Reference no: EM132389167
Examination on Microeconomics
Introduction to Economic Theory SISG-773
School of International Service
American University
Use the following data to work Problems 1 and 2.
Brazil produces ethanol from sugar, and the land used to grow sugar can be used to grow food crops. The table to the right sets out Brazil's production possibilities for ethanol and food crops.
Ethanol (barrels per day)
|
|
Food crops (tons per day) |
| 70 |
and |
0 |
|
64
|
and
|
1
|
|
54
|
and
|
2
|
|
40
|
and
|
3
|
|
22
|
and
|
4
|
|
0
|
and
|
5
|
Problem 1. a. Draw a graph of Brazil's PPF and explain how your graph illustrates scarcity.
b. If Brazil produces 40 barrels of ethanol a day, how much food must it produce to achieve production efficiency?
Problem 2. a. If Brazil increases ethanol production from 40 barrels per day to 54 barrels per day, what is the opportunity cost of the additional ethanol?
b. If Brazil increases food production from 2 tons per day to 3 tons per day, what is the opportunity cost of the additional food?
Price (cents per bag)
|
Quantity demanded (millions of bags a week) |
Quantity supplied |
| 50 |
160 |
130 |
|
60
|
150
|
140
|
|
70
|
140
|
150
|
|
80
|
130
|
160
|
|
90
|
120
|
170
|
|
100
|
110
|
180
|
Problem 3. The demand and supply schedules for potato chips are in the table.
a. Draw a graph of the potato chip market and mark in the equilibrium price and quantity.
b. If the price is 60¢ a bag, is there a shortage or a surplus, and how does the price adjust?
Problem 4. In Problem 3, a new dip increases the quantity of potato chips that people want to buy by 30 million bags per week at each price.
a. Does the demand for chips change? Does the supply of chips change? Describe the change.
b. How do the equilibrium price and equilibrium quantity of chips change?
Problem 5. In Problem 3, if a virus destroys potato crops and the quantity of potato chips produced decreases by 40 million bags a week at each price, how does the supply of chips change?
Problem 6. If the virus in Problem 5 hits just as the new dip in Problem 4 comes onto the market, how do the equilibrium price and equilibrium quantity of chips change?
Problem 7. a. What happens to total revenue if the price falls from $400 to $350 a chip and from $350 to $300 a chip?
b. At what price is total revenue at a maximum?
Price (dollars per chip)
|
Quantity demanded (millions of per chip) |
|
200
|
50
|
|
250
|
45
|
|
300
|
40
|
|
350
|
35
|
|
400
|
30
|
Problem 8. At an average price of $350, is the demand for chips elastic, inelastic, or unit elastic? Use the total revenue test to answer this question.
Problem 9. At $250 a chip, is the demand for chips elastic or
inelastic? Use the total revenue test to answer this question.
Problem 10. The demand and supply schedules for tulips are in the table.
Price (dollars per bunch)
|
Quantity demanded (bunches per week) |
Quantity supplied |
| 10 |
100 |
40 |
|
12
|
90
|
60
|
|
14
|
80
|
80
|
|
16
|
70
|
100
|
|
18
|
60
|
120
|
|
20
|
50
|
140
|
a. If tulips are not taxed, what is the price and how many bunches are bought?
b. If tulips are taxed $6 a bunch, what are the price and quantity bought? Who pays the tax?
Problem 11. A semiconductor is a key component in your laptop, cell phone, and iPod. The table provides information about the market for semiconductors in the United States. Producers of semiconductors
can get $18 a unit on the world market.
a. With no international trade, what would be the price of a semiconductor and how many semiconductors a year would be bought and sold in the United States?
b. Does the United States have a comparative advantage in producing semiconductors?
Price (dollars per Unit)
|
Quantity demanded (billions of units per year) |
Quantity supplied |
|
10
|
25
|
0
|
|
12
|
20
|
20
|
|
14
|
15
|
40
|
|
16
|
10
|
60
|
|
18
|
5
|
80
|
|
20
|
0
|
100
|
Use the data on a mosquito control program in the table to work Problems 12 and 13.
Quantity (square miles sprayed per day)
|
Marginal social cost (thousands of dollars per day) |
Marginal social benefit |
|
1
|
2
|
10
|
|
2
|
4
|
8
|
|
3
|
6
|
6
|
|
4
|
8
|
4
|
|
5
|
10
|
2
|
Problem 12. What quantity of spraying would a private firm provide? What is the efficient quantity of spraying? In a single-issue election on mosquito spraying, what quantity would the winner provide?
Problem 13. If the government appoints a bureaucrat to run the program, would mosquito spraying most likely be underprovided, overprovided, or provided at the efficient quantity?
Use Figure 17.4, which shows the demand for college education, to work Problems 14 to 16.
The marginal cost is a constant $6,000 per student per year. The marginal external benefit from a college education is a constant $4,000 per student per year.
Problem 14. What is the efficient number of students? If all colleges are private, how many people enroll in college and what is the tuition?
Problem 15. If the government provides public colleges, what tuition will achieve the efficient number of students? How much will taxpayers have to pay?
Problem 16. If the government offers students vouchers, what is the value of the voucher that will achieve the efficient number of students?
Problem 17. Figure 12.1 shows the costs of Quick Copy, one of many copy shops near campus. If the market price of copying is 10¢ a page, calculate Quick Copy's
a. Profit-maximizing output.
b. Economic profit.
Use the following information to work Problems 18 and 19. Lorie teaches singing. Her fixed costs are $1,000 a month, and it costs her $50 of labor to give one class. The table shows the demand schedule for Lorie's singing lessons.
Price Quantity demanded
(dollars per lesson) (lessons per month)
0 250
50 200
100 150
150 100
200 50
250 0
Problem 18. Calculate Lorie's profit-maximizing output, price, and economic profit.
Problem 19. a. Do you expect other firms to enter the singing lesson business and compete with Lorie?
b. What happens to the demand for Lorie's lessons in the long run? What happens to Lorie's economic profit in the long run?
Problem 20. The figure shows Calypso, a U.S. natural gas distributor. It is a natural monopoly that cannot price discriminate. What quantity will Calypso produce, what price will it charge, and what will be the total surplus and deadweight loss if Calypso is an unregulated profit- maximizing firm?
