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1 "Heads up" (Study Guide) for EC142 FINAL EXAM...

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1 “Heads up” (Study Guide) for EC142 FINAL EXAM ---------------------------------------------------------------------------------------------------------------------- The comprehensive Final Exam will be closed book and closed notes. The final for face-to-face courses (not online) will be proctored by the Instructor. The final for online students will be proctored by an approved Park University Proctor. ---------------------------------------------------------------------------------------------------------------------- PART I Multiple Choice Questions 1. Why is democracy associated with capitalism? Consider the impact of the capitalistic free market on the following: -The mobility of Capital and Labor -The affect of less government regulation which is characteristic of capitalism -The impact of the free market on the level of government ownership of firms. -The affect of government regulation on non-capitalistic nations. 2. In contrast to a socialist economic organization, how would a capitalist system differ? Consider who owns the capital (means of production) in the two models. 3. When do assumptions made in conjunction with economic theorizing have to be realistic? Can unrealistic assumptions provide useful outcomes? 4. What basic principles does the production possibilities (or transformation) curve illustrate? Consider whether an increase in the production of one good requires an increase or decrease in the production of other goods when K and L are held constant. 5. When does the concept of opportunity cost indicate? Consider how the production of one good affects the possible production level of other goods. 6. Will a change in the price of good x the demand for X, a normal good, to change? 7. What entity establishes a price ceiling and does it require government sanction for violators? Will it result in a surplus or a shortage? 8. If a producer overproduces and sets the price of his product too high to allow him to sell all of his production, does this cause a surplus or an excess supply condition? 9. What entity establishes a price floor and does it require government sanction for violators? Will it result in a surplus or a shortage? 10. An increase in the supply of a good is expected to have what effect on its price? What will be the effect on the demand for substitutes? 11. If the own-price elasticity of demand for gasoline is -.2 and there is a 10% increase (+.10) in the price of gasoline, what will be the percentage change to the equilibrium demand for gasoline?
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2 12. Define a black market in terms of a Price Ceiling. 13. A regulated transportation monopoly is losing money. The Monopoly goes to its government regulators with a request to raise their rates (price). An economist on the regulatory commission says that raising rates will bring in less revenue as customers change to substitute forms of transportation. The Monopoly and the economist have different views of the elasticity of demand for the monopoly’s transportation services. Which one thinks the demand is inelastic and which one thinks it is elastic? 14. In the graph to the right, which portion of the demand curve is relatively elastic (P 1 to P 2 ) or (P 3 to P 4 )? Which range is relatively inelastic? 16. Define utility. 17. Define equilibrium in terms of the following: -The plans of suppliers and demanders -The budget line and the indifference curve. 18. Does the marginal rate of substitution increase or decrease as a point moves downward and to the right along a given indifference curve? 19. Recognize the supply and demand graph for a price floor and (separately) a price ceiling. 20. Be able to recognize a graph which depicts excess supply in the graph. Given quantity demanded and quantity supplied are labeled at the excess supply level, state the quantity of the excess supply. [The equilibrium quantity demanded and quantity supplied will also be labeled. PART II: QUANTITATIVE PROBLEMS PROBLEM 1. Own Price elasticity or cross-price elasticity. Given a table of the price(s) and quantities before the price rises, compute the POINT (or ARC) elasticity of demand of a good as its price rises. SHOW FORMULA AND WORK (No credit for magic numbers).
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