Note: No explanation is required. A correct answer is worth one point, no answer at all is zero points, and an INcorrect answer is MINUS one point. 

1. If catching and selling fresh fish is a perfectly competitive industry,

then a tax of 50 cents per fish sold will raise the price of fish by 50 cents.

2. If the industry making computer disks is perfectly competitive, and the marginal cost of production of disks falls by 15 cents per disk, then the price of disks will fall by 15 cents per disk.

3. A situation is economically efficient if there is no way to change it

so that everyone gains -- or so that some people gain while no one else loses.

4. U.S. economic growth has been faster in the 20th century than in the

19th century, and faster in the 19th century than in earlier centuries.

5. The more inelastic the demand curve for coffee, the greater is the

rise in its price when there is a decrease in coffee supply.

6. If it snows in Florida and this reduces the number of oranges that will be available in a few months, the price of orange juice may rise after a few months --- but it will not rise immediately because the amount of orange juice currently available in stores and in storage is unaffected.

7. An effective way to keep down the price of automobiles would be to put price controls on steel and other inputs into automobile production, because this would reduce costs of making automobiles.

8. A price-discriminating monopolist usually produces less than

a monopolist who cannot price discriminate at all.

9. An increase in the nominal interest rate raises the velocity of money.

10. The expected rate of return on stocks is higher than

the expected rate of return on government bonds.

11. If American cars and imported cars are substitutes, then

a tax on imports of foreign cars will raise the price of domestic cars.

12. Automation reduces employment in the economy; the development of

robots in the future may significantly reduce the number of jobs available.

13. City streets are examples of common resources, and are overused relative to the social optimum.

14. One plus the real interest rate is the relative price of goods now in terms of future goods.

15. Public goods are goods that must be supplied by the government, because if they

are supplied on free markets then they result in externalities (such as pollution).

16. What is the approximate size, in the United States today, of (1 each)

(a) nominal GNP (or GDP)?

(b) federal government spending?

(c) the federal government's deficit?

17. Draw a graph to show how much a monopoly produces, what price the monopoly charges, and the deadweight social loss from the monopoly. (3)

18. Comment: "A good businesswoman would never sell a product, which she has in her inventory, for less than it originally cost to produce." (2)

19. Suppose the government subsidizes the production of computers. Draw a graph to show: (8)

the per unit subsidy

the price to buyers

price to sellers

quantity produced

change in producer surplus

change in consumer surplus

the total cost to government of the subsidy

the social loss from the subsidy

20. What is the relation between inflation and the money supply?  Write down the formula and explain where the formula came from. (3)

21. Suppose the demand curve for a product is

  x^d = 1000 - 120p

 where x^d is the quantity demanded and p is the price.  Suppose the supply curve for the product, with x^s the quantity supplies, is

  x^s = 200 + 40p.

 (a) Find the equilibrium price and quantity. (2)

 (b) Suppose a per-unit tax of $4 is placed on the product.  Find the new equilibrium quantity, price to buyer, and price to seller. (3)

 (c) What is the social loss (deadweight loss) from the tax?  (Answer with a number.) (2)

22. Explain the argument that the social security system reduces savings in the U.S. (3)

23. Comment: "The effects of government spending on the economy (e.g. output and interest rates) depends partly upon what goods the government buys." (4)

24. Comment: "If the government wanted to reduce unemployment, it could easily do so simply by hiring workers.  If the government hired 1000 people, then unemployment would fall by 1000 people."  (4)

25. Draw supply-demand graphs and show the changes in consumer and producer surplus (and deadweight social loss, if any) from:

(a) a maximum legal price on a good; (5)

 (b) a law preventing Americans from importing foreign cars; (5)

(c) a fall in the expected future supply of wheat; (5)

26. (a) A creditor has loaned money; a debtor has borrowed money. Which one gains and which one loses from unexpected inflation? Why? (2)

(b) Why would these people not gain or lose if the inflation had been expected? (2)

27. Discuss: "The U.S. economy would be better off if people started spending more money. This would help us get out of the recession and raise long-run economic growth." (5)

28. What is a currency reform? What happens? In what way is a currency reform in reverse like inflation? (2)

29. How are the nominal interest rate, real interest rate, and expected rate of inflation related to each other? (2)

30. Use the sticky-price theory to explain what happens, in the short run and the long run, when aggregate demand falls. (5)

31. Write down the formula (and define any symbols you use in the formula) for (1 each)

(a) the discounted present value of $1000 paid one year from now,

(b) the discounted present value of $1000 paid three years from now,

(c) the discounted present value of $1000 paid every year, forever.

32. (a) Explain why an increase in the money supply could lead a seller to believe that the relative price of his product has risen. (3)

(b) Explain why this would lead a seller to increase output. (2)

33. What happened in the Great Depression? (3)

34 Discuss: "Stock prices follow a random walk." What are the implications of this idea? (3)

35. What affects the fundamental price of stock? (3)

36. What is portfolio risk? What does it have to do with stocks? (3)

37. Suppose you buy a call option on stock in General Cinema. Under what conditions do you make a profit? a loss? (2)

38. Explain: (4)

(a) the activist view of government policy

(b) the laissez-faire view of government policy

 39. What is a takeover? What happens to the stock price of the firm taken over? Why? (4)

40. Discuss the benefits and costs of having a rule for monetary policy. (6)

 41. An amusement park does not allow people to bring their own food into the park.  Instead, it sells food at stands in the park for two to three times the price at which the food could be purchased elsewhere.  The amusement park also charges an admission fee to the park.

(a) Suppose that everyone who comes to the park buys one hamburger and one coke.  How is the price of the admission ticket to the park affected by the high price of food?  Does the amusement park gain anything from charging a high price for food in this case? (5)

(b) Suppose that different people have different demands for food at the amusement park: some people are willing to pay more than others for food at the park.  Some people may be willing to pay $5 for a hamburger at the park, while other people would rather not eat at the park at all rather than spend more than $2 for a hamburger there. Explain why the park could maximize its profits by charging a high price for food. (4)