ECON 363 Midterm Exam

March 19, 2021

1) (25pts.) Briefly compare and contrast Adam Smith and the mercantilists, on the role of money and
international trade, in economic growth.
2) (25pts.) What is the effect of an increase in total factor productivity (z) on the standard of living of the
people in Malthusian Model? Explain briefly by using diagrams of production function and population
growth function in the Malthusian model. (Label the diagrams fully and clearly).
3) (25pts.) Can you relate the collapse of the capitalist system in Ricardo (in terms of stop of the long-term
growth) with the collapse of the capitalist system in Marx? How are they similar?
4) (25pts.) The table below gives the marginal products of labor units according to the land types. No. 1 land
is much fertile compare to No. 2 land and No. 2 land is much fertile compare to No. 3 land and No. 3 land
is much fertile compare to No. 4 land. There are plenty of No 4 land types but they aren’t free. There are
not enough No. 1, No. 2 and No. 3 land types, so if farmers don’t own these lands, they may rent these
types of lands from landowners by giving from their total products. Farmers can rent only 1 unit of No.1,
No. 2 and No. 3 types of lands. Increasing labor application creates diminishing returns in all land types.
Farmers themselves don’t work as a laborer, they just hire these workers.
Units of Marginal Product of
labor No. 1 Land No. 2 Land No. 3 Land No. 4 Land
1 100 90 80 70
2 90 80 70 60
3 80 70 60 50
Assume that a (capitalist) farmer has 3 units of labor. He owns and uses number 3 land. To maximize
his product, how would he allocate his 3 units of labor among the land types? What would the highest
rent(s), that he pays, for the land(s) that he uses be? Explain clearly the reasoning you use and show your
calculation.