ECON 2333 Economic Concepts and Issues Last Name (please PRINT) _________________ First Name (PRINT) __________________. Student ID Number (PRINT) _________________. CRN # of this course ________

ECON 2333 Economic Concepts and Issues

Last Name (please PRINT) _________________    First Name (PRINT) __________________.

Student ID Number (PRINT) _________________. CRN # of this course _________________.

Input the last 3 digits of your Student ID: _____ (3rd last); _____ (2nd last); _____ (last digit).

Please read the guidelines below carefully before start your exam.

·       The exam has 100 points in total.

·       There are 10 multiple choice questions (2 points each). Only one answer is correct. Put your answers of the multiple-choice questions in the space provided below.

·       There are four short-answer questions you need to finish, 20 points each. To get full credit, you need follow instructions of the question, and present correct and detailed (step-by-step) answer to the question.

·       You can put your answers on this document. You can also attach a separate page for your short-answer questions. Make sure your answers are clear for grading.

·       You can use calculator, spreadsheets and other computing instruments to assist you in this exam. However, you need to make sure this exam is your independent work.

·       And upload your finished exam before the due date. Please send me pdf or MS doc files only. DO NOT send me “.pages” file.

Put your answers of multiple-choice questions in the box below.

Question

Answer

Question

Answer

1.

6.

2.

7.

3.

8.

4.

9.

5.

10.

Part I. Multiple Choice Questions

Choose only ONE correct answer. Total points = 20, two points each.

1. Suppose a special discount makes the price of Nike air max shoes 10% lower. As result, there is a 20% increase in the quantity demanded for the shoes, which statement is correct ____?

A. The sneakers are price elastic, and the price elasticity = 0.5.

B. The sneakers are price elastic, and the price elasticity = 2.0.

C. The sneakers are price inelastic, and the price elasticity = 0.5.

D. The sneakers are price inelastic, and the price elasticity = 2.0.

2. For a high-end handbag, which statement is NOT correct ____?

A. Its income elasticity < 0

B. Its income elasticity > 1

C. Its demand curve is more flexible in the short-term.

D. Its income elasticity should be higher than gasoline.

3. The following graph shows a department store’s long-run average cost (LRAC) curve. The output per period is measured as total sales (for example M and N). The manager is considering a new business plan. Given the LRAC curve, which statement is NOT correct ____?

A. The store should close some business when sales reach N.

B. The store should increase sales in the interval (0, M).

C. The store is indifferent between expanding sales or not in (M, N).

D. The store should expand business when sales reach N.

4. Which statement about time horizon in economics is correct ____?

A. In the short-run, we have only variable inputs.

B. In the long-run, every input is variable.

C. In the short-run, we usually mean the horizon is less than one year.

D. In the long-run, producers are not able to exit the market freely.

5. Pat gives up a $40,000 per year job to stay at home and take care of his house. By so doing, Pat saves $15,000 in garden service and lawn maintenance which he now can do the job himself. The direct effect on GDP from Pat’s decision is ____?

A. $25,000 higher       

B. $30,000 higher 

C. $55,000 lower        

D. $15,000 lower

E. $40,000 lower 

6. Sarah invited some friends helping her move to a new house. She paid them a total of $200 and bought them a dinner at a Pizza Hut. Which of the following is true ____?

A. It is an illegal hiring and has no impact on GDP.

B.  Neither the $200 nor the dinner should be counted in GDP, as they are household production.

C. The $200 should be counted as part of GDP but not the dinner at Pizza Hut.

D. If her friends reported the $200 on their tax form, the $200 is a part of GDP.

E. The implication of the dinner at Pizza Hut on GDP is uncertain.

7. A new technology is discovered that results in all new cars producing 50 percent less pollution. As a result of the technology, there is a reduction in the number of visits people make to the doctor to complain of breathing difficulties. Which of the following is true ____?

A. Nominal GDP increases to reflect the improvement in the health of the population.

B. Real GDP decreases to reflect the decrease in pollution.

C. Nominal GDP does not change and real GDP increases.

D. Real GDP is not affected.

E. Real GDP decreases as a result of fewer doctor services being provided.

8. For Nick, his utility function (U) for consuming a bundle of X (sandwich) and Y (Pepsi), is U=2X3+Y  . Now suppose, a Pepsi gives him a constant utility at 16. X is the number of sandwiches he eats. What is marginal utility of eating the 3rd sandwich for him ____?

A. 5        B. 38        C. 14        D. 19      

9. Which of the following statement about Opportunity Cost is NOT correct ____?

A. It is also known as alternative cost.

B. For an item the cost is what you must give up in order to get it.

C. For inputs, it is the second best what you could earn for alternative uses.

D. For producers, it is the sum of explicit costs and implicit costs.

10. In the post-World War II period, considerable growth in total production took place in the United States, but at the same time, businesses were dumping their waste into the Great Lakes with minimal cost to themselves, significantly polluting the bodies of water as a result. This occurrence is an example where ____

A.  real GDP gives an overly positive view of economic welfare.

B.  the pollution counts as a final good.

C.  real GDP gives an overly negative view of economic welfare.

D.  investment would have been a better measure of total production.

Part II. Short-answer Questions

You have four questions need to finish. Total points = 80, 20 points each. Please make sure your answer is clear for grading. To get full credit, you need follow instructions of the question, and present correct and detailed (step-by-step) answer to the question.

1. Suppose you are considering to make a decent holiday dinner. In this year, to be creative, you are thinking to put Copper River Salmon from Alaska (fillet) and fresh Atlantic Lobsters from Maine as entrée on the table. Use the information given, to finish the questions below.

