Homework answers / question archive / Northwestern University - ECON 201 ECON 201: Introduction to Macroeconomics Midterm Exam 1: October 22, 2012 NAME   Circle your TA’s name:                Amy       Samir     Thiago Circle your section time:            11:00 am               3:00 pm   Economic models always attempt to  a

Northwestern University - ECON 201 ECON 201: Introduction to Macroeconomics Midterm Exam 1: October 22, 2012 NAME   Circle your TA’s name:                Amy       Samir     Thiago Circle your section time:            11:00 am               3:00 pm   Economic models always attempt to  a

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Northwestern University - ECON 201

ECON 201: Introduction to Macroeconomics

Midterm Exam 1:

October 22, 2012

NAME

 

Circle your TA’s name:                Amy       Samir     Thiago

Circle your section time:            11:00 am               3:00 pm

 

1. Economic models always attempt to 

a.include all details that characterize the real world.

b.concentrate on the essential causal elements of economic relationships.

c. have the same level of abstraction.

d. make unrealistic assumptions to deal with complexity.

2. Which of the following occupations is identified in a course packet reading as the most desirable for a woman who wants to combine children and career? 

a. Investment banking

b. Corporate management

c. Academic jobs requiring a PhD

d. Medicine

3. The law of comparative advantage implies that in international trade

a. that only countries with the highest productivity will gain.

b. countries should try to self-produce all goods.

c. relatively inefficient producers can still gain from trade.

d. None of the above.

4. Regarding factors of production, which of the following is not true? 

a. Land includes the value of raw materials in the land

b. Labor includes the value of education

c. Capital includes both structures and equipment

d. Technology captures the effects of advances in knowledge

5. Which of the following statements is true? 

a. The Fundamental economic problems arise because our resources are limited while our wants are limitless

b. A Macroeconomist is more interested in studying how a single firm manages its labor force in order to maximize profit than would be a microeconomist

c. More physical goods are produced in the US economy than services

d. In today’s information economy, land is no longer one of the factors of production

6. Demand curves are derived while holding constant: 

a. income, tastes, and the price of other goods.

b.income, tastes, and the price of the studied good.

 c. income, expectations about the future, and quantity demanded

d. tastes, expectation about the future, and only prices of substitutes of the studied good.

7. The FUN Corporation produces outdoor tables. An economist working for the firm predicts that ‘if people’s incomes rise next year, then the demand for our tables will increase’. The accuracy of the economist’s prediction depends on all of the below, except: 

a. if the tables produced are normal goods.

b. the price of chairs stays constant.

c. the price of umbrellas stays constant.

d. the expectation about another oil shock.

8. A company manufactures and sells widgets. It finds that, at a selling price of $ 3.50, it can sell 1000 widgets every month, but that if it increases the price to $4.00, it can only sell 800 widgets in a month. Which of the following would you most expect to be true? 

a. At a selling price of $3.00, the company would sell approximately 1200 widgets a month.

b. At a selling price of $3.00, the company would sell approximately 1000 widgets a month.

c. At a selling price of $4.50, the company would sell approximately 1000 widgets a month.

d.  At a selling price of $4.50, the company would sell approximately 800 widgets a month.

9. Which of the following situations best illustrates the concept of consumer surplus? 

a. A manufacturer reduces the price of an item from $2.50 to $2.30 in the hope of being able to sell more of that item.

b. A consumer who was not willing to buy a car at $10,995, but was prepared to buy it at

$9,995.

c. An American tourist who was expecting to be charged at least $3.00 for a burger, but was only charged $1.99 instead.

d. A market reaches a condition whereby the demand for a product is greater than the producers’ ability to supply it.

10.The effect of a US farm subsidies paid by the US government to the US farmers includes all but the following: 

a. Reduction of world prices of the subsidized crops

b. Reduction of incomes in poor countries producing these crops

c. Gain of consumer surplus to US citizens after taxes are paid.

d. Since subsidies are per unit of crop, higher payments to rich US farmers than poor US

farmers.

