Class Micro 10:30 Fall 2013 EXAM 1 Chpt 1-4 (written) Name: _Darren Young
Answer the questions below. Do not use any aids. 25 pts total
Please answer the questions in a color font, it makes it easier for me. Copy or Drag the lines, arrows, labels to create the graphs. SAVE the doc, then attach it to an email and send to me. IN THE SUBJECT put your class and time, e.g. “Micro 1:30”
1) Production Possibilities Frontier (5 pts)
a) Draw a Production Possibilities Frontier for an economy that produces consumer goods and capital goods. Label the axis and the PPF.
b) Why does the curve have the shape it does?
c) Label 3 points: “A” showing an efficient mix of production, “B” showing an inefficient mix of production; “C” showing an unattainable mix of production.
Demand can shift in expectations of future price
-If the price in apples was expected to skyrocket next week, demand would increase this week while the price is lower
3. Demand can shift due to consumer preferences.
-If consumers decided they need oranges more than apples, the increased demand in oranges would cause the demand for apples to decrease.
3) What is the primary factor that causes shifts in the supply curve? Briefly explain with an example and which direction supply would shift. (3 pts)
Price is the primary factor that causes shifts in the supply curve. As the price for a good increases, the supply increases, causing the supply curve to shift to the left
4) Explain what typically happens when a price floor is implemented – either by government or by a private entity. (3 pts) Price floors insures that producers are makes a profit and in turn they increase production, reducing the price down to equilibrium.
5) Government intervenes in markets with a price ceiling in an effort to help (producers / consumers) highlight the correct answer (1pt) Price ceilings insure consumers can afford the producer’s products and ensures that producers can sell their products.
6) Equilibrium : Label the axis and curves. Show the current equilibrium price and quantity. Show how the event affects the curves, and the new equilibrium price and quantity. (7 pts)
Market: Hot dog buns
Event: The price of hot dogs soars.
Price will: Increase
Qty exchanged will: decrease
Market: Diet Soda
Event: The price of artificial sweetener rises; AND a recent medical report shows that artificial sweetener reduces cancer risk.
Price will: Increase
Qty exchanged will: ________