(1) The table following provides you total utility (U) and marginal (MU) from consuming Salmon and Lobster. Suppose your total utility of Salmon consumption (U1) is a function of the units (Q as pound or lbs.) of salmon consumed, as U1 = 400Q . Similarly, your total utility of Lobster (U2) has the form as units (Q as lbs.) of lobster consumed, which is U2 = 36Q+40 . Now fill the empty spots in the table using the information given.

Total utility and marginal utility of Salmon and Lobster.

Q

(lbs.)

Copper River Salmon

Atlantic Lobster

U1

MU1

U2

MU2

1

20.00

20.00

8.72

8.72

2

3

4

5

6

7

8

9

10

(2) With a certain amount of budget, you are going to purchase both Salmon and Lobsters. To maximize your total satisfaction (utility), how you will make your decisions? If the market price of Copper River Salmon (fillet) is $85.00/lb., you find that your best option is to buy three pounds salmon and ten pounds of lobster. Then, how much is the price of lobster ($/lb.)?

2. You are thinking to start your food catering business by making rolled tacos, which are often called taquitos (corn tortillas) and flautas (flour tortillas). As suggested, one important step is to estimate startup costs and prepare the budget. Your estimate shows, on a daily basis, your fixed cost (FC), including rent, utility, fees and tax, is about $300 per day. Your variable cost (VC) is largely depending on the units of labor (variable input) you are going to use. Hiring one labor will cost you $120 per day. Use the information given, to finish the questions below.

(1) The table below presents the cost structure of your taco business. The first two columns give you the number of your output or tacos (Y) and the units of labor inputs. To finish this table, you need to calculate variable cost (VC), total cost (TC), marginal cost (MC), average variable cost (AVC) and average total cost (ATC). Note: MC = ∆TC / ∆Y.

Output, Variable input and Costs (per day)

Tacos

Labor

VC

TC

MC

AVC

ATC

50

1

120

420

0.00

105

2

165

3

230

4

288

5

340

6

385

7

420

8

450

9

460

10

(2) What is the shape of the daily marginal cost (MC) curve, the average variable cost (AVC) curve and the average total cost (ATC) curve? And why they look like that shape? After some study to your long-run average total cost, you find it has a similar shape as the short-run (daily) ATC curve. Why the long-run ATC curve has such a shape?

3. Following the question above, after studies to your cost and budget, you now need to consider market structure of tacos catering in the city you operate your business. Use the cost information obtained from the previous question, to finish the questions here.

(1) Suppose you are now operating your business in a town which has a very competitive taco catering market. There are many restaurants and food caterers providing rolled tacos (flautas and taquitos). Your business is just one of many of them. If the market price (P) is $4.00 per rolled taco, to maximize your profit, how many tacos you should make per day? At this output level, what are the values of your marginal cost (MC), marginal revenue (MR), average revenue (AR), total revenue (TR) and total profit? Note: Total profit = Total revenue – Total cost. Your results are estimated as values per day.

(2) Due to several factors, the tacos market has dramatically changed in this town. Now you are the only rolled tacos maker. You have a demand curve for your taco as Q = 305 – 20 * P, where Q is the quantity demanded for your tacos per day and P is the market price ($) of each your taco. The output decision maximizing your profit is now to make 165 tacos per day. Then, what is the market price of each rolled taco? What is the relationship between, MC, MR, P and AR? And how much is your total profit at this level of output?

4. Macroeconomics is a field of economics which concerns performance, structure, behavior, and decisions of an economy at aggregate levels. There are three key issues in macroeconomics, e.g. output growth, price level and employment. Finish the questions of macroeconomic concepts and issues as following.

(1) Consumer Price Index (CPI) is a price indicator to reflect price levels over time. As a key economic indicator, CPI is computed monthly by the Bureau of Labor Statistics (BLS) using a “market basket” purchased by the typical consumer each month. Suppose you are doing a study to yearly price levels (CPI) of a metropolitan area in the US. Its CPI includes three categories, Food (grocery), Energy (gasoline) and other items (all goods and services less food and energy). The table below provides you the prices of the three categories in 2019, 2020 and 2021. Also, you have the units purchased by a typical consumer in these three categories. Use 2019 as the base year, to show step-by-step solutions for CPI in 2019, 2020 and 2021.

Prices ($) and Units of selected Categories of CPI

Item

Unit

2019 ($)

2020 ($)

2021 ($)

Food

10

6.00

5.50

6.75

Energy

5

2.50

1.80

2.90

Other items

25

20.00

19.00

22.50

(2) Being another key indicator, employment reflects the current status of an economy. Empirical evidence shows a higher growth rate of national output (GDP) usually goes hand-in-hand with a lower unemployment rate. In a study to the economic impact of the Covid-19 pandemics in the US, you noticed that during the pandemics, unemployment rises across states in 2020. Similarly, after state economies reopened and moved quickly out of the Covid-19 recession, unemployment rates also dropped in most states. However, there are still noticeable regional differences of how the job market performed in different states. The table below compares unemployment rates of Arkansas, California, New York and Texas in October 2019 (10/2019), October 2020 (10/2020) and October 2021 (10/2021). Use your language to explain the differences of unemployment rate between Arkansas and other three states.

Unemployment rate (%) of selected States

Date

Arkansas

California

New York

Texas

10/2019

3.5

3.9

3.9

3.5

10/2020

5.6

9.8

8.7

7.3

10/2021

3.7

7.3

6.9

5.4Hide Files: 01_ECON2333_2021b_Final_v2.pdf

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