Final 21 December 2020, questions and answers PDF

Preview

Summary

solution
...

Description

Page 1 of 3

ECON 100 - MOCK FINAL EXAM Closed book / closed notes. You must do your own work. Upload pdf files via LMS – e-mails may be accepted if sent within the exam time limit. Please keep your cameras and mics switched on during the exam. 10 marks for each question. Total Marks: 100. Time limit: 100 minutes. Question 1: The city government is considering two tax proposals: 1. A lump-sum tax of $300 on each producer of burgers. 2. A tax of $1 per burger, paid by producers of hamburgers. a. Which of the following curves—average fixed cost, average variable cost, average total cost, and marginal cost— would shift as a result of the lump-sum tax? Why? Show this in a graph. Label the graph as precisely as possible. b. Which of these same four curves would shift as a result of the per-burger tax? Why? Show this in a new graph. Label the graph as precisely as possible. Question 2: Bob’s lawn-mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day. What can you say about Bob’s short-run decision regarding shutdown and his long-run decision regarding exit? Question 3: Suppose the book-printing industry is competitive and begins in a long-run equilibrium. a. Draw a diagram showing the average total cost, marginal cost, marginal revenue, and supply curve of the typical firm in the industry. b. Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. What happens to HiTech’s profits and the price of books in the short run when Hi-Tech’s patent prevents other firms from using the new technology? c. What happens in the long run when the patent expires and other firms are free to use the technology? Question 4: The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently incurring economic losses. a. How does the price of fertilizer compare to the average total cost, the average variable cost, and the marginal cost of producing fertilizer? b. Draw two graphs, side by side, illustrating the present situation for the typical firm and for the market. c. Assuming there is no change in either demand or the firms’ cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.

Page 2 of 3 Question 5: What components of GDP (if any) would each of the following transactions affect? a. A family buys a new refrigerator. b. Aunt Jane buys a new house. c. Ford sells a Mustang from its inventory. d. You buy a pizza. e. California repaves Highway 101. f. Your parents buy a bottle of French wine. g. Honda expands its factory in Marysville, Ohio. Question 6: Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1 is the base year. a. What is nominal GDP for each of these three years? b. What is real GDP for each of these years? c. What is the GDP deflator for each of these years? d. What is the percentage growth rate of real GDP from year 2 to year 3? e. What is the inflation rate as measured by the GDP deflator from year 2 to year 3? f. In this one-good economy, how might you have answered parts (d) and (e) without first answering parts (b) and (c)? Question 7: Which of the problems in the construction of the CPI might be illustrated by each of the following situations? Explain. a. the invention of the cell phone b. the introduction of air bags in cars c. increased personal computer purchases in response to a decline in their price d. more scoops of raisins in each package of Raisin Bran e. greater use of fuel-efficient cars after gasoline prices increase Question 8: Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then inflation turns out to be higher than they both expected. a. Is the real interest rate on this loan higher or lower than expected? b. Does the lender gain or lose from this unexpectedly high inflation? Does the borrower gain or lose?

Page 3 of 3 c. Inflation during the 1970s was much higher than most people had expected when the decade began. How did this affect homeowners who obtained fixed-rate mortgages during the 1960s? How did it affect the banks that lent the money? Question 9: Suppose that society decided to reduce consumption and increase investment. a. How would this change affect economic growth? b. What groups in society would benefit from this change? What groups might be hurt? Question 10:

Why may less developed countries grow more rapidly than developed countries? Illustrate by drawing a suitable diagram.

End of exam...