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EXAM TWO PRACTICE
Introduction to Microeconomics
ECO 304K
Dr. Trinque
spring 2007
Part One:
Memorization
1.
Define the equilibrium (market clearing) price.
(2 points)
2.
List the factors of production and state the contribution of each and the payment it receives.
(12 points)
3.
State the three interpretations of normal profit.
(6 points)
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Part Two:
Application
4.
Suppose that 2,000 wristwatches per month had been sold at a price of $40.
Then, because
people began carrying cell phones that include clocks, the demand for wristwatches declined
so that only 1,500 are sold per month at a price of $30.
a)
Show this on a demand and supply graph for wristwatches.
Draw one graph only, on
the axes below.
Label the graph clearly and completely.
Explain carefully in words
each change you show on the graph. (10 points)
b)
Derive the supply equation.
(5 points)
c)
The price elasticity of demand has changed.
Is it now higher than at the original
3
equilibrium, or is the elasticity now lower?
Circle your answer.
(5 points)
(There is not enough information to derive the demand equation nor to calculate the
elasticity.
However, there is plenty of information from which to infer with confidence
whether the elasticity has increased or decreased.
In any case, do not write your reasoning
here; just circle your answer.)
The price elasticity of demand at the new equilibrium is
higher
than
it was at the original equilibrium.
The price elasticity of demand at the new equilibrium is
lower
than it
was at the original equilibrium.
5.
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This note was uploaded on 03/24/2008 for the course ECON 304K taught by Professor Ledyard during the Spring '08 term at University of Texas at Austin.
 Spring '08
 Ledyard
 Microeconomics

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