Name Section : Econ 121-01, 02 Kenny Christianson Fall 2016 due: October 6 MIDTERM EXAMINATION NUMBER ONE This is a take-home exam. It is open-book and open-note. You are on your academic honor to complete the exam on your own and to not receive assistance from anyone else, Please put all of your work on the test pages. PARTI Multiple Choice 30 points) Please choose the single best answer by circling the appropriate letter. 1. Which of the following topics is NOT studied by economists? a. the consumption of gasoline in the United States. b. the consumption of oxygen in Ithaca. c. the production of apples in New York State, 4. the production of peanuts in Georgia. ¢. the global market for copper. 2. For the Food and Drug Administration, what is a Type I error? approving a sale drug . rejecting a safe drug rejecting a harmful drug . establishing a strict approval process for drugs approving a harmful drug pase 3. Which of the following represents a normative, macroeconomic statement? a. Gasoline prices have been declining in the United States in the past month. b. Real GDP increased by 1.1% in the second quarter of 2016, ¢. Hillary Clinton will be a great president. d. Gasoline taxes should be increased to encourage alternative energy sources. e. The Federal Reserve should reduce interest rates to spur GDP growth. 4. Which of the following events will lead to a change in guns| the PPC as shown to the right? ‘a. an increase in labor resources. b. a decrease in land resources. ¢. a decrease in the number of cows. a 4d. an increase in gun technology. e. all of the above PPC PPC? 5. For the economy shown by the PPC in question 4, iter opportunity costs are constant. the Law of Decreasing Costs holds. resources are specialized. ‘opportunity costs decline as butter production increases. butter is a free good. peesesEcon 121-01, 02 Fall 2016 Midterm Exam One 2 6. Which of the following events will lead to an increase in the demand for peanut butter? an increase in ineome if peanut butter is a normal good. a decrease in the price of jelly (a complement). an increase in the price of bologna (a substitute). an increase in the number of school-aged children. all of the above. pee 7. A decrease in supply in a market a. leads to an inerease in price and quantity. b, leads to a decrease in price and quantity. ¢. leads to a decrease in price and an increase in quantity d. leads to an increase in price and a decrease in quantity e. has no effeet on price and quantity. 8. Which of the following is NOT a necessary condition for the existence of markets? a. the establishment of property rights . the ability to maintain law and order the existence of a paper currency the ability to enforce contracts none of the above 9. Which of the following is an example of a market that includes a negative externality? the production of steel in Pittsburgh, Pennsylvania national defense . public education flu shots all of the above pees 10, Which of the following statements is true? a. Adam Smith wrote the Wealth of Nations in 1976, b. Public goods are non-rival and non-exeludable. ©. Majority voting always leads to consistent decisions. 4. In the case of positive externalities, a private market provides too much of good compared to the social optimum. €. A price floor creates a shortage in a market.Econ 121-01,02 Fall 2016 Midterm Exam One 3 PART IL TRUE-FALSE AND EXPLAIN (25 points) State whether each of the following five statements is true or false (@ 2 points each) and then briefly explain why you gave the answer that you did (@ 3 points each). Use graphs where appropriate, and you may use the back of the page if necessary. 1, Everybody supports free trade (Provide three reasons for full ere 2. Markets are the only method to allocate resources in an economy. (Provide three examples for full credit.) 3. A change in quantity demanded is a movement along a given demand curve 4. If both supply and demand increase at the same time, then both price and quantity will increase in the market. 5. When the government prohibits production and consumption in a market, the market becomes safer. (Provide three reasons for full credit.)Econ 121+ PART IIL 01,02 Fall 2016 Midterm Exam One 4 PROBLEMS (45 points) Answer each of the following three questions to the best of your abilities. Please show all work, and be sure to answer each part of every question, Be sure to label all axes and curves, and show numerical intercepts and intersection points where ever possible. Partial credit will be given where appropriate. Use the backs of the pages if necessary. 1. Suppose that you obtain a summer job working at a restaurant. You spend cach eight: hour day peeling onions and scrubbing pots. Suppose that you can peel 20 onions per hour, and scrub 10 pots per hour. a. b, Find your PPC for an eight-hour day. Put onions peeled on the vertical axis and pots scrubbed on the horizontal axis. (4 points) On your graph, show i) an inefficient point, ii) an efficient point, and iii) an unattainable point. G points) What is the opportunity cost of scrubbing one pot? G points) Suppose that you spend the day peeling 80 onions and scrubbing 40 pots. How would you characterize that allocation? Suppose that your boss buys an electric onion peeler that allows you to peel 30 onions per hour. How does your PPC change? Show on your graph from a). What is the new opportunity cost of scrubbing one pot? (3 points)Econ 121-01,02 Fall 2016 Midterm Exam One 2. Suppose that the United States and China can each produce shirts and wheat. The maximum quantities of each that can be produced by each country are shown by the following table United States shirts! year 4 20 wheat year 12 5 a. Find the opportunity costs of one shirt and one wheat for the United States and China. (4 points) b. Should the United States and China specialize and trade? Why or why not? (4 points) c. If your answer to b) is yes, then use PPCs and CPCs to show that each country would be better off through specialization and trade. Show graphically and explain. (7 points)Econ 121-01,02 Fall 2016 Midterm Exam One 3. Assume that the market for peanuts is given by the following equations: demand: P= 120—4Q supply: P=30+2Q Where P is the price of peanuts in tons and Q is the quantity of peanuts in tons. a. What is the equilibrium price and quantity? (4 points) b. Show graphically (4 points) ©. Suppose that the government tries to protect peanut farmers by placing a prive floor of $100 per ton on the market for peanuts. Does the price floor result in a shortage or a surplus? (2 points) Of how much? (3 points) Show on your graph from b). (2 points) CONGRATULATIONS!!! YOU'VE SURVIVED YOUR FIRST MACROECONOMICS EXAM!!!