Principles of Macroeconomics

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Review Questions for the Final Exam Econ 101, Lecture 4, Spring 2007 Professor Korinna K. Hansen TAs: Jonathan Thornhill, Kyoung Jin Choi, Woo Jin Choi and Jim Lin Use this graph for the next question. 1) Points A , B , and C in the above Figure indicate consumption and investment for three economies. Other things constant, which of the economies is likely to grow more rapidly in the future? a) economy A b) economy B c) economy C d) They would all be expected to grow at the same rate. 2) Assume that the demand and supply in the markets for sugar and honey are not perfectly elastic or perfectly inelastic. Now suppose that there is a severe drought in the sugarcane crop. As a result of this drought you would expect a ___________ price and a ___________ quantity in the market of sugar and a _________ price and ______________ quantity in the market for honey. 3) Consider a market for textbooks. Demand for textbooks is given by P = 150 – 5Q and supply of textbooks is given by P = 30 + Q. If a price ceiling of 30 is imposed in the market, what will be the excess demand?
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4) When the price of a Giffen good increases the income effect ________________ the substitution effect and the end result is a _________ price effect. Use the following information to answer the next five questions: The table below gives you the total cost of production (TC) for a perfectly competitive firm that produces widgets. The fixed cost (FC) for this firm is $200. Q is the total output produced by this firm. Q TC TVC AVC ATC MC 1 250 2 330 3 350 4 390 5 450 6 540 5) This firm is experiencing a) first an increasing and then a decreasing marginal cost (MC). b) first a decreasing and then an increasing marginal cost (MC). c) constant marginal cost (MC) throughout different levels of production. d) always an increasing marginal cost (MC)of production. 6) The total variable cost (TVC) at quantities 2 and 3 is ________ and _______ for this firm, and the average variable cost (AVC) for quantities 1 and 3 is _________ and _______. The average total cost (ATC) for quantities 5 and 6 are _______ and _______for this firm. 7) If the market price for the widgets is $60, the firm will produce the profit maximizing (loss minimizing) quantity of
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