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Economics Questions

  1. (10 points) As a government official, you have decided that an excise tax (a specific or per unit tax) imposed on businessmen’s output is the best way to raise revenue for the State.
    1. Show by means of a DIAGRAM what happens to price and quantity in a competitive market when the tax is imposed.
    2. In order to be an effective revenue raiser, the demand curve must be ________________ (elastic/inelastic) and the supply curve must be ________________ (elastic/inelastic).
    3. Using your knowledge of the determinants of price elasticity, classify the demand and supply curves for the following items according to their relative elasticities, explain why some are better revenue raisers than others, and pick the best revenue raiser and the worst revenue raiser.
      1. oranges
      2. cigarettes
      3. automobiles
      4. salt
      5. football games
      6. gasoline
      7. diamond bracelets
      8. butter
      9. McConnell’s Principles of Microeconomics textbook
  2. (10 points) Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts) for economy Alpha:
    Production alternatives
    Type of production A B C D E
    Automobiles 0 2 4 6 8
    Forklifts 30 27 21 12 0
    1. Show these data graphically (DIAGRAM!). Upon what specific assumptions is this production possibilities curve based?
    2. What is the socially optimum output for Alpha?
    3. If the economy is at point C, what is the cost of one more automobile? Of one more forklift? Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs: its shape or its length?
    4. If the economy characterized by this production possibilities table and curve were producing 3 automobiles and 20 forklifts, what could you conclude about its use of its available resources?
  3. (10 points) The U.S. Department of Agriculture, publishes charts on the prices of farm products. Go to the USDA home page and select Charts and Maps and then Agricultural Prices (under Economics). Choose three farm products and determine whether their prices (as measured by “prices received”) have generally increased, decreased, or stayed the same over the past three years. In which of the three cases, if any, do you think that supply has increased more rapidly than demand? DIAGRAM and EXPLAIN! In which of the three cases, if any, do you think that demand has increased more rapidly than supply? Explain your reasoning. DIAGRAM and EXPLAIN!
  4. (10 points) Economics is…neither capitalist or socialist, it applies to every society. Economics would disappear only in a world so rich that no wants were unfulfilled for lack of resource. Such a world is not imminent and may be impossible, for time is always limited. Carefully evaluate and explain this quote. Do you agree that conceptually time is an economic resource?
  5. (10 points) Using the tools of supply and demand and the competitive market, demonstrate graphically and explain the difference between a “gas crisis,” in which prices are rising, and a “gas shortage.”
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Category: Sample Questions