Economics 102 Name _______________Ms. Elizabeth Kelly ID Number _______________Midterm #1 Section Number _______________February 25,1997 TA Name _______________Version 1DO NOT BEGIN WORKING UNTIL THE INSTRUCTOR TELLS YOU TO DO SO.READ THESE INSTRUCTIONS FIRSTYou have 75 minutes to complete the exam, which consists of 4 problems ( Part I ) and 20 multiple-choice questions (Part II). Each problem is worth 10 points for a total of 40 points, and each multiple-choice question is worth 3 points for a total of 60 points. This exam has 10 pages.Please answer Part I on this test booklet making sure that your answers are legible and that you are using complete sentences. Show all work and formulas used. Your explanations will determine the grade.Please answer Part II on your coding sheet with a #2 pencil. Choose the best answer from the five alternatives offered. Be sure to fill in the coding sheet carefully and accurately.How to fill in the coding sheet:1. Print your last name, first name and middle initial in the spaces marked “Last Name,”“First name,”and “MI.” Fill in the corresponding bubbles below.2. Print your student ID number in the spaces marked “ Identification Number.” Fill in the corresponding bubbles below.3. Write your discussion section number under “Special Codes” spaces ABC, and fill in the bubbles.4. Write your version number under “Special Codes” space D and fill in the corresponding bubble.Discussion sections are as follows:Hyun-Ok Han 357 1.20 R Charles Wassell, Jr. 350 4.00 W358 2.25 R 361 9.55 F360 8.50 F 363 11.00 R368 1.20 F 366 12.05 FJaeho Cheung 353 9.55 R Takashi Kobayashi 351 4.00 W355 11.00 R 362 9.55 F356 1.20 R 364 11.00 R365 11.00 F 367 12.05 FCostin Borc 352 8.50 R354 9.55 R359 2.25 RIf you have any questions during the exam, stay seated and raise your hand.When you are finished, please get up quietly and bring your code sheet and this exam booklet to the place indicated by the instructors.Stop, take a deep breath, and think carefully before you answer any questions. There are no intentional “tricks”; however, not all answers are intended to be obvious. Good luck!Part I. Problem Type Questions (4 problems at 10 points each for a total of 40 points)1. Use the following information to answer this question. Please show all your work and 1formulas used.Compensation of employees 40Government purchases 13Rental income1Imports8Exports7 Proprietors’ income5Corporate profits6Consumption expenditure 46Indirect Taxes minus Subsidies 5Net interest4Transfer payments7Personal Taxes3Depreciation7Gross Investment11Receipts of factor income from the rest of the world 1Payments of factor income to the rest of the world 2a) (2 pts.) What is the value of Net Exports?b) (2 pts.) Using the expenditure approach, calculate GDP. c) (2 pts.) Using the income approach, calculate GDP.d) (2 pts.) What is the value of National Income?2e) (2 pts.) What is the value of GNP?32. Consider two isolated islands, Badgerland and Packerland in the Pacific ocean. The only food you can get in these islands are fish and coconuts. A person in Badgerland can collect 8 coconuts or catch 3 fish in an hour but a person in Packerland can collect only 6 coconuts or catch 2 fish in an hour. It is also known that each person works 8 hours per day and the population of each island is 10.a) (2 pts.) One the same graph, sketch the production possibility frontiers for both islands. Put coconuts on the y-axis. Indicate the values of both y and x-axis intercepts. Label both PPFs clearly.b) (2 pts.) What is the opportunity cost of catching the 5th fish in Packerland?c) (2 pts.) Which island has an absolute advantage in coconut production?d) (2 pts.) Which island has a comparative advantage in fish production?e) (2pts.) If trade between the two islands exists, which island exports fish?3. Use the following equations to answer this question. Please show all your work and formulas used.Demand: P = 14 - 2QdSupply: P = 2 + 4Qsa) (2 pts.)What is the equilibrium quantity and price for this market?b) (2 pts.) Suppose that the marginal social cost of producing this good is defined by the following relationship:P = 4 + 4QsWhat is the socially optimal equilibrium quantity and price for this market?c) (2pts.) What excise tax could be imposed on suppliers by the government to attain the optimal equilibrium?d) (2 pts.) If the tax in part c) is imposed on producers what is the total tax revenue collected by the government?e) (2 pts.) What type of market failure exists in this problem?4. Consider the demand and supply for cans of hair sprayDemand: P = 40 - QdSupply: P = 10 + 0.5QsWhen solving this problem show all your work and formulas used. Make sure your answers give units of measurement.a) (2 pts.) Find the market equilibrium price and quantity for cans of hair spray.b) (2 pts.) What is the consumer surplus?c) (2 pts.) What is the producer surplus?d) (2 pts.) If the government imposes a tax on suppliers of $15 per can of hair spray, calculate theloss in consumer surplus due to the imposition of this tax.Loss of consumer surplus_______________e) (2 pts.) What is the dead weight loss due to the imposition of this tax?Part II. Multiple choice questions (20 questions at 3 points each, for a total of 60 points)1. When the PPF is bowed out from the origin, this means that the:a) Opportunity cost of producing additional units of the y-good increases as you increase the production of good y.b) Opportunity cost of producing additional units of the y-good decreases as you increase the production of good y.c) Opportunity cost of producing additional units of the y-good stays constant as you increase theproduction of good y.d) Technology improved.e) Both c) and d)2. According to the graph, which of the following is true?a) Country B’s production possibility frontier illustrates specialization of resources.b) Country A has a comparative advantage in french fries.c) Country A has a comparative advantage in hamburgers.d) Both countries have a comparative advantage in french fries.e) Neither country A, nor country B has absolute advantage.Use the following demand and supply model to answer question 3 and 4:Qd = 40 - 2PQs = -11 + P3. Suppose the government sets a price ceiling of $18. Using the demand and supply curves given above, what will be the effect of such a policy?a) Excess supply of 3 unitsb) Excess demand of 3 unitsc) No effectd) Excess supply of
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