Short Answer ECON 101 Practice Problems for Midterm I 1 Jim is a sales representative at a small Pennsylvania based paper company Jim divides his time each day between making Jello by the pound and making phone calls to potential clients Below is a table of some of the production combinations Jim has made in the past week Goods produced Jello pounds Combi nation s A B C D E F G 0 1 2 3 4 5 6 Phone Calls 100 95 90 40 50 25 0 a Given the table above which of the following combinations of Jello and phone calls produced must necessarily be inefficient Explain in one or two sentences why this is the case b Eliminating the goods combination you found in part a assume the other combinations are efficient and use them to roughly sketch what Jim s production possibilities frontier PPF might look like below Label each point according to its label in the table above and label each axis c What would be Jim s opportunity cost of moving from point C to point E on his PPF Be sure your answer is in units of phone calls pound of Jello d Suppose that in a year from now Jim s PPF changes such that for every quantity of phone calls he can make he can make two more pounds of Jello than he could before Graph this change on the graph above being sure to label the new PPF curve Give one or two reasons as to why this could occur 2 Jenna and Bobby are working together on a project for their physics class Their project includes making graphs and solving equations Jenna can solve 50 equations in an hour or make 8 graphs in an hour Bobby can solve 40 equations in an hour or make 5 graphs in an hour a Who has the absolute advantage in solving equations and who has the absolute advantage in making graphs b Who has the comparative advantage in solving equations and who has the comparative advantage in making graphs c If they need 16 graphs and 120 equations for their project and they both work continuously until they are done with the project will Bobby only make graphs solve equations or do both Will Jenna only make graphs solve equations or do both Explain why Hint use marginal analysis to look hour by hour d Bobby had a bike accident and hit his head and he can now only solve 30 equations in one hour Will this change who has the absolute advantage and who has the comparative advantage in both graph making and equation solving If so how 3 During the summers Tatum runs a lemonade stand in her neighborhood She purchases the lemons and sugar from her local grocery store hand squeezes the lemons and then sells lemonade to the neighborhood adults leaving for work in the mornings For each of the following scenarios comment on which curve shifts supply or demand and in which direction left right Also comment on the effect the shifts have on the price of lemonade a The average salary of the workers leaving in the morning rises by 10 b A study comes out pertaining to numerous health concerns with consuming too much sugar by 15 c The price of sugar at the grocery store that Tatum gets her sugar from drops d A new entrance exit to the neighborhood is constructed and the number of adults leaving out of the entrance that Tatum sets up by is used less often e Tatum acquires a new juicing machine that can squeeze lemons three times as fast as she can by hand f The price of lemons at the grocery store that Tatum gets her lemons from drops by 20 and at the same time the study mentioned in b is overturned and it is revealed that lemonade in fact extends life expectancy Hint more than one curve may shift 4 Mr White produces cupcakes a Sketch the supply and demand curves for cupcakes Be sure to label your curves S and D and label equilibrium price P and Quantity Q b If the price of sugar an ingredient that goes into cupcakes decreases show what will happen to the supply of cupcakes in this market by drawing a new supply curve Label the new equilibrium price P1 and the new equilibrium quantity Q1 Label the new curve S1 c Many cupcake users like to eat cupcakes and drink milk in conjunction with each other In addition to a decrease in the price of sugar if the price of milk increases what will happen to the equilibrium price and equilibrium quantity after these changes d What is one thing that could happen in the market that would increase demand for Mr White s cupcakes 5 The show RuPaul s Drag Race had its first season in 2009 and has exploded in popularity since then The show is a reality competition show between drag queens who compete to become America s Next Drag Superstar a The following is the demand and supply equations for the famously expensive lace front wigs from the Lovely Lace Front Wig shop in Chapel Hill in 2008 P 800 5Q P 70 5Q Please graph this market labeling all of the axes and intercepts Also find the equilibrium price and quantity mathematically and denote it on the graph b After the show more people wanted to try out drag so the lace front wig market exploded Explain how this would affect the price and quantity demanded c In 2012 the new demand function for the extremely expensive lace front wig can be represented as P 950 5Q Find the new equilibrium price and quantity d The government was surprised by the number of executives and businessmen who were quitting their important finance jobs and becoming full time drag queens To try to keep important financial people in their jobs the government made a law forcing the price of a lace front wig to be 700 How would this affect the quantity demanded and the quantity supplied What would this result in excess supply or excess demand e With this government induced price change how would this affect total surplus Also show the individual changes in consumer surplus and producer surplus f Show the new consumer surplus and new producer surplus graphically 6 Tim Jim and Dim each like to read books but to varying degrees Tim really likes and is willing to pay 50 for one book Jim likes books okay and is willing to pay 30 for one book Dim only reads on the airplane when he has nothing better to do so Dim is only willing to pay 15 for one book Assume that Tim Jim and Dim are the only consumers of books Use this information to answer the following questions a Suppose that the price of one book is 20 Assuming Tim Jim and Dim are willing to buy at most one book each how many total books are purchased b What are each of Tim Jim and Dim s individual consumer surpluses What is the …