Econ 101 - Practice Midterm 1.1

# Econ 101 Practice - Midterm 1 Morning Exam Use the following information to answer the next two questions Macro Island and Small Island produce

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Midterm 1 Morning Exam 10/10/06 Use the following information to answer the next two questions. Macro Island and Small Island produce Grapes and Cherries and have linear PPFs. Both Islands have the same level of resources. The following table shows how many units can be produced in each country per week at two different production points. 1. The opportunity costs are the same for the two Islands when X equals a. 25/6. b. 6. c. 25. d. 30. 2. Macro Island has an absolute advantage in the production of both goods when X is a. greater than 6. b. smaller than 6. c. greater than 30. d. smaller than 30. 3. Suppose an economy is engaged in growing corn and drilling for oil. Imagine the economy strikes oil in two new fields with expected output of 10 million barrels of oil per day from these two new oil fields. There is no change in corn production. If the PPF is linear with corn on the y axis and oil on the x axis, what will happen to the PPF given this discovery? a. The PPF will remain unchanged. b. The PPF will shift out but the y intercept will remain the same. c. The PPF will experience a parallel shift outwards from its original position. d. The PPF will shift inwards towards the origin. Macro Island Grapes Cherries 30 0 0 25 Small Island Grapes Cherries X 0 0 5

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4. A price ceiling set above the market equilibrium price creates ________ in that market. a. a surplus b. a shortage c. no change d. a demand shift Use the following information to answer the next two questions. Consider the market for microwaves in Ohio, with demand given by P = 100 – 10Qd and supply given by P = 5Qs + 10. 5. Lobbyists for microwave manufacturers convince the Ohio state government to set a price floor of \$50 in the market. Which of the following statements is true? a. There will be a surplus of 3 microwaves. b. There will be a surplus of 5 microwaves. c. There will be a shortage of 3 microwaves. d. There will be a shortage of 5 microwaves. 6. Now assume that the state government decides to keep the price floor in place and start a subsidy program which guarantees sellers a price of \$50 for every microwave. How much will this subsidy cost the state? The total cost of this subsidy program is a. \$60. b. \$180. c. \$240. d. \$400. 2
Use the following figure, which depicts the demand and supply curves for soccer balls, to answer the next two questions. 3

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P 3 P 2 P 1 Q 1 Q 2 4 Q 3 Q P D S
2 7. Suppose this country is not open to international trade. If the government wants Q 3 soccer balls to be sold, and they decide to use a price subsidy to achieve this goal, what is the cost to the government? a. (Q 3 - Q 1 ) * ( P 3 - P 1 ) b. (Q 3 - Q 1 ) * P 3 c. Q 3 * (P 3 - P 1 ) d. Q 3 * P 3 8. Assume instead that the government uses a price support to allow producers to sell Q 3 units. How much will this policy cost the government? a.

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## This note was uploaded on 05/07/2008 for the course ECON 101 taught by Professor Hansen during the Fall '07 term at Wisconsin.

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Econ 101 Practice - Midterm 1 Morning Exam Use the following information to answer the next two questions Macro Island and Small Island produce

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