11
NAME:________________________
Ec.2100-Tansey July 17, 2016
EXAM I.
Figure 1. Shifts of Supply and Demand
(A)
(B)
SUPPLY SHIFTS:
LEFTWARD (up)
(up)
P
Supply
(C)
(D)
RIGHTWARD (down)
DEMAND SHIFTS:
LEFTWARD (down)
RIGHTWARD
P
P
P
Q
Supply
Q
Demand
Q
Demand
Q
I. (60 points) Following are a list of events. For each event answer the questions that follow:
 Choose which of the diagrams in Figure 1 best represents an event reflecting a shift in
demand or supply (in bold letters) in the underlined market for the listed event.
 Write down the determinant of demand or supply that has caused the shift in the blank
provided.
 Based on the shift decide circle the best answer for what is happening to price and
quantity as a result of the shift
 Circle which type of market is most likely involved
 Write down in the blank provided the reason you believe it is that type of market.
1.Future Farmer
January 30, 2008; Page A16
History records that previous commodity booms were not followed by mass starvation, resource
wars and the end of civilization. John Atkin is out to make sure it doesn't happen again.
An agricultural zoologist by training, he serves as chief operating officer for crop protection at
Switzerland's Syngenta, a competitor to the U.S. giant Monsanto in the controversial business of
agricultural technology.
22
Of the recent surge in prices for all manner of foodstuffs, he says don't blame biofuels. Coffee
and frozen orange juice are up, and they don't go into your gas tank or compete for land with
ethanol-related crops. Iron ore, copper and most nonfarm commodities are up too. And whatever
the errors of Alan Greenspan and Ben Bernanke, the biggest factor may be a simple failure of
optimism about the global economy. Every CEO's mental map now includes [India and China,]
yet somehow the whole spectrum of natural resources producers failed to invest sufficiently to
meet the demand of several hundred million new consumers.
Mr. Atkin cites a United Nations forecast that, by 2030, food production will have to have
increase 50%, partly to feed a bigger world population and partly to supply the richer, more
varied diets demanded by the newly affluent of the developing world.
"Agriculture can respond to this," he says. "Absolutely it can respond to this."
He also says: "Organic farming is not the solution." Technology is.
Only Brazil offers sizable acreage of uncultivated lands, in its scrubby central and western
provinces. Transportation costs were once prohibitive, but with high crop prices, enterprising
farmers are bringing virgin lands under the tractor. Who's financing these
sodbusters? "We're financing them," says Mr. Atkin, slightly astonished by his own answer. Seed
and agrochemical suppliers have been letting their receivables go unpaid 200 or 300 days,
serving effectively as banks.
Also making a contribution will be [Russia and Ukraine,] where modern techniques will
dramatically improve productivity. But the heaviest lifting will be done by technology. Syngenta,
based in Basel, is carving out a different approach than Monsanto, involving chemistry as much
as gene technology, and working particularly closely with farmers to adapt its formulas to local
conditions.
http://online.wsj.com/article/SB120165424414527037.html
Figure 1 (circle one) A
B C
D
Determinant that is changing (write only one) _________________________________
What will occur as a result of this shift alone (circle only one)?
(a) Price and quantity both rise.
(b) Price and quantity both fall.
(c ) Price rises and quantity falls.
(d) Price falls and quantity rises.
(e) None of the above because there is only a movement along the demand curve, not a shift.
Type of market involved (circle only one)?
Monopoly Oligopoly MonopolisticCompetition
Perfect Competition
How do you know?
33
2.
By any measure, Exxon Mobil’s performance last year was a blowout. The
company reported Friday that it beat its own record for the highest profits ever recorded
by any company, with net income rising 3 percent, to $40.6 billion, thanks to surging
oil prices. The company’s sales, more than $404 billion, exceeded the gross domestic
product of 120 countries.Exxon Mobil earned more than $1,287 of profit for every
second of 2007. The company also had its most profitable quarter ever. It said net
income rose 14 percent, to $11.7 billion, or $2.13 a share, in the last three months of the
year. The company handily beat analysts’ expectations of $1.95 a share, after missing
targets in the last two quarters. Like most oil companies, Exxon benefited from a near
doubling of oil prices,…. Crude oil prices rose from a low of around $50 a barrel in early
2007 to almost $100 by the end of the year — the biggest jump in oil prices in any one
year. “Exxon sets the gold standard for the industry,” said Fadel Gheit, an oil analyst at
Oppenheimer & Company in New York. Oil companies have all reported strong profits in
recent days. Chevron, the second-largest American oil company, said Friday that its
profits rose 9 percent last year, to $18.7 billion; Royal Dutch Shell on Thursday reported
net income for 2007 of $31 billion, up 23 percent and the largest figure ever for a British
company.
The backlash against the oil industry, which has periodically intensified as gasoline
prices have risen in recent years, was predictably swift on Friday.
