Practice Problems for Midterm
1. Suppose Dell is currently selling 250,000 Pentium 4 laptops per month. A
manager at Dell argues, The last 10,000 laptops we produced increased our
revenue by $8.5 million and our
Name: _ Date: _
1. Explain what is meant by the paradox of thrift.
2. Suppose the business cycle is indicating economic expansion. Predict how the economic
indicators of real gross domestic product (GDP), the unemployment rate, and the inflation
rate are
Chapter 11: Technology, Production, and Costs
Technology: the processes a firm uses to turn inputs into outputs of goods and services
Technological change: a change in the ability of a firm to produce a given level of output
with a given quantity of inp
Chapter 19: Measuring Total Production and Income
Microeconomics: The study of how households and firms make choices, how they interact in
markets, and how the government attempts to influence their choices.
Macroeconomic: The study of the economy as a
Chapter 3: The Demand and Supply Side of the Market
For analysis of supply and demand: assume a perfectly competitive market: a market that
meets the conditions of many buyers and sellers, all firms selling identical products, and no
barriers to new firm
Chapter 15: Monopoly and Antitrust Policy
Monopolya firm that is the only seller of a good or service that does not have a close
substitute
For analyzing situations where firms collude, or decide not to compete
Narrow def: monopolistic if can ignore th
Ch 1,2, 3,4,6,10,10 appendix, 11,12,13*.14*,15, 5
Chapter 1: Economics: Foundations and Models
Scarcity: unlimited wants with limited resources to fulfill those wants
Economics: the study of choices people make to attain their goals, given their scarce
Chapter 12 Book Notes
Perfectly Competitive Markets
unable to control price
unable to make economic profit in long run
identical products
easy for new firms to enter industry
Industry Characteristics
Number of firms
Similarity of goods/services pr
Chapter 2: Production Possibilities Frontiers and Opportunity Costs
Scarcity: unlimited wants exceed limited resources needed to fulfill those wants
Scarcity requires tradeoffs
Economic resources or factors of production are scarce
Workers, capital, n
Chapter 5: Externalities, Policy, Public Goods
Externality: a benefit or cost that affects someone who is not directly involved in the
production or consumption of a good or service
Negative externality: air pollution, people with asthma bear a cost eve
Chapter 13 and 14: Monopolistic Competition and Oligopoly
424-437 450-457
Monopolistically competitive: a market structure where barriers to entry are low and many
firms compete by selling similar but not identical products.
Demand
Will be downward slo
Chapter 4: Economic Efficiency, Price Setting, and Taxes
At equilibrium: every consumer willing to pay market price is able to buy as much as he/she
wants; every seller will accept the market price pay what they wantare buyers and sellers
that would like
Chapter 20: Unemployment and Inflation
Unemployment and inflation together = misery index
Measuring the Unemployment Rate, the Labor Force Participation Rate, and the
Employment-Population Ration
Good news about unemployment causes stock prices to rise
Chapter 6: Elasticity: Responsiveness to Demand and Supply
Elasticity: a measure of how much one economic variable responds to changes in another
economic variable
Price elasticity of demand: the responsiveness of the quantity demanded of a good to
chan
Chapter 10 and 10 appendix: Consumer Choice and Behavioral Economics; Indifference Curves
Economic Model of consumer behavior predicts that consumers will choose the combination
of goods and services that makes them as well off as possible from among all
Economics BC1007
Barnard College
Fall 2015
Professor Quella
Problem Set 9 - Solution
1. Consider the following Cobb-Douglas production function: Q = AL K
Increase L and K by the same proportion. Represent this by L and K.
a) Show that with constant retur
M m _ o . a . mu ' Ii
Newtudvct, n.-|-.I'\.r .
lit/Lit- '
Warrior's talks about how the pay-for-performance for doctors ' not succeed in terms on 557%?
health. Higher pays for doctors -
does not nesessariiy mean better patient care. This can be explained
Answer Key - Practice Final Problems
1. During uncertain economic times, nervous consumers spend less and save more. This
thriftiness can actually worsen the economy because it stifles consumption and leads to
reduced spending overall.
