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Mid-Sem Exam Sample
Mid-Sem Exam Sample
1. Beer and wine are two substitute products that are both sold in a competitive
market. Barley is an essential ingredient in the production of beer; grapes are an
input into making wine.
We observe that when price increases in both the beer and wine market, the quantity
traded of beer falls and there is an increase in the quantity traded in the wine market.
Which of the following scenarios is consistent with the observation in the two
markets, outlined above?
Consider an economy with just two people, Jack and Jill, who can make only two goods: x
and y. Jack takes two hours to make a unit of good x and takes four hours to make a unit of y.
Jill on the other hand takes one hour to make a unit of x and three hours to make one unit of
y. Each individual has 10 hours of time in total in which they can work.
2. If there is no trade between Jack and Jill, what is Jack’s total consumption of good x if
he consumes only one unit of y?
a. 0 units of x.
b. 1 unit of x.
c. 2 units of x.
d. 3 units of x.
e. 4 units of x.
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3. Which of the following statements is true?
4. If Jill and Jack are allowed to trade with each other, which statement is true?
5. Now suppose that, following some training from a knowledgeable relative, Jill
can now produce 1 unit of good y in 2 hours. If nothing else changes, which of the
following statements is true?
a. There are gains from trade to be realised if Jill and Jack specialise
in producing goods y and x, respectively.
b. Jack has an absolute advantage in producing good x but not good y.
c. Jill has a comparative advantage in producing good x but has an absolute
disadvantage in producing y.
d. There are gains from trade provided Jill specialises in producing good x
and Jack specialises in producing good y.
e. There are no potential gains from trade.
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7. Let demand be represented by qd = 16 – P, where qd is the quantity demanded and P is
the price in dollars. Let supply be represent by qs = 3P, where qs is the quantity
supplied.
Calculate the consumer and producer surplus.
8. The total cost function of a firm that makes tea cosies is: TC = 100+q2. Which of the
following is correct?
a. ATC = 100+q
b. AVC = q
c. MC = q2
d. MC = 2
e. ATC = 100
9. Suppose a firm has a constant marginal cost and positive fixed cost. Which of
the following statements is true?
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Section 2 (short answer):
Question 1
Planet Mungo is populated by one hundred identical clones who only consume pomegranates. Each
one demands pomegranates according to the equation P = 60 – 150qd.
(i) What is the market demand for pomegranates (QD) in planet Mungo? Show your
reasoning. Represent it in a well-labelled diagram.
(ii) A wide variety of pomegranate sellers from all around the galaxy (including three from
Wollongong) are willing to provide pomegranates to planet Mungo according to the
market supply equation P = 10 + QS. Represent it in the diagram.
(iii) Find the market equilibrium, the consumer surplus and the producer surplus. Represent
them in the diagram.
(iv) Find the point (price and quantity demanded) for which a 1% change in price results in a
2% change in quantity demanded.
Over time, the population of planet Mungo increases due to advances in cloning technology. Each of
the new clones also has an individual demand curve of P = 60 – 150qd.
A supercomputer from planet Mungo calculates that when price of pomegranates equals 0, the
quantity demanded in the market reaches 60. When the price of pomegranates equals 60, the quantity
demanded in the market is 0.
(i) Find the new market demand and the new market equilibrium. (2 marks)