One advocacy group, the Foundation for Taxpayer and Consumer Rights, called the
profits “unjustifiable.” Some politicians said Congress should rescind the tax breaks
awarded two years ago to encourage oil companies to increase their investments in the
United States and raise domestic production.
Figure 1 (circle one) A
B C
D
Determinant that is changing (write only one) _________________________________
What will occur as a result of this shift alone (circle only one)?
(a) Price and quantity both rise.
(b) Price and quantity both fall.
(c ) Price rises and quantity falls.
(d) Price falls and quantity rises.
(e) None of the above because there is only a movement along the demand curve, not a shift.
Type of market involved (circle only one)?
Monopoly Oligopoly MonopolisticCompetition
Perfect Competition
How do you know?
44
3. ESPN to Offer Sports Events on the Web
Free to Some
By BRIAN STELTER
Published: February 4, 2008
ESPN, the dominant channel for sports programming, will announce this week that Web
users on college campuses and military bases — anyone in the .edu or .mil domain — will
be able to access live programming on its Web site, ESPN360, without charge.
Opening ESPN360’s doors to college students and members of
the military will more than double its base of possible users,
potentially driving traffic to a site that has recorded only 500,000 viewing hours since it
started focusing on live sporting events last September.
Cable companies pay nearly $3 a subscriber to broadcast ESPN on television. But its
Web site, which provides live coverage of more than 2,500 sporting events a year, is
accessible only to the 20 million subscribers to Internet service providers that have
reached agreements with ESPN.
In adopting a subscriber fee format, the company has tried to apply the closed model of
cable television to the widely accessible avenues of the Internet.
“The high-speed data marketplace is evolving much like the multichannel TV
marketplace did 20 to 30 years ago,” said David Preschlack, the executive vice president
for affiliate sales and marketing for Disney and ESPN Media Networks.
“Future growth for I.S.P.’s will not be based on speed and price of service, as it largely
has been up to now, but rather on the value of the content they offer.”
ESPN, which is 80 percent owned by the Walt Disney Company and 20 percent by
Hearst Corporation, has frustrated some fans by putting an electronic wall around some
sporting events. Users cannot subscribe to the service separately; they receive it through
their Internet service provider or not at all.
AT&T, Verizon, RCN and Charter are among those that offer it. On Friday ESPN signed
an agreement with Insight, a Midwestern cable operator, which will make the platform
available to 700,000 subscribers next week.
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But several major cable operators, Comcast and Time Warner Cable among them, have
not signed on.
The notion of paying a subscriber fee for content is relatively new to the mainstream
Internet, and fairly uncomfortable.
http://www.nytimes.com/2008/02/04/business/media/04espn.html?_r=1&ref=todayspa
per&oref=slogin
Figure 1 (circle one) A
B C
D
Determinant that is changing (write only one) _________________________________
What will occur as a result of this shift alone (circle only one)?
(a) Price and quantity both rise.
(b) Price and quantity both fall.
(c ) Price rises and quantity falls.
(d) Price falls and quantity rises.
(e) None of the above because there is only a movement along the demand curve, not a shift.
Type of market involved (circle only one)?
Monopoly Oligopoly MonopolisticCompetition
Perfect Competition
How do you know?
4.
Car sales in U.S. decline
January's figures
are weakest in years;
GM alone posts rise
By JOSÉE VALCOURT and MIKE SPECTOR
THE WALL STREET JOURNAL ASIA
February 4, 2008
DETROIT – [U.S.] auto sales fell 4.3% in January and slumped to their slowest
level in years, adding to fears the economy is slipping into a recession.
Two of the Big Three Detroit auto makers, Ford Motor Co. and Chrysler LLC, saw declines, as
did their Japanese competitors Toyota Motor Corp., Honda Motor Co., and Nissan Motor Co.
General Motors Corp.'s sales were up 2.6% compared with a weak January a year earlier, but its
figure was still poor by historical standards.
Auto makers sold a total of 1,043,947 cars and light trucks in January, according to Autodata
Corp. That put the industry's seasonally adjusted annualized selling rate, known as the SAAR, at
15.24 million light vehicles, at the low end of most forecasts for the first half of 2008.
In separate conference calls, Ford, GM and Toyota officials expressed optimism they will see an
improvement in vehicle demand in the second half of the year as a result of the Federal Reserve's
interest-rate cuts and the economic-stimulus package now being negotiated in Washington.
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The impact of these efforts should "kick in big time in the third quarter this year," said Michael
DiGiovanni, GM's top sales analyst.
Auto makers sold 16.1 million cars and light trucks in the U.S. market in 2007, well below the
totals from the previous six years, when they sold about 17 million vehicles annually. Toyota
expects sales in the second half to rebound and enable this year's total to reach about 16 million,
spokesman Irv Miller said.
GM, whose sales rose to 250,926 vehicles from 244,614 in January 2007, attributed the
improvement to higher sales to individuals. It posted a 17% drop in sales to rental-car companies,
a low-margin business most auto makers are trying to move away from. GM estimated that its
market share rose about two percentage points to more than 24%.
