ECO 135 Introduction to Economics I Midterm Exam

1) Evaluate the following statement – “Economists are fond of saying that there are
positive statements and normative ones but the truth is that all questions are really
normative”. (5p)
2) Suppose that the market of good X is at equilibrium,
a) while the number of consumers increases in 10% and the number of producers
increases 5%, what will happen to new equilibrium price and quantity of X? Show
this using a graph. (5p.)
b) suppose that good Y is a substitute of good X and the price of Y decreases and, on
the other hand, on the supply side, the input prices of good X decreases. What will
happen to new equilibrium price and quantity of X? Show this using a graph. (5p.)
c) both producers and consumers expect that the price of X will decrease in the future,
what will happen to new equilibrium price and quantity of X? Show this using a
graph. (5p.)
3) The market demand for pizza is
Qd=300-20P
The market supply for pizza is
Qs=20P-100
a) In equilibrium, how many pizzas would be sold and at what price? (4p.)
b) Show it on the graph. (2p.)
c) What would be happen if suppliers set the price of pizza at $15? Explain the market
adjustment process. (4p.)
4) Assume that the original manuscript of Adam Smith’s the Wealth of Nations is
discovered and the estate auctions it off to the highest bidder a price of $1,000,000 show
with the use of a graph what takes place and explain the process. (3 p.)
5) With drawing a graph explain what probably happened to the production possibility
frontier during the Black Plague. (3 p.)
6) Explain how low-skilled workers might actually be made worse off from a minimum
wage law in terms of working conditions and job training. In addition, what might be
the long-run impact on wages and earnings? (4 p.)