Download ECON 201 * Microeconomics * Exam 1 *

ECON 201 – Microeconomics
– Exam 1 –
January 24, 2016
Short Answer Questions.
Read the Following Instructions Carefully
Answer ONLY two questions. Each question is worth 10 Points, for a total of 20 Points.
Draw all graphs neatly and make sure to label all parts of your graphs completely and
accurately. You can type out your exam in MS word or hand-write it and scan it into a pdf
format. Do not take pictures and attempt to send it as a jpg file.
1. Assume there are only two countries in the world, the U.S. and Japan which produces two
goods, computers and cars. The table below shows the number of computers and cars each
country will produce if it devotes all of its resources in the production of just one good.
Table 1. Production Possibilities for the US and Japan.
Computers
Cars
US
100
50
Japan
50
40
a) Using the information in Table 1, draw each country’s Production Possibilities Frontier
(PPF), and calculate each country’s opportunity cost of producing cars and computers.
b) Using your results in (a), determine which country should specialize in the production of
cars and which should specialize in the production of computers, and how the two
countries can trade
Answer:
a)
Production Possibilities Frontiers
US
Japan
Opportunity Costs
Opportunity cost of computers in
terms of cars
US
Japan
Instructor – Yusufu Kamara | CLARK COLLEGE
Opportunity cost of cars in terms
of computers
ECON 201 – Microeconomics
– Exam 1 –
January 24, 2016
Qu. 1 Cont’d
b) Which country should specialize in Computers? __________________________
Which country should specialize in cars? _______________________________
How should they trade? (Explain and one or two sentences)
2. The table below shows the demand and supply of Blu-ray discs in Washington. Use it to
answer the question that follow.
Table 2: Demand and Supply of Blu-ray Discs in Washington
Price of Disc
Quantity of Discs Demand (Qd)
Quantity of Discs Supplied (Qs)
35
200
1100
30
400
1000
25
600
900
20
800
800
15
1000
700
10
1200
600
5
1400
500
a) Draw the demand and supply curves in the same graph and label the equilibrium point,
equilibrium price and equilibrium quantity.
b) Redraw the graph from (a) and use it to show the effects of the following:
i.
An increase in the cost of producing Blu-ray discs.
ii. An increase in consumers’ income.
iii. What is the effect of the above two on equilibrium price and quantity?
Answer:
a) Demand and Supply Curves
Instructor – Yusufu Kamara | CLARK COLLEGE
ECON 201 – Microeconomics
– Exam 1 –
January 24, 2016
Qu. 2 Cont’d
b) Effects of (i) and (ii) on demand and supply curves. (Illustrate using graphs)
Explain effects on equilibrium price and quantity (in one or two sentences)
3. There are six potential consumers of computer games, each willing to buy only one game.
Consumer 1 is willing to pay $40 for a computer game, consumer 2 is willing to pay $35,
consumer 3 is willing to pay $30, consumer 4 is willing to pay $25, consumer 5 is willing to
pay $20, and consumer 6 is willing to pay $15.
a) Suppose the market price is $29. What is the total consumer surplus?
b) The market price decreases to $19. What is the total consumer surplus now?
c) When the price fell from $29 to $19, how much did each consumer’s individual
consumer surplus change? How does total consumer surplus change?
(Hint: Find each consumer’s surplus and then add up all the consumer surpluses. Note also
that not every consumer may have a surplus)
Answer:
a) Total consumer surplus at price of $29.
Consumer 1: …………………………
Consumer 2: …………………………
Consumer 3: …………………………
Consumer 4: …………………………
Consumer 5: …………………………
Consumer 6: …………………………
------------------------------------------------------------------Total Consumer Surplus: ……………
Instructor – Yusufu Kamara | CLARK COLLEGE
ECON 201 – Microeconomics
– Exam 1 –
January 24, 2016
Qu. 3 Cont’d
b) Total consumer surplus at price of $19.
Consumer 1: …………………………
Consumer 2: …………………………
Consumer 3: …………………………
Consumer 4: …………………………
Consumer 5: …………………………
Consumer 6: …………………………
------------------------------------------------------------------Total Consumer Surplus: ……………
c) Change in consumer surplus
P= $29
P= $19
Change in CS.
Consumer 1: …………………….
Consumer 2: ……………………
Consumer 3: ……………………
Consumer 4: ……………………
Consumer 5: ……………………
Consumer 6: ……………………
-----------------------------------------------------------------------------------------------------Total Consumer Surplus: ………
4. Suppose the U.S. government sets minimum starting yearly wages for new hires who have
completed a high school diploma. The demand schedule for new hires with a high school
diploma and the supply schedule for similarly credentialed new job seekers are given in the
accompanying table. The price here is the same as the yearly wage.
Exhibit 3 – Supply and Demand for People who have completed a High School Diploma
Note: In the following questions, you will need to draw three separate graphs
Instructor – Yusufu Kamara | CLARK COLLEGE
ECON 201 – Microeconomics
– Exam 1 –
January 24, 2016
a) In the absence of government interference, what are the equilibrium wage and number of
graduates hired per year? Illustrate with a diagram. Will there be anyone seeking a job at
the equilibrium wage who is unable to find one—that is, will there be anyone who is
involuntarily unemployed?
b) Suppose government sets a minimum yearly wage of $35,000. Is there any involuntary
unemployment at this wage? If so, how much? Illustrate with another diagram. What if
the minimum wage is set at $40,000? Also illustrate with a diagram.
Answer:
a) With no Government Interference (Draw graph and answer the accompanying
questions)
b) With government intervention
i.
Government sets a minimum wage of $35,000 a year (Draw graph and answer
the accompanying questions)
ii.
Government sets a minimum wage of $35,000 a year (Draw graph and answer
the accompanying questions
Instructor – Yusufu Kamara | CLARK COLLEGE