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INTRODUCTORY ECONOMICS (GADE-ARA). Exam Draft
FULL NAME: …………………………………………………………………………………….
MARK:
Important: This is a two-hour exam. Write your answers in the space provided.
1. [1 point] Indicate whether the following sentences are true or false, justifying your answer: (i) “A reduction in unemployment shifts a country's production possibilities frontier outward?”
(ii) “If Brooks and Mizuno running shoes are substitutes, an increase in the price of Brooks running shoes will cause a decrease in the equilibrium price and quantity in the market for Mizuno running shoes”
(iii) “If the price elasticity of demand for musical shows is 3.0 (in absolute value), a decrease in the price of musical shows by 15% will reduce the quantity demanded of musical shows by 45%”
(iv) “If the inflation rate was 2.4% in 2012 and 1.4% in 2013, it can be concluded that the prices fell in 2013 with respect to 2012”.
2. [1.5 points] The demand and supply functions of a good X can be expressed as:
Where: Px = price of good X, Py = price of good Y, R = income, and Pm= price of the raw materials. a) Why the above expressions are not the demand and supply curves? b) What kind of good is X, normal or inferior? c) How will you define good X related to Y? d) Draw and compute the equilibrium market when Py = 20, R = 500 and Pm = 10. e) If the price of raw materials falls until (Pm)´ = 5 and the income rises until R´ = 600; calculate and graph the new equilibrium price and quantity in the market for good X. f) Comparing both equilibria, determine how the total revenue has changed and argue your answer in terms of the price elasticity of demand.
3. [1.5 points] Consider a market with the following supply and demand curves:
P = 200 - 0.25XD^ (demand) P = 20 + 0.15XS^ (supply) a) Obtain the equilibrium values of price and quantity. b) Calculate the new equilibrium when a tax of 10 € per unit of good X is imposed on buyers. Explain your answer. c) Compare graphically both equilibria. d) Who would bear a larger part of the tax burden, consumers or producers? Why? (Use elasticity of demand and elasticity of supply) e) Calculate the consumer surplus, the producer surplus and total surplus corresponding to point a) and then, to point b).
5. [1.5 points] Let an economy be described by the following equations:
( )
( )
a) Get the equilibrium values of employment (L), real wages (W/P) and the long-run aggregate supply curve. b) Determine the long-run macroeconomics equilibrium. Represent graphically. c) If the government establishes a minimum nominal wage equal to 20, determine the short-run aggregate supply curve and the macroeconomics equilibrium. d) Represent graphically the long-run and short-run macroeconomics equilibria. Identify what is the economic situation of that economy in the short run.
