ECO 202 Assessment Problem:

In this essay you will be asked to reflect the following issues using the supply and demand model.

1. There are two important inputs in the production of lattes: coffee beans and labor from workers at the coffee shop. a. Workers need to make a decision about how much time to spend working and how much time to spend doing other things. What factors affect the decision of a worker and how do these things affect the price of lattes? Rubric item 1. Demonstrate the knowledge of basic elements and concepts of microeconomics How does the following concepts affect price of lattes Microeconomic factors

1. Opportunity Cost

2. PPF with graph

3. Marginal cost and marginal benefit

4. Comparative advantage and absolute advantage

5. Price controls- price floor,

6. Explain with graph surplus in labor market if minimum wages is above equilibrium wages

7. Benefits, tuition and retirement plans

8. Consumer preferences Rubric item

2. Identify economic resources and their use

a. Natural resources

b. Human resources labor, education, skills

c. Technology

d. Entrepreneurship

b. Suppose a drought strikes the major coffee growing regions of Brazil. Describe the effect of the drought on the price and quantity of lattes in the context of the supply and demand model.

Explain with graph 1. Demand and supply, equilibrium price and output 2. Increase and decrease in demand 3. Increase and decrease in Quantity demanded 4. Increase and decrease in Supply 5. Increase and decrease in Quantity supplied 6. Explain Increase /decrease in supply of coffee beans due to drought with a graph 7. Effect on price and quantity demanded and supplied of coffee beans 8. Are coffee beans and latte complementary goods or substitutes 9. Cross price elasticity definition 10. Effect on price and quantity demanded and supplied of lattes

2. Now consider the local coffee market more broadly. Explain how the output decision made by a particular coffee shop differs under each of the four market structures: competition, monopoly, oligopoly, and monopolistic competition.

3 Differentiate production under pure competition, monopoly, oligopoly and monopolistic competition

1. Draw a graph. Label it and explain all types of costs i. Explain Law of diminishing marginal returns ii. Economies of scale iii. Short run and long run curves 2. In context of local coffee market, explain the features of pure competition, monopoly, oligopoly and monopolistic competition 3. Draw graphs of pure competition, monopoly, oligopoly and monopolistic competition and label it. 4. Discuss the output and price decision under pure competition, monopoly, oligopoly and monopolistic competition and label it.

Two.

The short-run aggregate supply curve may shift to the left if:

a inflationary expectations increase. b productivity increases. c government spending increases. d personal income taxes decrease. e commodity prices fall. Question

11 (1 point) Which of the following would cause the aggregate demand in Pinkertonville to decrease?

a Firms in Pinkertonville are more optimistic about future profits. b Interest rates in Pinkertonville are falling. c Government spending in Pinkertonville is rising. d Net exports to Fieldsville are decreasing. e Personal income tax rates are falling in Pinkertonville.

Question 12 (1 point) According to classical economic theory, a recessionary gap will automatically adjust when the:

a aggregate demand gradually increases due to higher taxation. b aggregate demand gradually decreases due to higher taxation. c short-run aggregate supply gradually increases due to increasing wages and resources prices. d long-run aggregate supply gradually increases due to declining productivity. e short-run aggregate supply gradually increases due to falling wages and resource prices.

Question 13 (1 point) The economy is currently in long-run equilibrium. Covid-19 causes consumer expectations to decline. In the long-run, we will expect:

a a short-run decrease in the unemployment rate and an increase in the price level. b a rightward shift in the long-run aggregate supply curve. c a return to full employment at a lower price level. d a decrease in nominal wages and an increase in potential GDP. e a short-run increase in both the unemployment rate and the price level.

Question 14 (1 point) Assume that current real GDP is above potential GDP. How would the self-correcting mechanism move the economy to its potential long-run equilibrium?

a The short-run aggregate supply curve shifts to the right as nominal wages remain unchanged. b The short-run aggregate supply curve shifts to the left as a result of increasing nominal wages. c The short-run aggregate supply curve shifts left as a result of decreasing nominal wages. d The short-run aggregate supply curve shifts right as a result of decreasing nominal wages. e The short-run aggregate supply curve shifts to the right as a result of increasing nominal wages.

Question 15 (1 point) If the cost of a market basket is $200 in Year 1 and $250 in Year 2, the price index for Year 2 with a Year 1 base is: a 125 b 200 c 115 d 130 e 100

Question 16 (1 point) Suppose you have a population of 170. You have 95 people that are employed, 5 are unemployed and looking for work, 3 are discouraged workers, and 30 people are retired. Based on this information, what is the unemployment rate?

a 5.0% b 10% c 5.3% d 4.8% e 2.9%

Question 17 (1 point) Pinkertonville has a population of 20,000 people. Of this population, 2,000 people are full-time students and not looking for work, 4,000 people are discouraged workers. There are currently 1,400 people that are unemployed, but actively looking for a job, and 5,000 people work part-time. The remaining people are considered fully employed. Based on this scenario, what is the unemployment rate in Pinkertonville? a 10% b 2% c 7.14% d 4.25% e 11.11%

Question 18 (1 point) An upward sloping, short-run aggregate supply is best described as a the level of real GDP that will be purchased at each possible price level. b the relationship between outputs and inputs. c the level of real GDP that will be produced at each possible price level. d the amount consumers plan to spend on output. e the trade-off between inflation and unemployment.

Question 19 (1 point) An economy can experience both high inflation and high unemployment, simultaneously, when a government spending increases while taxes remain unchanged. b negative supply shocks lead to an increase in commodity prices. c taxes increase while spending remains unchanged. d expectations of inflation decrease. e teenagers stay out of the labor force.

