Introduction to Macroeconomics

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ECON 201: Introduction to Macroeconomics Midterm Exam 1: Answer Packet October 10, 2011 NAME: _________________________________ Circle your TA’s name: Circle your section time: Agustin 9 a.m. Brian 3 p.m. Meysam

Directions: This test is in two parts, a multiple choice question part and a short-answer part. Use this answer packet to complete the exam. Calculators are permitted. Books, notes, reference materials, etc. are prohibited. Good luck! Part 1: Referring to the questions in the Multiple Choice Questions Packet, choose the one alternative that best completes the statement or answers the question. Each question is worth one point. There is no penalty to guessing, so be sure to answer all of them. Write your answers in the following table using capital letters. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Part 2: Solve the following five problems in the spaces provided. Show all your work! PROBLEM 1: 4 points: 2 points per blank Assume that demand and supply are linear. Use the following tables to determine the demand and supply equations. Price 14 8 Quantity Demanded 4 7

1. The demand equation is P = ______________________________. P = 22 - 2Qd Price 11 5 Quantity Supplied 8 0

2. The supply equation is P = ______________________________. P = (3/4)Qs + 5 PROBLEM 2: 2 points: 1 point per blank. Assume that demand is given by P = 33 – (3/8)Qd Assume that supply is given by P = 0.5Qs + 5 Complete the following statement. 1. The free-market competitive equilibrium is at a quantity of __________, and a price of __________. 32, 21 PROBLEM 3: 5 points: 1 point per blank. Demand for good A is given by PA = 10 + 0.5PB – 2QAd where PB is the price of good B, and QAd is the quantity of good A demanded. Supply for good A is horizontal, and is given by PA = 8. Complete the following statements. 1. Suppose that PB = 4. The demand equation for good A is therefore PA = ______________________________. The market equilibrium quantity is __________. PA = 12 - 2QAd, 2

2. Suppose that the price of good B has risen to 8; that is, now PB = 8. The demand equation for good A is therefore PA = ______________________________. The market equilibrium quantity is __________. PA = 14 - 2QAd, 3 3. Given this behavior of the demand curve for good A in response to price changes for good B, we can conclude that goods A and B are: ______________________________. (substitutes / complements / normal goods / inferior goods) substitutes PROBLEM 4: 4 points: 1 point per column or blank. Suppose that Ariel has an individual demand curve given by P = 10 – 0.5QA. Suppose that Bernard has an individual demand curve given by P = 10 – QB. Suppose that these are the only two demanders in the market. Hint: You are getting quantities for three different prices. It may be helpful to solve for QA and QB first; that is, put the equations in “Q =” form. 1. Complete the following table: Price 8 5 2 Quantity Demanded by Ariel 4 10 16 Quantity Demanded by Bernard 2 5 8 Total Quantity Demanded 6 15 24

2. Complete the following statement: The market demand curve is given by the equation P = ______________________________. P = 10 – (1/3)Qd

PROBLEM 5: 15 points: 1 point per row or blank. Use the PPFs below to answer the following questions.

Butte r

4 0

Nort h

Butte r

Sout h

15

2 Gun 0 s

1 0

Gun s

1. What is the opportunity cost of guns (in terms of butter) for the North? __________. What is the opportunity cost of guns (in terms of butter) for the South? __________. 2, 1.5 2. Who has the comparative advantage in guns? __________. Who has the absolute advantage in guns? __________. South, North 3. Suppose North and South are agreeing to a trade such that they consume according to the following table. North consumes South consumes Complete the following table: North produces South produces 0__________ guns 10__________ guns 40__________ butter 0__________ butter 4 guns 6 guns 33 butter 7 butter...
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