2006fall-1st quiz - Name Eco 1 Principles of Economics Quiz...

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Unformatted text preview: Name: Eco 1: Principles of Economics Quiz 1 September 26, 2006 Name: Recitation TA’s Name: Recitation Section Number (or Day/Time of Recitation) Please read all 0 the instructions be are on be in. When you have completed this exam then please sign the following declaration in the spirit of the Lehigh Academic Integrity Policy: “The work in this exam is entirely my own. I have neither received nor have I given assistance from/to anybody during the exam.” (Your signature) I. If you revise any of your answers then please make it very clear which is your final answer. , 2. Do your own work! Copying from another person’s exam may result in an “F” in the course. 3. Quiz papers are often separated during grading. Please write your last (family) name on each page. 4. No calculators allowed. 5. You have one hour to complete this quiz. 6. The play is the merry wives of Windsor. Name: Definitions (one point each): 1. Marginal analysis 2. Normative analysis 3. Comparative advantage 4. Opportunity cost 5. Complements in consumption .6. Change in supply and change in amount supplied 7. Producer surplus 8. “There is money; spend it, spend it; spend more” is a line from which play? 9. Coase theorem 10. Rival goods Name: ANSWER ONLY THREE OF THE FOUR SHORT—ANSWER QUESTIONS! (Each question is worth ten points.) 1. Refer to. the Figure below and answer all questions Price per unit per time Figure 2-2 1) What is the market equilibrium price and quantity in Figure 2-2? (1) 2) If the government mandated a market price of P3, would that be a price floor or a price ceiling? (2) 3) At P3, would there be a shortage or a surplus in the market? What would the amount of this shortage or surplus be (use the letters to identify the relevant areas)? (2) 4) Is there any economic inefficiency in the market at P3? Using the letters to identify the relevant areas, quantify the dead weight loss at P3 (if any). (2) 5) Suppose this good was traded in the unofficial economy (the black market). What would the consumers pay, and what would consumer and producer surplus be? (use the price consumers will pay, and again use letters to define consumer and producer surplus). (3) Name: _ 11. Suppose that France and Germany both produce schnitzel and wine. The following - table shows combinations of the goods that each country can produce in a day: France Germany Wine Schnitzel Wine Schnitzel 1 bottles) (pounds) (bottles) (pounds! 0 8 ' O 1 5 . 1 6 3 12 .1 2 4 6 9 3 2 9 6 4 0 12 3 1 5 0 1) In autarky, what is the opportunity cost of wine in France? What is the opportunity cost of Wine in Germany? (2) 2) Who has a comparative advantage in producing wine? Why? Who has a comparative advantage in producing schnitzel? Why? (4) 3) Suppose that France is currently producing 1 bottle of wine and 6 pounds of schnitzel and Germany is producing 9 bottle of wine and 6 pounds of schnitzel. Demonstrate that France and Germany can both be better off if they specialize in producing only one good and then engage in trade. (2) 4) “The average American earns over $12 an hour while the average Chinese earns about $3 a day. As a result, the Chinese can produce every product cheaper than in the United States. Therefore, even voluntary trade with China will lead to mass unemployment and a severe recession in the United States.” Is this quote correct? Why or why not? (2) Name: 11]. Consider the market for Coke (the dark fizzy drink, not the white powder). Assume that the market is initially in equilibrium with a price of $1 and a quantity sold of 1.7 million bottles. 1) Clearly illustrate the Coke market with a standard supply-demand diagram. (4) 2) The price of Pepsi rises and, at the same time, Coca Cola (the bottler of Coke) begins using a more efficient bottling machine. Clearly illustrate the effect of these two changes on the Coke market diagram that you drew above. Explain the impact of each of the changes. (4) 3) What are the effects of these two changes on the equilibrium price and quantity of Coke. (2) Name: IV. Below is a diagram of the marginal benefit and marginal cost of pollution gmnjmfim layu/ 495% Mpg/4,5,” ”644/5 [bod ' . $445,739.: 17*; fizz/Afaéa/iaé, 7.0 an}. //2 aft/Abs, a!“ #:4541ch 5 1) Why does the curve representing the marginal benefit of pollution reduction slope down? (2) ' ' 2) Why does the curve representing the marginal cost of pollution reduction slope up? (2) 3) What does the optimal amount of pollution reduction mean? Isn’t the optimal of pollution zero? In this diagram, what is the optimal amount in tons of pollution reduction? (4) 4) Assume that a clean environment is a normal good. What will be the impact on the optimal amount of pollution reduction of an increase in income? Illustrate your answer on the diagram. (2) ...
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