ECONOMICS I: Mid-Term Exam

| June 23, 2015

Notes: 1)You may use your text book and/or class notes.
2)You may not discuss this exam with anyone either face to face or via email.
3) The Maximum Raw Score Points Available on this exam = 46. Each portion of each question has its potential raw score contribution indicated.
4) Either email your completed exam back to me at Michael_Carter@uml.edu
Or fax the exam to: 978-934-3071 (include your name and my name clearly on the faxâ€¦also send an email letting me know you have faxed the exam).

1) Assume the following table shows the yields per acre of wine grapes and olive oil in two different countries. Country A and country Z. (Also assume that in each country the labor and other processing costs per acre are the same regardless of whether grape vines or olive trees are cultivated).

Country A Country Z
Olive Oil yield 40 barrels 30 barrels
Grape yield 90 barrels 45 barrels

Suppose initially each country had erected high tariff barriers to keep out foreign wine and/or olive oil and was producing for its own needs only.
Could consumers in both countries benefit if all trade barriers were dropped? If not, explain why not. If consumers could benefit, explain how and identify: a) which country has the greater opportunity cost of producing olive oil; b)the country which would end up exporting wine and which would export olive oil after the elimination of trade barriers. 6 pts

2) A) Draw a supply-demand diagram representing the effect on the market for hybrid autos of a permanent increase in the equilibrium price of gasoline from around \$2.00 per gallon to around \$4.00 per gallon. Although you need not include specific numbers on your axes, label the axes on your diagram clearly. Also explain in a sentence or two why you shifted any S or D schedule that you show as having moved in your diagram. 4 pts
3) Assume the price of large gulf shrimp is \$18 per pound and that the price of hard shell Maine lobster tails is \$36 per pound. Your professor uses Â½ pound of lobster or Â½ pound of shrimp with various pasta dishes. In a typical month he cooks 4 shrimp/pasta dinners and 1 lobster pasta dinner. Is his marginal utility of a lobster based dinner equal to the marginal utility of a shrimp dinner for him? If so, explain. If not, what is the approximate difference in MU of shrimp vs. lobster? 4pts.
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4) The chart on the following page shows the average daily demand for tokens on a major urban rapid transit system.

a)What is the elasticity of demand at a fare of \$2.50/token? (Show your calculations) 3pts
b) Is the revenue maximizing fare higher than, lower than or equal to \$2.50/token Explain your reasoning using the concept of elasticity. 3pts

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Category: Economics

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