Spring 00 Midterm Exam - Econ 20114 Dr Jaques Midterm Exam...

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Econ 20114 Midterm Exam Dr. Jaques Spring 2000 I. ans. 1 a. "Anyone knows that the amount bought and the amount sold are the same, therefore the market is always in equilibrium. All this supply and demand stuff is just a hidden price support for economics professors." Comment b. "Rising prices cause shortages in the market because people cannot afford the product, and therefore there is not enough to go around." Comment II. ans. 1 a. Show how both incoth-and-pt'ice elasticitie~of demaOO-may-~used by both business and government. Be precise. b. Examine the effects of an excise tax on gasoline. Be precise. III. ans. 1 a. Explain the logic of the expression MUa/Pa =MUb/Pb = MUn/Pn b. "The most important part of the production possibilities frontier is that is shows the universal truth that all economies face increasing marginal costs" Explain. Why is this concept important to government decision makers as well as decision makers at the firm level?
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