Econ 202 Exam 1 Fall 2010 ECON 202: Exam 1, Fall 2010 Write your name on the back of each page. Use graphs to illustrate your answers whenever possible. Extra paper is available should you need it. Section 1: (5 points each) For each question in this section indicate whether the stated change impacts supply, demand, or both. Use a graph to demonstrate the impact. Make sure to label your graphs for clarity and to clearly state any assumptions you make. For all questions in this section consider the market for chicken sandwiches in Suli. Consider each of these separately (i.e. do not build on your answer from #1 when answering #2). 1. The population of Suli grows. 2. New ways of butchering are discovered that yield twice as much meat per chicken killed. Econ 202 Exam 1 Fall 2010 3. The AUI-S Voice publicizes news about a bird flu epidemic that is predicted to kill 50% of chickens worldwide in a year. 4. The AUI-S Voice publicizes news that chicken improves students’ ability to absorb economics concepts. Econ 202 Exam 1 Fall 2010 True or False? Explain. (2 points for correct answer, 8 points for your explanation) 5. The demand for a good is elastic if, when its price rises, the demand falls. 6. The cost of owning and operating a soccer field in a large city will most likely rise when the population grows. 7. Last month you decided that, given the rate at which Suli is growing, a gas station would be a good investment. You’ve invested 75,000,000 ID in landscaping and construction (which was the original estimate for the total construction cost) when the job foreman gives you the news that it will take another 10,000,000 ID to bring the project to completion. Since you’ve already spent 75,000,000 ID it would be foolish not to finish the project. 8. At the extreme, complements can become substitutes for one another. Econ 202 Exam 1 Fall 2010 Short Answer/Essay: 9. (25 Points) The following table gives the demand schedule (price and quantity) and total cost for a producer. a. Fill in the marginal revenue and marginal cost columns. b. Calculate the elasticity of demand between an output of 2 and 3 and also between 8 and 9 (moving from 2 to 3 and from 8 to 9). Specify whether demand is elastic or inelastic at each point. c. Calculate the elasticity of supply between an output of 8 and 9 (moving from 8 to 9). Specify whether demand is elastic or inelastic at this point. Quantity Price (ID) 1 20000 2 19000 3 18000 4 17000 5 16000 6 15000 7 14000 8 12000 9 10000 10 8000 Marginal Revenue Total Cost Marginal Cost Econ 202 Exam 1 Fall 2010 10. (35 points) a. Label each of the two graphs below (hint: they are either supply or demand) for chicken sandwiches in Suli. b. Given that the price of a sandwich is 500 ID, highlight the total benefit and net benefit for consumers and provide a numerical value for both. c. Given that the price of a sandwich is 500 ID, highlight the total benefit and net benefit for suppliers and provide a numerical value for both. d. Calculate the aggregate net benefit to everyone in Sulaimani from chicken sandwiches at a price of 500 ID.