By historical standards, however, GM still had a rough month. Last month was the company's
second-worst January since at least 1980, according to Autodata, surpassing only January 2007.
Edmunds.com, an auto-shopping Web site that tracks industry data, said GM spent an average of
$3,402 in sales incentives for each vehicle it sold, about $1,000 more than in the same month a
year earlier.
A GM spokesman attributed the rise to high incentives for GM's full-size pickup trucks, which
carried smaller, or no, incentives a year earlier.
Ford's U.S. sales fell 3.9%. Its total of 159,276 vehicles, down from 165,668, was the lowest in
the month of January since 1981, according to Autodata.
Chrysler, which had pumped up its figures through most of 2007 by selling heavily to rental
fleets, scaled back the practice. Its sales fell 12% to 137,392 vehicles from 156,308.
At Toyota, sales fell 2.3%, but its total of 171,849 vehicles put it well ahead of Ford as the No. 2
manufacturer in the U.S. behind GM. Honda's sales declined 2.3%, and Nissan's 7.3%.
Auto makers are suffering under the weight of a prolonged housing downturn, rising fuel prices
and tightening credit conditions.
Figure 1 (circle one) A
B C
D
Determinant that is changing (write only one) _________________________________
What will occur as a result of this shift alone (circle only one)?
(a) Price and quantity both rise.
(b) Price and quantity both fall.
(c ) Price rises and quantity falls.
(d) Price falls and quantity rises.
(e) None of the above because there is only a movement along the demand curve, not a shift.
Type of market involved (circle only one)?
Monopoly Oligopoly MonopolisticCompetition
Perfect Competition
How do you know?
77
5.
Air traffic drives industry profit for first time since 2000
Strong demand drove the global airline industry's first profit since 2000 last year, with carrier's
around the world turning in a collective profit of US$5.6-billion in 2007, according to the
International Air Transport Association [IATA].
"We can say clearly that 2007 was the best in recent memory," said Gionvanni Bisignani, IATA
chief executive, in a statement Thursday. "We can state equally clearly that there will be no
encore performance in 2008."
High oil prices, continued economic uncertainty stemming from the U.S. credit crunch, and the
resulting decrease in demand in flyers in the late part of last year points to a downturn in the
airline industry in 2008, he said.
International passenger traffic demand grew collectively by 7.4% in 2007, up from 5.6% in the
previous year.
However, demand dwindled in December, dropping to 6.7% growth from 9.3% in 2006,
reflecting rising ticket prices and growing economic uncertainty, IATA said.
North American traffic demand increased 5.5%, down slightly from the previously year.
Load factors - or the average amount of seats filled on each plane - increased by 1% in 2007 to
77%, but is expected to drop to 5% this year as capacity rises by 5.2%.
Scott Deveau
Figure 1 (circle one) A
B C
D
Determinant that is changing (write only one) _________________________________
What will occur as a result of this shift alone (circle only one)?
(a) Price and quantity both rise.
(b) Price and quantity both fall.
(c ) Price rises and quantity falls.
(d) Price falls and quantity rises.
(e) None of the above because there is only a movement along the demand curve, not a shift.
Type of market involved (circle only one)?
Monopoly Oligopoly MonopolisticCompetition
Perfect Competition
How do you know?
88
II. (40 points)
Following is a production table showing how many pairs of jeans can be
produced with sewing machines (vertical axis) and labor (horizontal) axis:
Labor
Sewing Machines
0
3
6
9
0
2
4
6
0.0
20.0
25.0
30.0
20.0
30.0
38.0
40.0
25.0
38.0
40.0
45.0
30.0
40.0
45.0
50.0
A.
What is the marginal physical product of 4 units of labor when there are zero sewing
machines? (Show how you get your answer):__________________________
B.
What is the marginal physical product of 6 sewing machines when there are 4 units of
labor? (Show how you get your answer):__________________________
C. Suppose a unit of labor cost $1 and each sewing machine costs $2 to use. In the following
table, show the cost of using different combinations of sewing machines and labor:
Labor
0
Sewing Machines
2
4
6
0
3
6
9
D. Suppose fixed costs are $10.00. Fill in the blanks of the following table based on the above
two tables of information and the fixed cost (you don’t have to make the final numeric
calculation but just show what computations with what numbers would have to be made):
Jean
output
0
20
30
40
Total Variable
Cost
Fixed
Cost
Total
Cost
Average
Total
Cost
Average
Variable
Cost
Average
Fixed
Cost
Marginal
Cost
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E. (20 POINTS EXTRA CREDIT) Graph the Average total cost, average variable cost, and
average fixed cost in the following graph. Make sure you label each axes:
yaxis:
____
____
x-axis:________________________
F.
(a)
(b)
(c)
(d)
(e)
Based on your graph which of the following is most in evidence (circle only one):
The law of demand
The law of supply
The law of diminishing marginal productivity
Diseconomies of scale
None of the above.