(11) The U. S. government subsidizes all the following farm products except 

a. Corn

b. Cotton

c. Sugar

d. Soybeans

e. Wheat

12) Which of the following is the most likely result of the elimination of a price ceiling? 

a. A shortage.

b. An increase in the quantity supplied.

c. A decrease in the quantity demanded.

d. Both B and C are correct.

(13) The course packet readings include articles about price ceilings or quotas about the following places except 

a. Chicago

b. San Francisco

c. Venezuela

d. New York City

14) Which of the following headlines is best illustrated by the graph below? 

Figure 1. Market of cooked tomatos

 

 

a.Cooked tomatoes contain more chemicals!

b.Bumper tomato crop reported by growers.

c.Survey finds people eating more cooked tomatoes.

d.It’s official - David Beckham hates cooked tomatoes!

15)Initially, the market for corn is in its competitive equilibrium. Suppose that the government introduces a binding price ceiling. Which one of the following is correct? 

a. Producer surplus certainly increases

b. Consumer surplus certainly decreases

c. The deadweight loss may or may not increase

d. Consumer surplus may or may not increase

(16) The course packet article identifies the case to limit the number of taxicabs as 

a.Raise the wage of taxi drivers

b. Avoaid extra traffic congestion

c. Reduce taxi fares

d. Encourage the use of the bus and subway

17)Initially, the market for labor is in its competitive equilibrium. Suppose that the government introduces a binding price floor, i.e., a minimum wage. Labor supply is composed by workers and labor demand by firms. Which one of the following is correct? 

a. Workers are definitely happier

b. Firms are definitely happier

c. This policy causes no additional unemployment

d. There is a loss for society induced by the policy.

18)According to the law of demand, a fall in the selling price of the product will result in

a. An increase in the demand for the product.

b. A shift to the right of the demand curve.

c. An increase in the quantity demanded of the product.

d. All of the above.

19) When we say that the demand for a product has declined, we mean that: 

a. The demand curve has shifted to the right.

b.The price of the product has increased.

c.Buyers are willing and able to purchase more of a product at any given price.

d.The demand curve has shifted to the left.

20)Which of the following statements is consistent with the law of supply? 

a. The price of a good rises and the supply of the good increases, other things equal.

b.The price of a good falls and the supply of the good increases, other things equal.

c. The price of a good rises and the quantity supplied of the good increases, other things equal.

 d. The price of a good rises and the quantity supplied of the good decreases, other things equal.

21)A shift to the left of a market supply curve may be caused by which combinations of the following four effects, designated with roman numerals?

1.   An increase in wage rates.

2.  An increase in the corporate tax rate.

3.  An increase in the number of firms in the industry.

4. An increase in corporate profits.

I only.

II only.

I and II only.

III and IV only.

22) When the price of a product is above the equilibrium price, then

a. There is a tendency for price to rise.

B. There is a tendency for price to fall.

c. There is a shortage of the product.

d. Producers will tend to decrease production.

23) If there is an decrease in per capita income and the good is normal, then

a.Equilibrium price will rise and equilibrium quantity will rise.

b. Equilibrium price will rise and equilibrium quantity will fall.

c. quilibrium price will fall and equilibrium quantity will rise.

d.  Equilibrium price will fall and equilibrium quantity will fall.

24) In a market economy, prices: 

a. Result in a equitable distribution of income.

b. Ration scarce productive resources.

c. Always indicate that the market is efficient.

d. Enables firms to earn above-normal profits

25) For Italy, the opportunity cost incurred when 6 cheeses are produced is 8 watches. For Switzerland, the opportunity cost incurred when 10 cheeses are produced is 50 watches. Which country has a comparative advantage in the production of cheese? 

a. Switzerland

b. Italy

c. Both have the comparative advantage in the production of cheese.

d. Neither have the comparative advantage in the production of cheese

26) When a production possibilities frontier is bowed outward, as more of one good is produced, its opportunity cost 

a. increases

b. decreases

c. remains constant

d. cannot be predicted

27). For a society, a good is not scarce if 

a. all members of society can have all they want of it

b. at least one individual in society can obtain all he or she wants of the good

c. firms are producing at full capacity

d. those who have enough income can buy all they want of the good

28) Suppose that initially a market for taxis is in its competitive equilibrium. Then, the government introduces a quota. Which one of the following is not correct? 