Question 20 (1 point) Suppose investment spending increases by $50 billion, and as a result real GDP increases by $300 billion. The multiplier is: a 6. b 4. c 10. d 3. e 1/4.

Question 21 (1 point) Suppose that the economy of Greenland is in equilibrium price of P1 and equilibrium output is Y1. If Congress uses fiscal policy which action would be most appropriate: a increase interest rates. b increase personal income taxes. c increase government spending on national defense. d increase transfer payments to retired persons. e increase subsidies for research and investment.

Question 22 (1 point) Apple Computers increases their capital business inventories. In the long-run, this increase in business inventories will cause the a long-run aggregate supply curve to shift rightward. b aggregate demand curve to shift leftward. c consumption function to shift down. d Phillips curve to shift out. e production possibilities curve to shift in.

Question 23 (1 point) Over the last year, Mr. Green has worked hard and his employer has taken notice, giving him a 6% raise in his salary. During this last year, overall prices in the economy have decreased by 4%. Given this information, Mr. Green's real wage has: a increased by 10% b increased by 6% c increased by 2% d stayed constant e decreased by 4%

Question 24 (1 point) In the United States, a $500 decrease in government spending typically causes Gross Domestic Product to fall by $5000. The spending multiplier in the United States is equal to: a 10 b 5 c .90 d .10 e 100

Question 25 (1 point) If the MPS = 0.1, then the value of the multiplier equals ___ and an increase of $500 in consumption spending will cause real gross domestic product to increase by _____. a 100; $5,000. b 1; $500. c 10; $5,000. d 1; $5,000. e 10; $500.

Question 26 (1 point) a Option A b Option B c Option C d Option D

Question 27 (1 point) If the marginal propensity to save is 0.3 and consumers receive $100, they will save ___ and spend ____: a $60; $40 b $70; $30. c $0.30; $0.70. d $50; $50 e $30; $70.

Question 28 (1 point) Congress reduces income taxes from 15% to 10% and at the same time increases government spending. What will happen to consumption and employment in the short-run? Consumption / Employment A. Decrease / Decrease B. Increase / Increase C. Decrease / Increase D. Increase / Decrease E. Increase / No Change a Option A b Option B c Option C d Option D e Option E

Question 29 (1 point) Suppose that this economy is in equilibrium at E2. If there is a decrease in disposable income, then: a AD1 will shift to the right, causing an increase in the price level and an increase in real GDP. b AD2 will shift to the left, causing an increase in the price level and a decrease in real GDP. c AD2 will shift to the left, causing a decrease in the price level and an increase in the real GDP. d AD1 will shift to the right, causing a decrease in the price level and an increase in real GDP. e AD2 will shift to the left, causing a decrease in the price level and a decrease in the real GDP.

Question 30 (1 point) Due to low interest rates, the US government begins to borrow money and spend on research and development. What is the most likely impact on the aggregate supply curve, the long-run aggregate supply curve, and the PPC? Aggregate Supply / Long-Run Aggregate Supply / PPC A. Decrease / No Change / No Change B. Decrease / Decrease / Shift Inwawrd C. Increase / Increase / Shift Outward D. Increase / No Change / Shift Inward E. Increase / Increase / No Change a Option A b Option B c Option C d Option D e Option E

Question 31 (1 point) Suppose the government increases its spending by $100 billion as a stimulus package. If the MPC is 0.5, then real GDP will: a decrease by $250 billion. b increase by $250 billion. c decrease by $200 billion. d increase by $200 billion. e increase by $600 billion.

Question 32 (1 point) Suppose Congress wants to move the United States out of a recession and towards full employment. Which of the following policies will shift the aggregate demand curve to the right? a The central bank decreases the money supply in the economy. b The government decreases its level of taxation in the economy. c The government decreases its level of transfer payments to households. d The government increases transfer payments to households. e The government increases its level of taxing on businesses.

Three.

Answer the following questions appropriately.

Problem 1. (7 points) A monopolist faces the following average revenue (demand) curve: P = 300 0.3Q and the monopolist's cost function is given by 0022) = 8000 + 03. (a) Derive the monopolist's marginal revenue equation. (2 pts) (b) Derive the mon0polist's marginal cost equation. (1 pt) (c) What level of output will the monopolist choose in order to maximize its prots? (2 pts) ((1) What price will the monopolist receive at the prot-maximizing level of output? (1 pt) (e) Calculate the monopolist's prot when they produce at the prot-maximizing level. (1 pt) 7. The graph to the right is a (1) graph, which measures how a Personal Disposable Income 1975-2009 single variable changes over time. (Billions of Dollars) 11,000- Which of the following is true of the graph to the right? 10,000- 9.000- O A. It is positively sloped. 8,000 O B. It shows a general increase in the level of personal disposable income over time. 7,000 O C. It allows us to analyze the behavior of 6,000 Personal disposable income two variables at the same time. 5,000- O D. All of the above. 4,000- O E. A and B only. 3,000- 2,000- 1,0009 1975 1980 1985 1990 1995 2000 2005 Year (1) O bar O two-variable Cartesian O time seriesIf the demand for its good or service is inelastic, a monopoly's a total revenue increases when the firm lowers its price. Ob. total revenue is unchanged when the firm lowers its price. Oc. marginal revenue is negative. Od. marginal revenue is equal to zero. Oe. marginal revenue is positive. QUESTION 6 Refer to the figure below. Assume this firm is a single-price monopoly. What is the profit-maximizing price to charge for the unit? Price 8.00 5.00 MC 3.00 D 0 300 450 600 1100 Quantity MR Oa. $0 Ob, $3,00 Oc. $5.00 d. $8,00