2. When the economy
me
_ . _.-_.,
Why cant all the worlds
people be fed from the
amount of grain grown
in a single flowerpot?
EC9N9MIC
NATURALIST
The law of diminishing
returns suggests that no
matter how much labor,
fertilizer, water, seed, cap-
ital equipment, and o
So LUTl 0 M
Practice Problems for Midterm
1. Suppose Dell is currently selling 250,000 Pentium 4 laptops per month. A
manager at Dell argues, "The last 10,000 laptops we produced increased our
revenue by $8.5 million and our costs by $8.9 million. However
Economics BC1007
Barnard College
Fall 2015
Professor Quella
Quiz 3 - Solution
1. (9 points) Solve for x.
(3 x e 3x ) 3 = 125
1
1
! [(3 x e 3 x ) 3 ] 3 = 3 x e 3 x = 125 3 = 5
! ln(3 x e 3 x ) = ln 3 x + ln e 3x = ln(5)
( ) ( )
! x ln(3) + 3x ln(e) = x ln(
Economics BC1007
Barnard College
Fall 2015
Professor Quella
Problem Set 8 - Solution
1. Find all 1st and 2nd partial derivatives
a) z = y 2e 2 x
z x = y 2e 2 x (1) = y 2e 2 x
z xx = y 2e 2 x (1) = y 2e 2 x
zy = 2ye 2 x
zyy = 2e 2 x
z xy = 2ye 2 x
zyx = 2y
Economics BC1007
Barnard College
Fall 2015
Professor Quella
Problem Set 11 - Solution
1. PE 7.7, page 403, question 6
U = x 3 + y 3 27x 12y + 210
U x = 0 = 3x 2 27 !
U y = 0 = 3y 2 12 !
27
= 9 ! x = 3
3
12
y2 =
= 4 ! y = 2
3
x2 =
U xx = 6x
U yy = 6y
U xy
Economics BC1007
Barnard College
Fall 2015
Professor Quella
Problem Set 13 - Solution
1. The demand for a good is given by P = 100 12lnQ
a) Solve for the price elasticity of demand, d. You can write it in terms of just P, just Q,
or both.
dQ P
d =
dP Q
dP
Economics BC1007
Barnard College
Fall 2015
Professor Quella
Name:
Quiz: Take-Home - Solution
Quiz 2 is due at the start of class on Thursday October 8
Round decimal answers to the 2 places
You may consult your course textbook, notes, problem sets, and
Economics BC1007
Barnard College
Fall 2015
Professor Quella
Problem Set 7 - Solution
1. PE 6.13, page 338
a) question 18
Q = 500ln(K 3 + 8K)
du
= 3K 2 + 8
dK
dQ 500
then Q = 500ln(u) !
=
du
u
dQ dQ du
chain rule: =
dK du dK
dQ 500
500(3K 2 + 8)
!
= 3 (3K
Economics BC1007
Barnard College
Fall 2015
Professor Quella
Problem Set 12 - Solution
1. PE 7.9, page 420-422
a) question 1
U = x 0.2 y 0.8
budget constraint 180 = 4 x + 2y
L = x 0.2 y 0.8 + (180 4 x 2y)
L x= 0 = 0.2x 0.8 y 0.8 4
Ly = 0 = 0.8x 0.2 y 0.2
Economics BC1007
Barnard College
Fall 2015
Professor Quella
Problem Set 10 - Solution
1. Consider the Cobb-Douglas U = Ax y
Use the formula
MUX
MRS =
MUY
to show that
y
MRS =
x
U
= Ax 1 y
x
U
MUY = U y =
= Ax y 1
y
1
1
1
MRS = MUX = Ax y = x x y