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Econ Principles of Macroeconomics NSCC MyWeb


									Name:________________________          Class Time: ______________
                          Midterm # 1
                 “Principles of Microeconomics”
                                 NSCC - Spring 2007
                                Professor: Moonsu Han

Total 25 points.

Question 1 Bring definitions for following terms and bring one example based on our
life. (Total 4 pts., 1 pt each)

    1. Opportunity Cost:

    2. Positive Statements vs. Normative Statements:

    3. Equilibrium:

    4. Price Ceiling vs. Price Floor

Question 2 American and Italian workers can each produce 5000 bottles of wine a year.
An American worker can produce 100 cars a year, whereas an Italian worker can produce
50 cars a year. Assume that each country has 1,000,000 workers. (Total 5pts, 1 pt. each)

    1. Graph the production possibilities frontier of the American and Italian economies.

    2. For the US, what is the opportunity cost of a car? Of wine? For Italia, what is the
       Opportunity cost of a car? Of wine? Put this information in a table analogous to
       same table as we did in our class.

3. Which country has an absolute advantage in producing cars? In producing wine?
   Which country has a comparative advantage in producing cars? In producing

4. Without trade, half of each country’s workers produce cars and half produce
   wine. What quantities of cars and wine does each country produce?

5. Starting from a position without trade, give an example on which trade makes
   each country better off.

Question 3 Using supply-and-demand diagrams, show the effect of the following events
on the market for bagels. Need to show changes of price and quantity. (Total 6 pts, 1.5
pts. each)

    1. Great weather increased the amount of wheat crop.

    2. The price of cream cheese falls. (Assume that we can’t eat bagel without cream

    3. New and more productive bagel making machines are invented.

    4. Americans DO LOVE to eat bagels. (Americans taste for bagel is changed

Question 4 Suppose that the price of basketball tickets at North Shore College is
determined by market forces. Currently, the demand and supply schedules are as follows:
(Total 4 pts.)

           Price                 Quantity Demanded               Quantity Supplied
             $4                         1000                            600
             $6                          800                            600
             $8                          600                            600
            $10                          400                            600
            $12                          200                            600

       1. Draw the demand and supply curves. What is unusual about this supply curve?
          Why might be true? (2 pts.)

       2. What are the equilibrium price (P*) and quantity (Q*) of tickets? (2 pts.)

Question 5 Use the information in the following table on the market for apartments in
Boston to answer the following questions. (Total 6 pts. 1 pt. each)

           Rent                   Quantity Demanded               Quantity Supplied
           $500                        375,000                        225,000
           $700                        350,000                        250,000
           $900                        325,000                        275,000
          $1,100                       300,000                        300,000
          $1,300                       275,000                        325,000
          $1,500                       250,000                        350,000

       1. In the absence of rent control, what is the equilibrium rent and what is the
          equilibrium quantity of apartments rented?

       2. Suppose that government sets a price ceiling on rents of $700 per month.
          What is the new market rent per month and how many apartments are rented?

       3. Assume that all landlords abide by the law. Use a supply and demand diagram
          to illustrate the impact of this price ceiling on the market for apartments. Be
          sure to indicate on your diagram each of the following: (i) the area
          representing consumer surplus after the price ceiling has been imposed, (ii) the
          area representing producer surplus after the piece ceiling has been imposed,
          and (iii) the area representing the deadweight loss after the ceiling has been

4. Assume that the quantity of apartments supplied is the same as you
   determined in Question 5 – part 2 ($700 price ceiling case). But now assume
   that landlords ignore the law and rent this quantity of apartments for the
   highest rent they can get. Briefly explain what this rent will be.

5. Suppose that government repealed the previous price ceiling and sets NEW
   price floor on rents of $700 per month. What is the new market rent per month
   and how many apartments are rented?

6. Suppose that government repealed previous piece ceiling and price floor and
   sets NEW price ceiling on rents of $1,300 per month. What is the new market
   rent per month and how many apartments are rented?


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