Download Exam Review Part 2 Solution

ECONOMICS REVIEW PART 2 SOLUTION
1.
The demand and supply schedule for submarine sandwiches at FHCI appears
below:
PRICE
2.50
2.25
2.00
1.75
1.50
1.25
1.00
2.
QUANTITY DEMANDED
300
350
400
450
500
550
600
QUANTITY SUPPLIED
1000
900
800
700
600
500
400
a)
What is the equilibrium price of gum?
$1.30
b)
What is the equilibrium quantity of gum?
525
What would happen to the equilibrium price and quantity of submarines in each
of the following situations?
a)
The FHCI population drops by 400 students.
Equilibrium Price Down
Equilibrium Quantity Down
b)
The cost of the meat in the submarines rises in price.
Equilibrium Price Up
Equilibrium Quantity Down
Economics Review Part 2
3.
Page 2 of 9
c)
The wages of ladies working the cafeteria increase by 10%.
Equilibrium Price Up
Equilibrium Quantity Down
d)
The price of submarine buns drops.
Equilibrium Price Down
Equilibrium Quantity Up
e)
Students are required to donate $2 per week to Torch.
Equilibrium Price Down
Equilibrium Quantity Down
f)
Tacos, which are cheaper than submarines, are introduced as an everyday
item.
Equilibrium Price Down
Equilibrium Quantity Down
Assume that normal supply and demand curves can represent the American
market for beef. As a result of each event below, indicate in which direction the
supply and demand curves will move (right, left, or no change) and what happens
to equilibrium price and quantity.
Event
A. The price of cattle feed rises.
B. People start worrying about the
sanitation in meat slaughtering
houses.
C. A severe winter destroys 5% of
the herds.
D. The ban on the use of DES (a
growth hormone used for cattle) is
lifted.
E. In an effort to aid farmers,
government grants a subsidy of $.05
a pound for beef produced.
F. Government grants farmers a
subsidy of $10 per acre of land they
own.
G. All foreign beef is excluded from
the American market.
H. Per capita income rises.
I. Housewives expect rising beef
prices.
SUPPLY
DEMAND
Q
P
LEFT
NC
DOWN
UP
NC
LEFT
DOWN
DOWN
LEFT
NC
DOWN
UP
RIGHT
NC
UP
DOWN
RIGHT
NC
UP
DOWN
RIGHT
NC
UP
DOWN
LEFT
NC
DOWN
UP
NC
RIGHT
UP
UP
NC
RIGHT
UP
UP
Economics Review Part 2
J. Food companies improve the taste
of their soybean meat substitutes.
K. The price of ham falls.
L. A cheap and perfect substitute for
leather is developed.
M. The price of milk decreases and
dairy farmers sell their herds.
N. The price of ketchup (a
complementary good) rises.
O. The government establishes a
price ceiling above equilibrium price.
P. The government establishes a price
ceiling below equilibrium price.
Q. The government sets a price floor
above equilibrium price.
4.
Page 3 of 9
NC
LEFT
DOWN
DOWN
NC
LEFT
DOWN
DOWN
NC
NC
NC
NC
NC
NC
NC
NC
NC
LEFT
DOWN
DOWN
NC
NC
NC
NC
NC
NC
NC
NC
NC
NC
NC
CN
Suppose an ecologist is studying the population of the golden-throated song
sparrow and he finds the relationships illustrated in the graph below between the
hatch and death rates and population, given that existing food supply, level of
predation, etc., are fixed. a) What will happen if the population is at level a?
More will die than be born and population will decrease. At level b?
Population will remain constant. At level c? More will be born than die and
the population will increase.
a)
Show on the graph what will happen if the food supply increases.
Death Rate curve will shift to the left, increasing the population.
b)
Explain what will happen on the graph if, due to an increase in the use of
pesticides, fewer eggs hatch.
Hatch rate curve will shift to the left, decreasing the population.
Economics Review Part 2
c)
5.
Explain what will happen on the graph if the number of predators
increases.
Death rate curve will shift to the right and perhaps, the hatch rate
curve will shift to the left, decreasing the population.
The Preservation Embalming Company’s cost data have been partially entered in
the table below. Following the sudden and unexpected death of the company’s
accountant, you are called to fill in the missing entries.
Bodies
Embalmed
0
1
2
3
4
5
6
6.
Page 4 of 9
Total
Cost
24
54
74
108
163
220
282
Fixed
Cost
24
24
24
24
24
24
24
Variable
Cost
0
30
50
84
139
196
258
ATC
AVC
AFC
MC
-54
37
36
40.75
44
47
-30
25
28
34.75
39.2
43
-24
12
8
6
4.8
4
30
20
34
55
57
62
You are given the following information about Rubber Duckies, Inc., a firm
which manufactures rubber boats:
Labour
Workers Hired Per Week
1
2
3
4
5
6
7
8
9
10
Output
Rubber Boats Per Week
1
2
5
7
11
14
16
17
18
18
Economics Review Part 2
a)
Calculate marginal product and average product.
LABOUR
1
2
3
4
5
6
7
8
9
10
7.
