June 1st, 2022
Answer all questions in this word document. The exam is open book, and so you are welcome to consult any and all non-human sources. However, to be clear, answers cannot be copied and pasted from anywhere else: this will be considered plagiarism and will result in no points being awarded, as will copying answers from other students If you are having trouble uploading to Canvas, please send your exam by e-mail. All questions are worth 5 points unless otherwise indicated and the exam is out of 200 total points. Good Luck!
1. The above graph shows the bundle of goods per day and free time per day in a country between 1900 and 2013. When thinking about the difference between 1900 and 2013, which effect is more important on net, the income effect or the substitution effect?
2. What is the definition of conspicuous consumption?
3. Let’s say a country implemented legislation legalizing unions and employment rose. What would we call that phenomenon, and how could we explain it?
4. Let’s say a country implemented a law legalizing labor unions and labor unions became common. Subsequently, employment fell. Based on what you learned in class, what would we call that phenomenon, and how could we explain it?
5. The COVID-19 pandemic clearly had detrimental effects on the economy in 2020. In the 1300s, what was the effect (if any) on wages from the Black Death? Why?
6. What made the Industrial Revolution different than the period of human history that preceded it?
7. What was the first country to experience the Industrial Revolution?
8. If the poorest 10% make half as much as the richest 10% of the population, what is the 90-10 ratio?
9. If British income per capita goes from 3,453 in 2000 to 4,927 in 2001, what is the growth rate of income in that year?
10. Catherine gets a raise at work. She decides to work more as a result to earn more money. What effect does this describe? Why?
11. Juan gets a raise at work. He decides to spend more time with his family since he’s making more money anyway. What effect does this describe? Why?
12. If the wage is unchanged and unemployment benefits rise, what happens to worker effort? Why?
13. If the unemployment rate rises, what happens to the wage-setting curve? Why?
14. If the coronavirus makes it more costly to trade goods internationally, would that tend to move the economy towards autarky (where all goods are produced and consumed in the same country and there is no international trade) or would it move the economy closer to Ricardo’s vision of international trade? Why?
15. If the price of soda is $90, and the marginal cost is $70, what is the markup?
16. What is the relationship between the markup and the elasticity of demand in general?
17. It will help you in this question to refer to your answers to the previous two questions (Questions 15 and 16) as you will need the answers from these questions to answer this one. What is the elasticity of demand for soda?
18. What is the marginal rate of substitution (MRS)?
19. What is the marginal rate of transformation (MRT)?
20. What is true about the relationship between MRS and MRT when a firm maximizes profits?
21. In the above graph, what is the consumer surplus in a market economy where 10 cars are sold?
[Hint, the area of a triangle is 0.5*base*height]
22. In the above graph, what is the producer surplus in a market economy where 10 cars are sold?
[Hint, the area of a triangle is 0.5*base*height]
23. What are economic institutions?
24. Why do economic institutions matter?
25. What is disposable income?
26. What is the definition of Nominal GDP?
27. Take an economy, Quarantine, where only two goods are produced: toilet paper, and hand sanitizer. Is there are 18 rolls of toilet paper sold for $1 each and 20 packs of hand sanitizer sold for $5 each, what is nominal GDP in Quarantine?
Let’s say that the government nationalizes production of these two goods, so that the government now produces 36 rolls of toilet paper (where 18 were produced before) and now produces 40 packs of hand sanitizer (where 20 were produced before), but there are no prices assigned as there is now no buyer and no seller.
28. [10 points] Given this information, can we know what happens to nominal GDP in Quarantine? If so, how much larger is nominal GDP now?
29. [10 points] Given this information, can we know what happens to Real GDP in Quarantine? If so, how much larger is real GDP now?
30. What happens to firm profits if a firm introduces a cost-saving innovation?
31. How does a market economy incentivize firms to adopt new technologies?
32. Explain how cheap coal could be one factor that led to England being the first place to experience the Industrial Revolution.
33. Explain how high wages could be one factor that led to England being the first place to experience the Industrial Revolution.
34. How can countries escape the Malthusian trap?
35. What is opportunity cost?
36. What is the principal-agent problem?
37. What kind of firms are most likely to have a separation of ownership and control?
38. What kind of principal-agent problem(s) does the separation of ownership and control introduce?
39. In the Malthusian Model, let’s supposed that incomes rise because of a new technological discovery. What happens to?
a) The birth rate in the short-run?
b) The birth rate in the long-run?
c) The death rate in the short-run?
d) The death rate in the long-run?
40. Let’s say that Andy can produce 30 apples per hour and 60 bananas per hour and Leslie can produce 60 apples per hour and 60 bananas per hours. Assume that each of them works a 10-hour day.
a) Start in autarky, with Andy and Leslie each spending half their time producing apples, half their time producing bananas, and each of them eating all of their own fruit. How much does each one produce?
b) What is Andy’s comparative advantage? What is Leslie’s comparative advantage?
c) Now assume they specialize in producing the good which they have a comparative advantage in exclusively and they produce none of the other good. How much do they each produce?
d) How much more apples are produced relative to autarky? How many more bananas?
Extra Credit [20 points]:
Using Microsoft Word’s shapes/lines/graphing features (or another alternative which is clear and convenient for me to read), draw a graph of the wage setting curve and price setting curve determining the level of employment and unemployment. For full credit, label the graph fully. As a reminder, you cannot copy and paste here.