a. it is imposed a minimum quantity to be sold

b.there will be a quota rent

c. society incur in welfare loss in such intervention

d. provides incentives for illegal activities

29). Suppose that the demand for Los Angeles Lakers playoff tickets is greater than the supply at the box office price.

a. Rations the surplus of playoff tickets among basketball fans

b. Is a price ceiling that creates a shortage of playoff tickets.

c. Will rise to eliminate a shortage of playoff tickets.

d. Is subject to government regulation

(30) The 2010 drought in Russia 

a. Shifted the U. S. supply curve to the left

b. Shifted the Russian supply curve to the left

c. Shifted the Russian demand curve to the left

d. Shifted the U. S. demand curve to the right

e. B and D

f. B and C

Part 2: Solve the following problems in the space provided. Total of 30 points. Show all your work.

Problem 1. 1/2 point per blank/circle, total 2 points

John and Heather can either work or stay at home taking care of their children. John can earn $10 per hour while Heather can earn $20 per hour.

How much it costs to John to spend 1 hour with his children?

How much it costs to Heather to spend 1 hour with her children?

1)Suppose they move to a place near a child-care center, and it costs $5 per hour. What should they do?

1. John should stay at home

2. Heather should stat at home

3. They should drive the kids to the child-care center.

2)Suppose the child-care center increases its price to $15 per hour. What should they do?

 

1. John should stay at home

2. Heather should stat at home

3. They should drive the kids to the child-care center.

Problem 2. 1/2 point per blank, total 8 points

3) Assume that both Brazil’s and China’s PPFs are linear. We know that Brazil can either produce 100 pounds of soybeans using all its resources or 75 computers. China can produce either 100 computers or 75 pounds of soybeans.

The opportunity cost of producing soybeans for Brazil is 0.75 while for China is 4 / 3

Brazil has absolute advantage in the production of soybeans while China has absolute advantage in the production of computers

Brazil has comparative advantage in the production of soybeans while China has comparative advantage in the production of computers.

If the two countries trade, Brazil should specialize in the production of soybeans and China should specialize in the production of computers.

Now suppose that China learns and perfects the Brazilian technique to produce soybeans, which makes them able to increase their maximum production by 100%. Additionally, Brazil attracts more productive computer manufacturers and increase its maximum production by 2/3. Under this new

situation:

1. The opportunity cost of producing soybeans for Brazil is 25 while for China is 2 / 3

Problem 3. 1 point per blank/circle, total 10 points

4) The quantity demanded of beef depends upon the price of beef (p), monthly income (y), and the price of chicken (p^c). Demand for beef, (q^d) is therefore given by the equation q^d = 150−4p+2y−5p^c. Supply of beef is given by the equation p = q^s + 10.

1. If the monthly income is 10 and the price of chicken is 5, what is the equilibrium price and quantity?
2. If the monthly income is 10 and the price of chicken is 6, what is the equilibrium price and quantity?
3. If the monthly income is 15 and the price of chicken is 5, what is the equilibrium price and quantity?
4. If the monthly income is 15 and the price of chicken is 6, what is the equilibrium price and quantity?
5. Circle the correct answers. Chicken is a substitute/complementary good to beef, and beef is a normal/inferior good.

Problem 4.1 point per blank, total 10 points

5) Table of Demand and supply for the imported Model-Z cars.

Price ($)	Quantity demanded	Quantity supplied
2	11	2
4	10	4
6	9	6

1. What is the demand equation?
2. What is the supply equation? 
3. What is the equilibrium price and quantity? 
4. What is the consumer surplus?
5. What is the producer surplus? 

6. Suppose that consumers expect that the price will increase in the future and so they change their demand to double the quantity demanded at every price. What is the new market equilibrium? 

7. Continue to assume the new higher demand curve. Now the government decides to impose a price ceiling equal to 4. What is the price that will prevail and the quantity that will be sold? 

8. Still in the environment described in the previous item,