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Questions from past years’ exams September 2017 Multiple Choice 1. The elasticity of demand for a product is -1.3. Consumers face an increase in the price of the product. Which of the following statements best describes the change in total expenditures predicted to result from the price increase? a. b. c. d. 2. Draw a supply and demand diagram for each of the following three situations in the market for corn. Identify for each situation the initial equilibrium price/quantity pair and the subsequent equilibrium price/quantity pair. a. b. c. 3. An increase in the demand for corn from livestock feeders. A 10% decrease in the expected price of soybeans. The development of a new variety of corn that increases yields per acre by 8%. In recent years, among the following categories of agricultural products, which has generated the greatest cash receipts in North Carolina. a. b. c. d. 4. Total expenditures will increase. Total expenditures will decrease. Total expenditures will remain the same. No prediction is possible from the information given. corn tobacco sweet potatoes hogs The market demand and supply for widgets are given by the following equations. Demand: Q = 600 - 50 P Supply: P = 2 + (3/100) Q, where Q is the quantity of widgets sold and P is the price in dollars per widget. (a) (b) (c) 5. What are the equilibrium price and quantity for widgets? Now consider the effects of an excise tax. Sellers of widgets must pay to the government $1 for every widget sold. Write down the algebraic expression for the new supply curve. What are the new equilibrium price and quantity after imposition of the tax? A U.S. tourist in Europe used to be able to exchange a U.S. dollar for about ½ of a Euro. Now a tourist can exchange a U.S. dollar for about 9/10 of a Euro. Which of the following best describes what has happened? a. b. c. The Euro has depreciated against the dollar. The Euro has appreciated against the dollar. There is not enough information given to know whether the Euro has depreciated or appreciated against the dollar. Short Answer questions 1. When the price of burlap is $12/yard consumers purchase 800 yards. When the price of burlap is $6/yard consumers increase their purchases to 1,200 yards. What is the elasticity of demand reflected by these facts? 2. You are told that the elasticity of demand for corn is -0.3. Supposing that the demand curve doesn’t shift, will consumers spend more in total on corn at a higher price or at a lower price? Explain why. 1 3. The demand for Manna, an edible fungus, is given by the following equation: Q = 200 - (1/10)P, where Q is the quantity sold in the market in tons and P is the price in dollars per ton. The supply of Manna in period 1 is perfectly inelastic (vertical) at Q = 120. The supply of Manna in period 2 is perfectly inelastic at Q = 80. Solve for the market equilibrium prices in periods 1 and 2 and illustrate the two price-quantity combinations in a carefully constructed diagram. Be sure to label the axes and the equilibrium values for quantity and price in each period. 4. Draw a supply and demand diagram for each of the following two situations in the market for wheat. Identify for each situation the initial equilibrium price/quantity pair and the subsequent equilibrium price/quantity pair. a. b. 5. A decrease in the demand for wheat from bakers. A decrease in the price of herbicides used in the production of wheat. Joe consumed beer and (bottled) water in 2014 and 2015. The monthly quantities he consumed and the prices he paid are given in the table below. 2014 Beer Water 2015 Price Quantity Price Quantity $4/six-pack 10 six-packs $3/six-pack 15 six-packs $2/bottle 10 bottles $4/bottle 5 bottles According to a Laspeyres index of beer and water prices, by what percentage did Joe’s cost of living change between 2014 and 2015? 6. The price of guns is 25% greater in 2009 than it was in 1995. The price of butter is 50% less in 2009 than it was in 1995. Expenditures on guns were $60 million in 1995, while expenditures on butter were $40 million. a. b. 7. What is the 1995 value of the Laspeyres index for guns and butter, using 1995 as the base year? What is the 2009 value of the Laspeyres index for guns and butter, using 1995 as the base year? Suppose that values of the Consumer Price Index for 1980, 1990, and 2000 are given as follows: Year CPI (1980 = 100) 1980 1990 2000 100 125 160 The price of corn was $2.50 in 1990 and $5.00 in 2000. a. b. c. d. e. By what percentage did the price of corn change between 1990 and 2000? By what percentage did the cost of living change between 1990 and 2000. What was the real price of corn in 2000 (in 1980 dollars)? By what percentage did the real price of corn change between 1990 and 2000? What was the real price of corn in 2000 in 1990 dollars? 2