Author: Academic Technology
Company: Drew University

Olmsted Econ 5:
Questions from old exams:

I. Terms – note the instructions:

EXPLAIN EACH TERM AND ITS IMPORTANCE TO ECONOMICS.  INCLUDE EXAMPLES, GRAPHS AND/OR FORMULAS WHERE RELEVANT.

1. Comparative advantage
2. income elasticity
3. opportunity cost
4. substitutes
5. PPC
6. Law of Supply
7. Inelastic demand
8. Price floor
9. neoliberal

II. Graphical/numerical questions:

SHOW YOUR WORK, AND INCLUDE ALL RELEVANT GRAPHS/FORMULAS, etc. 

1. Given the information provided in the table below:

Production Possibility Schedule:
 	Coconuts	Bread
Choice 1	100	0
Choice 2	90	20
Choice 3	70	40
Choice 4	40	60
Choice 5	0	80

a. Graph the PPC for this coconut and bread economy.
b. What is the opportunity cost of going from 20 to 60 loaves of bread? 
c. Show graphically and explain the economic implications if this country is observed producing 80 coconuts and 15 loaves of bread. 
d. In the case where 80 coconuts and 15 loaves of bread are being produced, what will be the impact of the discovery of a new technology which allows workers to pick coconuts faster? Explain carefully.

2. True/False explain.
The cross price elasticity of computer keyboards and computer screens will be positive. 

3. An analyst explains that the price of cotton rose in England because the Queen of England set a new trend by wearing a cotton dress (in the past she had only worn silk) in public.  This, he argued, occurred at the same time that the cotton gin (a machine which improves cotton production) was being introduced. 
a. Do you find his analysis convincing?  Why or why not?
b. Draw a PPC with cotton on one axis and all other goods on the other.  Show the impact on England’s economy of the introduction of the cotton gin. Explain.

4. Given the following information:

P of Pizza | Q Supplied | Q Demanded
$5 | 0 | 90
$10 | 20 | 80
$15 | 40 | 70
$20 | 60 | 60
$25 | 80 | 50
$30 | 100 | 40
$35 | 120 | 30
$40 | 140 | 20
$45 | 160 | 10
$50 | 180 | 0

a. Graph the market for pizza and identify on the graph and in writing what the equilibrium price and quantity will be.
b. Explain what will happen to the market for pizza if the government decides to protect the pizza industry by placing a price floor of $25.  Show on your graph and explain verbally.
c. From the information you gained from parts a and b, can you tell whether demand is elastic or inelastic at this point?  Explain.
d. Does your answer to part c seem realistic, given what you know about the market for pizza?  In other words, do you think the demand for pizza is likely to be elastic or inelastic. 
e.  Draw another graph representing the market for hamburgers.  Explain what the impact of the price floor imposed on the pizza market is likely to have on the hamburger market.
f. Draw another graph representing the pizza workers labor market.  Explain what the impact of the price floor will be on the pizza labor market.

5. Thirsty and Munch are entering a gluttony contest. Thirsty can drink 1 glass of milk in a minute, while Munch can drink 2. Thirsty can eat 1 piece of cake in a minute, while Munch can eat 3. 

a. Graph both Thirsty and Munch's PPCs on the same graph.
b. Identify who has the absolute and comparative advantage in food and drink. Explain.
c. If each specializes in his/her comparative advantage, will they be able to beat the reigning champions, Greed and Sneed, who can consume 5 glasses of milk and 10 cookies in 5 minutes?

6. Explain the notion of caring labor and discuss why standard labor market analysis does not adequately account for caring labor.