the interaction of the household s consumption possibilities and its preferences. The household s consumption

More information

Exam 1. Pizzas. (per day) Figure 1

Exam 1. Pizzas. (per day) Figure 1 ECONOMICS 10-008 Dr. John Stewart Sept. 30, 2003 Exam 1 Instructions: Mark the letter for your chosen answer for each question on the computer readable answer sheet using a No.2 pencil. Note a)=1, b)=2

More information

Perfectly Competitive Markets

Perfectly Competitive Markets Characteristics: Fragmented: Many small firms, none of which have market power Undifferentiated Products: Products that consumers perceive as being identical. Perfect Pricing Information: Consumers have

More information

Chapter 11. Monopoly

Chapter 11. Monopoly Chapter 11 Monopoly Topics Monopoly Profit Maximization. Market Power. Welfare Effects of Monopoly. Cost Advantages That Create Monopolies. Government Actions That Create Monopolies. Government Actions

More information

Linear Cost, Revenue, Profit, Supply, and Demand

Linear Cost, Revenue, Profit, Supply, and Demand Linear Cost, Revenue, Profit, Supply, and Demand Complete the following questions to investigate different types of linear models. Record your responses on this worksheet and the answer sheet. Turn in

More information

Do not open this exam until told to do so. Solution

Do not open this exam until told to do so. Solution Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Fall 003 Final (Version): Intermediate Microeconomics (ECON30) Solution Final (Version

More information

8/31/09. Understanding economic resources and economic systems is essential to lessening economic problems.

8/31/09. Understanding economic resources and economic systems is essential to lessening economic problems. Chapter 2 Economic Resources and Systems pp. 18-33 Back to Table of Contents Introduction to Business, Economic Resources and Systems Slide 2 of 64 Understanding economic resources and economic systems

More information

1.3. Levels and Rates of Change Levels: example, wages and income versus Rates: example, inflation and growth Example: Box 1.3

1.3. Levels and Rates of Change Levels: example, wages and income versus Rates: example, inflation and growth Example: Box 1.3 1 Chapter 1 1.1. Scarcity, Choice, Opportunity Cost Definition of Economics: Resources versus Wants Wants: more and better unlimited Versus Needs: essential limited Versus Demand: ability to pay + want

More information

MICRO EXAM REVIEW SHEET

MICRO EXAM REVIEW SHEET MICRO EXAM REVIEW SHEET 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry 3. Natural Monopoly with Fair-Return

More information

Instructor s Manual. Duncan M. Holthausen. For. Microeconomics. Eighth Edition. Robert S. Pindyck. Daniel L. Rubinfeld

Instructor s Manual. Duncan M. Holthausen. For. Microeconomics. Eighth Edition. Robert S. Pindyck. Daniel L. Rubinfeld Instructor s Manual By Duncan M. Holthausen For Microeconomics Eighth Edition Robert S. Pindyck Massachusetts Institute of Technology Daniel L. Rubinfeld University of California, Berkeley Copyright 2013

More information

Search markets: Introduction

Search markets: Introduction Search markets: Introduction Caltech Ec106 (Caltech) Search Feb 2010 1 / 16 Why are prices for the same item so different across stores? (see evidence) A puzzle considering basic economic theory: review

More information

Commerce 295 Midterm Answers

Commerce 295 Midterm Answers Commerce 295 Midterm Answers October 27, 2010 PART I MULTIPLE CHOICE QUESTIONS Each question has one correct response. Please circle the letter in front of the correct response for each question. There

More information

The Competitive Model in a More Realistic Setting

The Competitive Model in a More Realistic Setting CHAPTER 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Summary and Learning Objectives 13.1 Demand and Marginal Revenue for a Firm in a Monopolistically Competitive

More information

The Foundations of Microeconomics

The Foundations of Microeconomics The Foundations of Microeconomics D I A N N A D A S I L V A - G L A S G O W D E P A R T M E N T O F E C O N O M I C S U N I V E R S I T Y O F G U Y A N A 1 4 S E P T E M B E R, 2 0 1 7 Wk 3 Lectures I

More information

FIRST MIDTERM EXAMINATION ECON 200 Spring 2007 DAY AND TIME YOUR SECTION MEETS:

FIRST MIDTERM EXAMINATION ECON 200 Spring 2007 DAY AND TIME YOUR SECTION MEETS: FIRST MIDTERM EXAMINATION ECON 200 Spring 2007 STUDENT'S NAME: STUDENT'S IDENTIFICATION NUMBER: DAY AND TIME YOUR SECTION MEETS: BEFORE YOU BEGIN PLEASE MAKE SURE THAT YOUR EXAMINATION HAS BEEN DUPLICATED

More information

Course Information Introduction to Economics I (ECON 1001)

Course Information Introduction to Economics I (ECON 1001) Course Information Introduction to Economics I (ECON 1001) Course Code ECON 1001 Course Title Course Discipline Introduction to Economics I Economics Units of Credit Three (3) Pre-requisites None Semester

More information

I enjoy teaching this class. Good luck and have a nice Holiday!!

