Page 1 of 9Part I - Matching. (20 points)For questions 1-5, match each concept to the BEST definition by placing the corresponding letter in theblank next to the concept. (2 pts. each).CONCEPTS: DEFINITIONS:___1. Opportunity Cost A. the monetary costs of an activity.___2. GNP___3. GDP D. when you can produce the good at a lower opportunity cost than___4. Absolute Advantage E. when you can produce a greater quantity of goods than someone___5. Comparative Advantage F. the sum of money values of all final goods and services producedB. the value of the next best alternative.C. the monetary value of a country’s production.someone else.else with the same quantity of resources.in the domestic economy during a specified period of time.G. the sum of money values of all final goods and servicesproduced in the nation’s economy during a specified period of time.H. the cost of production in a countryFor questions 6-10, place the letter of each location on the circular flow diagram next to the number of thecorrect description. (2 pts. each).For Example: D Payments for Output.____ 6. Businesses.____ 7. Households.____ 8. Factor Markets.____ 9. Output Markets.____ 10. Goods & Services.PART II: SHORT ANSWERS(32 points):Question 1 (8 points):Page 2 of 9There are two small islands in Hawaii. They have decided to build a series of lighthouses. The lighthousesare nonrival in consumption as well as nonexcludable. The demand equations for lighthouses are givenbelow and the marginal social cost of providing a lighthouse is $7.Island A: Q = 20 - 2P Island B: Q = 20 - 5Pa. (2 pts). What is the market demand curve for lighthouses? ____________b. (2 pts). In equilibrium, how many lighthouses will be supplied? ________________c. (4 pts). How much money will each island contribute if preferences are revealed and each island paysaccording to the benefits it receives? Island A _______, Island B _________Page 3 of 9Part II: Short Answers, continued.Question 2: (16 pts).Consider the following informationabout the demand and supply of gasoline.Qd = 10 - PQs = 2P - 8a. (4 pts) Draw the Supply(S) andDemand(D) curves on the givengraph. What is the equilibriumprice($) and quantity of gasoline(gallons)? P= _______, Q= _________. b. (3 pts) Suppose that the government decides to impose an excise tax of $3 on suppliers.- Will this tax result in a shift in or a movement along the supply curve? ___________- Will this tax result in a shift in or a movement along the demand curve? ___________- Will the new equilibrium price with the tax be higher or lower or the same? ____________Page 4 of 9Question 2, continued:c. (4 pts) Given the $3 tax described in part b, calculate the...consumer tax incidence? ______tax revenue generated by the tax? _________d. Calculate the change in Consumer Surplus (CS) and the Deadweight Loss (DWL) due to the tax: (1 pt) Consumer Surplus after the tax:____________(1 pt) Consumer Surplus from part a:____________(1 pt) The Change in Consumer Surplus:__________(2 pts) The Deadweight Loss of the Tax: __________Page 5 of 9Part II: Short Answers, continued.Question 3: (8 points):The PPFs for Albania (AL.) and Botswana (BO.) are given on the graph below. There are only two goods,investment goods and consumption goods.(1 pt. each)a. Is point II feasible for each country? ________b. Which country has an absolute advantage in producing Consumption Goods? _________(2 pts. each)c. Which of the labeled points will enable Botswana to grow their country the fastest? _____d. At which of the labeled points is Botswana’s opportunity cost of Investment Goods the highest?______e. Assuming that both Albania and Botswana are producing at point III... which country has a comparative advantage in producing Investment Goods? _________ which country has a comparative advantage in producing Consumption Goods? _________Page 6 of 9PART III: Multiple Choice Questions (12 questions, 48 points): 1. Which of the following is a positive economic statement?A. Government expenditures are included in a calculation of GDP using the expenditure approach.B. We should increase the sales tax rate because consumption expenditures are too high.C. The higher taxes imposed by the Deficit Reduction Act of 1993 are unfair.D. The government should provide farmers a guaranteed price for their product.E. Assessing taxes on gasoline is the fairest way to fund highway improvements.Use the following information to answer the next two questions:Hundred-Acre Wood has two producers: Pooh and Tiger. Each producer can produce either Honey orBounces. We assume that the opportunity cost is constant along the PPF.Pooh TigerHoney Bounces Honey Bounces10 45 20 4040 30 40 202. What is Pooh’s opportunity cost for one more unit of Bounces?A. 2 units of HoneyB. 1/2 units of HoneyC. 2 units of BouncesD. 1/2 units of BouncesE. None of the above.3. In order to achieve the highest level of production, A. Pooh should specialize in Honey and Tiger should specialize in Bounces.B. Pooh should specialize in Bounces and Tiger should specialize in Honey.C. they should both spend equal amounts of time producing Bounces and Honey.D. they should both specialize in Bounces.E. they should not trade with one another at all.4. Which of the following transactions would be counted in GDP?A. A used car you purchase from your neighbor.B. The purchase of 500 oranges from a farmer by a supermarket.C. The purchase of 10 million shares of GM stock by a household.D. The purchase of Budweiser (American-produced beer) by a Japanese importer.E. None of the aboveUse the following demand and supply model to answer the next two questions:Page 7 of 9D: Q = 50 - 2PDS: Q = 11 + PS5. Suppose the government sets a price ceiling of $18. What will be the effect of such a policy?A. Excess supply of 9 unitsB. Excess demand of 9 unitsC. No effectD. Excess supply of 15 unitsE. Excess demand of 15 units6. Now suppose that the government wants to restrict the quantity bought and sold to 20 units. If thegovernment imposes an excise tax to reach this goal, what is the collected tax revenue from this tax?A. $6B. $120C. $180D. $300E. We need more information to answer this question.7. Macroeconomics differs from microeconomics in that macroeconomicsA. ignores issues such as national unemployment.B. studies the effect of taxation on markets whereas microeconomics does not.C. analyzes marginal as
View Full Document
Unlocking...