Econ 103, Intro to Political Economy
Exam #1, Fall 2015
Stonebraker
Name _______________________________
1. (8%) Draw a production-possibilities curve for an island economy that can produce either pizzas or
tattoos. Label each axis clearly. Show what, if anything, will happen to the curve if a boat filled with
new immigrants arrives on the island. Explain briefly.
2. (17%) Nick can produce either 300 units of good X or 20 units of good Y in a day while Cory can
produce either 200 units of X or 10 units of Y in a day.
a. If specialization is not possible, what is the opportunity cost to Nick of producing one unit of X?
b. If specialization is possible, in which good should Nick specialize? In which should Cory
specialize? Explain your answers.
c. What trade ratio of X for Y would benefit both? Explain in detail how this ratio will benefit both.
3. (8%) Draw typically shaped supply and demand curves for pretzels, label clearly, and identify the
equilibrium price and quantity of the pretzels. Use the graph to show what, if anything will happen to
the equilibrium price and quantity of the pretzels if the price of potato chips rises. Explain your answer
4. (4%) To which category of resources does each of the following belong?
a. Elton John’s piano: ____________________________
b. the Catawba River: _____________________________
5. (24%) Indicate whether each of the following is true or false and explain the economic logic of each
answer. The explanation is more important than the true-false choice.
T
F
An increase in the price of chocolate will shift the demand curve for the chocolate to the left.
T
F
People’s expectations of future prices often are self-fulfilling.
T
F
If Adriana has an elastic demand for frozen waffles; an increase in the market supply will
increase the total amount she spends on the frozen waffles.
T
F
Demands are more elastic over a long period of time than over a short period of time.
6. (4%) Clearly explain why any price above the equilibrium level is not stable.
7. (7%) If the Supreme Court had invalidated subsidies to help low income people buy health insurance in
states with federally run health insurance exchanges, then health insurance premiums for other people
would increase. Why?
8. (3%) We often hear about "freedom of religion." Exactly what does the Constitution say about this?
9. (7%) During the early and mid-2000’s U.S. banks were giving mortgages with no down payments to
people with questionable credit records. Why were they not worried about the risk of doing this?
Explain clearly.
10. (3%) Who were the two primary authors of the Federalist Papers?
11. (8%) Suppose that both consumers and producers expect prices of plywood to be much higher in three
months. Use supply and demand to illustrate the impact of this on the current market for
plywood. Label your diagram clearly and explain.
12. (7%) Many economists claim that if the Greeks were not using the Euro as their currency, their
economy currently would be in better shape. Why? Explain.
Econ 103, Intro to Political Economy
Exam #1, Fall 2015
Stonebraker
Name _______________________________
1. (8%) Draw typically shaped supply and demand curves for pretzels, label clearly, and identify the
equilibrium price and quantity of the pretzels. Use the graph to show what, if anything will happen to
the equilibrium price and quantity of the pretzels if the price of potato chips rises. Explain your
answer.
2. (17%) Nick can produce either 300 units of good X or 20 units of good Y in a day while Cory can
produce either 400 units of X or 40 units of Y in a day.
a. If specialization is not possible, what is the opportunity cost to Nick of producing one unit of X?
b. If specialization is possible, in which good should Nick specialize? In which should Cory
specialize? Explain your answers.
c. What trade ratio of X for Y would benefit both? Explain in detail how this ratio will benefit both.
3. (8%) Draw a production-possibilities curve for an island economy that can produce either pizzas or
tattoos. Label each axis clearly. Show what, if anything, will happen to the curve if a boat filled with
new immigrants arrives on the island. Explain briefly.
4. (4%) To which category of resources does each of the following belong?
a. the Catawba River: ____________________________
b. Elton John’s piano: _____________________________
5. (24%) Indicate whether each of the following is true or false and explain the economic logic of each
answer. The explanation is more important than the true-false choice.
T
F
Demands are more elastic over a long period of time than over a short period of time.
T
F
An increase in the price of chocolate will shift the demand curve for the chocolate to the left.
T
F
People’s expectations of future prices often are self-fulfilling.
T
F
If Adriana has an elastic demand for frozen waffles; an increase in the market supply will
increase the total amount she spends on the frozen waffles.
6. (3%) We often hear about "freedom of religion." Exactly what does the Constitution say about this?
7. (3%) Who were the two primary authors of the Federalist Papers?
8. (4%) Clearly explain why any price below the equilibrium level is not stable.
9. (7%) If the Supreme Court had invalidated subsidies to help low income people buy health insurance in
states with federally run health insurance exchanges, then health insurance premiums for other people
would increase. Why?
10. (7%) During the early and mid-2000’s U.S. banks were giving mortgages with no down payments to
people with questionable credit records. Why were they not worried about the risk of doing this?
Explain clearly.
11. (8%) Suppose that both consumers and producers expect prices of plywood to be much higher in three
months. Use supply and demand to illustrate the impact of this on the current market for
plywood. Label your diagram clearly and explain.
12. (7%) Many economists claim that if the Greeks were not using the Euro as their currency, their
economy currently would be in better shape. Why? Explain.