AGEC 220 Fall, 2020

Homework 1 Name f<t hl'A~ CfAi..lMcJMO

(50 points) Row - - -
Due: September 14, 2020
For the multiple choice, please circle the correct answer. For other questions answer appropriately. Where you
have to calculate, show your work.

1. Gold is selling for over $1135 per ounce and a bottle water can be had for $0.10 at Sam's Club. This is an
example of:
a. something that would concern a macroeconomist.
@ scarcity
c. indifference
d. the power of jewelers: .
e. none of the above.
2. Microeconomists study
a. recessions
b. inflation
c. supply and/or demand for food
d. economies
& all of the above ..
3. The average com price rec·eived by farmers in 1950 was $1.52 and in 2014 it was $4.11. The Consumer Price
Index (CPI) with a base period of 1982 through 1984 were 24.1 and 236. 7 for the same years, respectively.
What are the com prices for those years in real 1982-4 dollars (to the nearest cent)?
18 I. Si "100 /211., :: 6-~ I 4.11 t100/2.56. t I• 1-'1
4. On the following graph draw the path of the price of soybeans over time:

Soybeans
pnce
('
I

I I

2018 2019 Time

2017
harvest harvest harvest

5. In the graph above, what is one factor that helps determine the slope of the price path between harvests?

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IV\ -/k
 6.When the people of Mexico City autos were prohibited from driving their cars every other day:
a. people commuted using public transportation.
b. people stayed home every other day, working twice as long when they went to work.
c. traffic in the city was greatly reduced.
@ people followed their incentives and air quality in Mexico City worsened.
7. Draw hypothetical demand and supply curves for a ,
market. Identify supply and demand curves, the
equilibrium price and quantity, consumer and producer
surpluses. Be sure to also label the axes.

8. What are marginal costs to a firm? Why is the firm's

supply curve related to its marginal cost? "'~ ,~.J '

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9. The three I's of economic theory are: D
a. intensity, interest, & incentive X
b. imagination, income, & indecision
indifference, incentive, & interaction,
a. innovation, imbalance, & interaction
10. If the government provides disaster relief after a flood the end result will be that:
a. fewer people will re-buiid in the flood plain than without the relief · · ·
{J- more people will re-build in the flood plain than without the relief
c. fewer people will end up in agriculture
d. more people will end up in agriculture
11. Consider getting $1000 today or one of the following amounts a year from now. If each of the amounts made
you indifferent between the two scenarios, what does that imply about your discount rate?

Next year's amount Discount Rate

$1050 5 ·;.
$1150 Is
$1200 2.0,.
12. Changes to which of the following would cause the firm's supply curve to shift?
a. production technology
b. population growth
c. consumer preferences
d. other output prices
e. a, b, & d
d)a&d
13. Which way does the fluid mil~ supply shift if the price of cheese increases? What will happen to
equilibrium price and quantity in the fluid milk market?
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 14. Which of the following would result in a shift in consumer demand for fresh green beans? (circle all that
apply)
~~ncrease ~n broccoli prices
mcrease m property taxes
(§Jan add campaign promoting the virtues of green vegetables
d. increase in green bean price
/(>decrease in potato prices
'-f5. If the market for sweet com is o~t of equilibrium because the current price is too high, what would you
expect to happen in this market?

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16. The following are equations for market demand and supply:

Demand, MV: P = 240- 6(Q)

Supply, MC: P = 20 + 5(Q)
P = Price; Q = Quantity

·ce and quantity for this market. Please show your work.
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17. If a shift in either market supply or market demand causes price to increase and quantity to decrease, which
shifted and was the shift in (toward the Y axis) or out?

18. In any market what determines the lower bound on the price of the good? Why?
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19. Two people play the ultimatum game, John is given a sum of money which he then splits between himself
and Sam. Sam then has the option of acceptin~ the amount offered or refusing, in which case both get nothing.
This game illustrates that people value fot, f' v-f- i f .
 20. Which of the following must be true in order for a market to work well? (Circle all that apply)
a. The market supply is determined by Congress.
The market price reflects all the costs and benefits.
The market must always be in equilibrium.
There are few buyers and sellers so its easier to get together.
I There are never shortages or surpluses.

21. Suppose there is a difference in the price of com between two markets that is greater than the cost of
transporting com between the markets. What would happen to shrink the difference in prices?
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22. The difference between a market price and the consumers' maximum willingness to pay is called
~ " ' ko,~ S""t pu~s

23. In a competitive market with a large number of buyers and sellers, an individual consumer faces a supply
that
a. has an elasticity of one.
('.6>is perfectly inelastic.
c. has an elasticity of zero.
d. is perfectly elastic.
e. none of the above.

24. Product demand will be less elastic in

a. the short run.
a;) the long run.
c. if there are many substitutes for the product.
d. the product is inferior.
e. none of the above.

25. The price elasticity of demand for fluid milk is -0.8. If milk price were to increase by 5%, we would expect
the quantity of milk demanded to :
a. increase by 4%
b. increase by 2%
&7remain unchanged e-
tho Ov-G
-ttctecrease by 2%
e. decrease by 4%