Download Exam - The Unbroken Window

Economics 110
March 3rd, 2005
1st Midterm Exam
STUDENTID:

Please write your name in small print on the inside portion of the last page of this
exam
Instructions: You will have 60 minutes to complete the exam. The exam will be
comprised of five short essay questions and will be worth a total of 50 points. Please
write all of your answers NEATLY on this exam sheet. If I cannot read your writing, I
certainly won’t be able to grade it.
1
Economics 110
March 3rd, 2005
1st Midterm Exam
1. There are two parts to this question.
a. (5 points) “Rizzo and his wife cannot possibly be wealthy, they only have
$10,000 in the bank.” Comment.
b. (5 points) Economists generally agree that there are 4 objectives of any
economic policy. These are efficiency, equity, growth and stability. What
do we mean when we say that a market outcome is efficient?
2. Susan can pick 4 pounds of coffee in an hour or 2 pounds of nuts. Tom can pick 2
pounds of coffee in an hour or 4 pounds of nuts. Each works 6 hours per day.
a. (1 point) What is the maximum number of pounds of coffee the two can
pick in a day?
b. (1 point) What is the maximum number of pounds of nuts the two can pick
in a day?
2
Economics 110
March 3rd, 2005
1st Midterm Exam
c. (3 points) If Susan and Tom were picking the maximum number of pounds
of coffee when they decided that they would like to begin picking 4
pounds of nuts per day, who would pick the nuts, and how many pounds
of coffee would they still be able to produce?
d. (3 points) Now suppose that Susan and Tom were picking the maximum
number of pounds of nuts when they decided that they would like to begin
picking 8 pounds of coffee per day. Who would pick the coffee and how
many pounds of nuts would they still be able to produce?
e. (2 points) Would it be possible for Susan and Tom to pick a total of 26
pounds of nuts and 20 pounds of coffee each day? If so, how much of
each good should each person pick?
3
Economics 110
March 3rd, 2005
1st Midterm Exam
3. There are two parts to this question.
a. (6 points) A simple way to think about the “law of demand” is to think
that (ceteris paribus) when something is more costly, people economize by
choosing to consume (or do) less of it. Explain why people behave this
way?
b. (4 points) Can you tell me why my demand for Maker’s Mark bourbon is
much more sensitive to price changes than my demand for alcohol?
4
Economics 110
March 3rd, 2005
1st Midterm Exam
4. This question has two parts.
a. (6 points) The law of supply says that (ceteris paribus) when producers are
able to fetch a higher price for their goods, they will want to produce more
of that good. Explain why producers behave this way?
b. (4 points) Both you and your friend place an equal value on going to the
U of L basketball game tonight. You have season tickets to the games in
Freedom Hall and you paid for these at the beginning of the season. Your
friend plans to buy a ticket at the window when you get there. You just
found out that you have an Economics test tomorrow. If both you and
your friend are rational, is one of you more likely to attend the game than
the other?
5
Economics 110
March 3rd, 2005
1st Midterm Exam
5. This question has 3 parts.
a. (2 points) How would an increase in the number of mosquitoes carrying
West Nile Virus affect the equilibrium price and quantity in the market for
early summer fishing vacations in Maine?
b. (4 points) What will happen to the equilibrium price and quantity of corn
if the price of butter increases and the price of fertilizer increases? It
might help to think of what the relationship is between butter and corn.
c. (4 points) “Cornell really did Rizzo a favor by keeping ticket prices to his
beloved Big Red hockey team’s games low ($8). If the University acted
like its usual greedy self, the tickets would have been sold for about $30 –
so Cornell reduced his costs by $22 per ticket.” Provide a brief comment
(agree, disagree, true, false, explain, etc.).
6