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Eco 101 - Midterm Exam
April 7, 2005
Name<________________________________> Student Number<_______________>
Instructions. Complete all parts of all questions on this exam. This exam is closed notes/text and you may not consult any other resources. Calculators are not allowed. The time allotted for this exam is 70 minutes. If you have trouble with a question, move on to the next and return to the problem questions if you have time later in the exam.
1. Definitions {21 points} – For each of the following provide an appropriate definition: a) Opportunity Cost –
b) Marginal Cost –
c) Nash Equilibrium –
d) Comparative Advantage –
e) Trade Balance –
f) Statistical Discrimination –
g) Human Capital –
2. The Supply Curve {15 points}
- The supply curve has its upward slope due to something called increasing marginal cost. a) {5 points} On the following set of axis draw a typical supply curve, clearly label this curve along with price and quantity on the appropriate axis.
b) {10 points} Consider the following hypothetical information for the production of soybeans in the Delta region of Mississippi: i) There are four different types of land within this region and each type of land has a different productive capacity – some land is more productive than others; ii) In region A – farmers will find it profitable to start producing soybeans when the price reaches $2.10 per bushel (bu), and the total number of bushels this region could produce is 20,000; iii) In region B - farmers will find it profitable to start producing soybeans when the price reaches $2.30 per bushel (bu), and the total number of bushels this region could produce is 20,000; iii) In region C - farmers will find it profitable to start producing soybeans when the price reaches $2.50 per bushel (bu), and the total number of bushels this region could produce is 20,000; iii) In region D - farmers will find it profitable to start producing soybeans when the price reaches $2.70 per bushel (bu), and the total number of bushels this region could produce is 10,000;
- Construct the supply curve for soybeans in the Delta region using the above information on the following page (pg. #3). Make sure to appropriately label the graph.
c) {3 points} - Consider the following additional data also for 1998:
- Full-time Earnings for selected minorities 25 years and older (includes both men and women) Level of Education Black Hispanic Master’s degree 41,426 49,
- What could explain the difference in earnings for these two groups?
d) {2 points} Comparing the difference between the information in b) and c), is it likely the wage difference are based on prejudice between these two minority groups alone?
e) {4 points} The information in this question is taken from the Wednesday, March 30 th^ issue of the Wall Street Journal.
This figure shows what has happened to girls and boys performance on a standardized math exam in England. The convergence of scores between girls and boys and is believed to be due to a change in the methods used to teach math to students. When introducing the section on discrimination, an article was read in class with comments by Harvard University President Lawrence Summers who implied there may be innate, or inborn, differences that make boys better suited to dominate fields in math and science than girls.
- What does the above graph imply about the traditional view that boys are simply better than girls at math?
4. Investment in Human Capital and Earning Potential {15 points} - a) {3 points} - What is the relationship between earnings and level of education?
b) {12 points} - Consider the following diagram discussed in class:
Annual Earnings ($/ per year)
Age
G
X
Y
H
65
0
(^18 )
Earnings with a bachelors degree
Earnings with only a high school degree
- Indicate the correct answer to each of the following by i) Which area(s) represent the direct costs of going to college?
ii) Which area(s) represent the indirect costs of attending college?
iii) Which area(s) represent the total earnings from attending college?
iv) Which area(s) represent the total earnings from not attending college?
v) What area(s) represents the net benefit in earnings from attending college?
vi) Which area(s) represent the opportunity cost of attending college?
c) {3 points} - Fill in the following table where the payoffs for each cell in the table are (FC survival, EC survival)
First Class (FC) Don’t Rush Rush
Economy Class (EC)
Don’t Rush Rush (45, 70)
d) {3 points} - Which outcome will result in the saving the most lives?
e) {3 points} - Which is likely to be the worst outcome in terms of most people not surviving the place crash?
f) {3 points} - If this game was actually played (and indeed similar events have many times in the past) what is the Nash Equilibrium?
6) International Trade {18 points} - a) {2 points} - The US peanut industry. Draw the domestic (US) demand curve and label it as D and draw the domestic (US) supply curve and label it as S. Also, label the equilibrium price as P (^) NT, and the quantity purchased and sold in the market as QNT (we only need to indicate one quantity here since both quantity supplied and quantity demanded will be the same in equilibrium).
Price of
Peanuts ($/lb)
Quantity of Peanuts
(# of lbs)
b) {2 points} - Draw the shift that will occur if the United States begins to freely import peanuts from other countries. Make sure to label this new curve clearly on the above graph in (a). Also, label the new free trade price (P (^) T), and the new quantity demanded (QD) by US consumers and quantity supplied (QS) by US producers.
c) {2 points} - Will US consumers of peanuts gain or lose from free trade?