Page 5 of 9
MARGINAL
PRODUCT
1
1
3
2
4
3
2
1
1
0
AVERAGE
PRODUCT
1
1
1.67
1.75
2.2
2.33
2.28
2.125
2
1.8
b)
What is the relationship between average product and marginal product at
output rates below 16 boats per week? Why? Maringal Product is
above Average Product in this range. This is so because in this range
Average Product is steadily increasing. What is the relationship
between average product and marginal product at output rates above 16
boats per week? Why? Maringal Product is below Average Product in
this range. This is so because in this range Average Product is
steadily decreasing.
a)
b)
Copy and complete the following table.
Create a graph showing the demand (average revenue) and marginal
revenue curves.
Economics Review Part 2
Page 6 of 9
c)
Explain the relationship between the curves.
The marginal revenue curve always lies below the average revenue
curve and when marginal revenue is less than average revenue then
average revenue is on a downward slope. This explains the slope of
the average revenue curve.
d)
Plot and draw the marginal cost and average cost, revenue, and profit
rectangles.
Economics Review Part 2
e)
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Finally, indicate the profit-maximizing level of output.
Quantity of 5..5
f)
Price of $68.00
Confirm the profit-maximizing level of output using the table.
Profit Maximization Table for Differentiated Portraits
Price (P)
($ per
package)
Quantity
(Q)
(packages)
Total
Revenue
(TR)
Marginal
Revenue
(MR)
Average
Revenue
(AR)
Total Cost
(TC)
Marginal
Cost
(MC)
Average
Cost
(AC)
Total
Profit
(TR-TC)
90
85
80
75
70
65
60
55
1
2
3
4
5
6
7
8
90
170
240
300
350
390
420
440
90
80
70
60
50
40
30
20
90
85
80
75
70
65
60
55
70
100
120
140
175
230
345
540
70
30
20
20
35
55
115
195
70
50
40
35
35
38.33
49.28
67.5
+20
+70
+120
+160
+175
+160
+75
-100
Economics Review Part 2
8.
Page 8 of 9
Place the following income and expenditure figures for Canada in the appropriate
columns of the table below and calculate the totals. All figures are in billions of
dollars. (8 marks)
Wage and Salaries
Consumer Spending
Corporate Profits
Interest and Rent
Exports
Indirect Taxes
Government Expenditure
Imports
Incomes, Self-employed
Gross Investment
Depreciation
Subsidies
$685
$805
$126
$ 75
$109
$118
$277
$ 14
$ 94
$211
$110
$ 14
GDP, INCOME-BASED
ITEM
AMOUNT
Wages and Salaries
$685
Corporate Profits
126
Interest and Rent
75
Indirect Taxes
118
Incomes, Self-employed
94
Depreciation
110
Subsidies
-14
Statistical Discrepancy
TOTAL
9.
GDP, EXPENDITURE-BASED
ITEM
AMOUNT
Consumer Spending
$805
Exports
109
Government Expenditure
277
Imports
-14
Gross Investment
211
+97 Statistical Discrepancy
1291
-97
TOTAL
1291
Using 1988 as your base year, complete the table below (10 marks).
YEAR
NOMINAL
GDP
(BILLIONS)
1988
1989
1990
1991
1992
1993
$525.85
$545.36
$561.45
$569.84
$604.66
$610.15
INFLATION
RATE FROM
BASE YEAR
REAL GDP IN
1988
DOLLARS
3.6%
6.8%
9.4%
14.3%
17.7%
$525.85
$526.41
$525.70
$520.88
$529.01
$518.39
INFLATION
RATE FROM
PREVIOUS
YEAR
3.6%
3.09%
2.43%
4.48%
2.97%
Economics Review Part 2
10.
Page 9 of 9
You are given the following table for an economy which sells 5 items.
ITEM
A
B
C
D
E
a)
1993
1994
1995
QUANTITY
PRICE/UNIT
QUANTITY
PRICE/UNIT
QUANTITY
PRICE/UNIT
27
28
67
25
22
3.20
189.00
75.00
600.00
399.00
25
31
65
27
19
3.25
200.00
78.00
600.00
400.00
31
42
79
47
25
3.50
200.00
81.00
605.00
395.00
Compute the GDP for each of the three years.
1993: $34181.40
1994: $35151.25
1995: $53217.50
b)
With 1994 as the base year, compute the real CPI for 1993 and 1995.
1993 CPI: $34713.75
1995 CPI: $52862.75
c)
If a person earns $50 000 in 1994, what would this person wage have to be
in 1995 to keep up with inflation?
NEW WAGE: $50335.54
d)
If the wage did keep up with inflation from 1993 to 1994, what was the
1993 wage?
1993 WAGE: $49233.23
11.
You are given the following inflation rate for the years 1994 to 1998. If 1995 is
the base year, what is the CPI for each of the years.
YEAR
INFLATION RATE
1993
1994
1995
1996
1997
1998
0.0
3.4
4.7
3.8
4.2
5.1
What was the inflation rate from 1993 to 1998?
23.06%
CONSUMER PRICE
INDEX
100
103.4
108.2598
112.3736
117.09
123.06