I enjoy teaching this class. Good luck and have a nice Holiday!! ECON 202-501 Fall 2008 Xiaoyong Cao Final Exam Form A Instructions: The exam consists of 2 parts. Part I has 35 multiple choice problems. You need to fill the answers in the table given in Part II of the

More information

Micro Chapter 7 study guide questions

Micro Chapter 7 study guide questions Micro Chapter 7 study guide questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. A 15 percent increase in the price of beef reduces the quantity of

More information

(per day) Pizzas. Figure 1

(per day) Pizzas. Figure 1 ECONOMICS 10-008 Dr. John Stewart Sept. 25, 2001 Exam 1 Detailed solution for one Form of the Midterm: The general question are the same for all forms but some questions differ in details so correct answer

More information

1. A decrease in unemployment causes the PPF to shift outward (to the right). ANSWER: False

1. A decrease in unemployment causes the PPF to shift outward (to the right). ANSWER: False 1. A decrease in unemployment causes the PPF to shift outward (to the right). a. True b. False ANSWER: False 2. The law of increasing opportunity cost results from the varying ability of resources to adapt

More information

People who are actively seeking work and can start work immediately, but can t find a job at the current wage rate.

People who are actively seeking work and can start work immediately, but can t find a job at the current wage rate. 1 QUESTION ONE: THE AGGREGATE SUPPLY AND DEMAND MODEL (a) Define the term involuntary unemployment. People who are actively seeking work and can start work immediately, but can t find a job at the current

More information

Chapter 3 EXPANDED GAINS FROM TRADE WITH RESOURCE MOVEMENTS

Chapter 3 EXPANDED GAINS FROM TRADE WITH RESOURCE MOVEMENTS Chapter 3 EXPANDED GAINS FROM TRADE WITH RESOURCE MOVEMENTS Chapter 2 presented the simplest model of production and trade. Countries received endowments of final goods, which they either consumed or exchanged

More information

Walter Nicholson, Amherst College Christopher Snyder, Dartmouth College PowerPoint Slide Presentation Philip Heap, James Madison University

Walter Nicholson, Amherst College Christopher Snyder, Dartmouth College PowerPoint Slide Presentation Philip Heap, James Madison University Intermediate Microeconomics and Its Application 11th edition by Walter Nicholson, Amherst College Christopher Snyder, Dartmouth College PowerPoint Slide Presentation Philip Heap, James Madison University

More information

Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we

Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we must criticize it a bit. Monopoly occurs when there is

More information

2010 Pearson Education Canada

2010 Pearson Education Canada What Is Perfect Competition? Perfect competition is an industry in which Many firms sell identical products to many buyers. There are no restrictions to entry into the industry. Established firms have

More information

VANCOUVER ISLAND UNIVERSITY. ECON100: Principles of Economics, Spring 2013 MIDTERM EXAM I

VANCOUVER ISLAND UNIVERSITY. ECON100: Principles of Economics, Spring 2013 MIDTERM EXAM I VANCOUVER ISLAND UNIVERSITY ECON100: Principles of Economics, MIDTERM EXAM I Name (Last, First): ID #: Signature: THIS EXAM HAS TOTAL 10 PAGES INCLUDING THE COVER PAGE Instructions: Total marks 65 and

More information

Chapter 6 TRADE AND LOCAL INCOME DISTRIBUTION: THE SPECIFIC FACTORS MODEL

Chapter 6 TRADE AND LOCAL INCOME DISTRIBUTION: THE SPECIFIC FACTORS MODEL Chapter 6 TRADE AND LOCAL INCOME DISTRIBUTION: THE SPECIFIC FACTORS MODEL One of the main implications of the Ricardian model is that everyone is better off with free trade. Workers can earn higher wages

More information

ASSIGNMENT 2 ND SEMESTER : MICROECONOMICS (MIC) ECONOMICS 2 (ECO201)

ASSIGNMENT 2 ND SEMESTER : MICROECONOMICS (MIC) ECONOMICS 2 (ECO201) Page 1 of 9 ASSIGNMENT 2 ND SEMESTER : MICROECONOMICS (MIC) ECONOMICS 2 (ECO201) STUDY UNITS COVERED : STUDY UNIT 1: Chapters 1, 2 STUDY UNIT 2: Chapters 7, 8, 9, 10 DUE DATE : 3:00 p.m. 20 AUGUST 2013

More information

Chapter 1: What is Economics? Section 3

Chapter 1: What is Economics? Section 3 Chapter 1: What is Economics? Section 3 Objectives 1. Interpret a production possibilities curve. 2. Explain how production possibilities curves show efficiency, growth, and cost. 3. Explain why a country

More information

Framingham State College Department of Economics and Business Principles of Microeconomics 1 st Midterm Practice Exam Fall 2006

Framingham State College Department of Economics and Business Principles of Microeconomics 1 st Midterm Practice Exam Fall 2006 Name Framingham State College Department of Economics and Business Principles of Microeconomics 1 st Midterm Practice Exam Fall 2006 This exam provides questions that are representative of those contained

More information

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1 1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1 There is only ONE best, correct answer per question. Place your answer on the attached sheet.

More information

OCR Economics A-level

OCR Economics A-level OCR Economics A-level Microeconomics Topic 1: Scarcity and Choice 1.4 Opportunity cost Notes The scarcity of resources gives rise to opportunity cost. The opportunity cost of a choice is the value of the

More information

Market structure 1: Perfect Competition The perfectly competitive firm is a price taker: it cannot influence the price that is paid for its product.

Market structure 1: Perfect Competition The perfectly competitive firm is a price taker: it cannot influence the price that is paid for its product. Market structure 1: Perfect Competition The perfectly competitive firm is a price taker: it cannot influence the price that is paid for its product. This arises due to consumers indifference between the

More information

The total exam is worth 20 points. Each question is worth 2 points, and each sub question is worth an equal share of the two points.

The total exam is worth 20 points. Each question is worth 2 points, and each sub question is worth an equal share of the two points. Exam One PPA 723, Fall 2010 Professor John McPeak Name: The total exam is worth 20 points. Each question is worth 2 points, and each sub question is worth an equal share of the two points. 1) The demand

More information