[ECON 101] - Midterm Exam Guide - Everything you need to know! (45 pages long)

To pass a test, you must correctly answer at least 10 of the 20 questions. You have studied enough so that you can correctly answer any one question with probability p. Assume that questions are drawn independently from a common pool, so that the probability of a correct answer is the same for every question, but answering one question correctly makes it no more or less likely that you answer another correctly.

a. Find the probability that you pass the exam if p = .5

b. Find the probability that you pass the exam if p = .6

c. Find the probability that you pass the exam if p = .7

Can you try to explain what you did or what method you used thanks!

Q1. The following table shows the relationship between outside temperature (T) and number of hot drinks sold (Q).

a. Graph and briefly explain the relationship. Put the number of hot drinks sold (Q) on the vertical axis and outside temperature (T) on the horizontal axis.

b. Compute the slope of the line? Y-intercept? Show your work.

c. Construct the equation that represents this line. Predict the number of hot drinks sold (Q) at 26 ⁰F. Show your work.

Q2. Discuss the opportunity costs of the following cases, respectively.

a .Go to the movie theater and watch a movie instead of studying for a midterm exam.

b .Suppose that an economy’s PPF is a straight line, rather than a concave curve. What would this say about the nature of marginal opportunity cost as production is shifted from one good to the other?

Q3. Dreamland’s production possibilities schedule is as follows:

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a. Draw the production possibilities frontier. Put Capital Goods on the horizontal axis and Consumption Goods on the vertical axis.

b. If this economy is at point C, what is the opportunity cost of one more capital good (i.e., marginal opportunity cost)?

c. Can Dreamland produce 6 capital goods and 21 consumption goods? Explain.

d. Suppose that Dreamland has two possible choices in the future: it devotes only 5% of its resources to producing capital goods over each of the next 10 years, whereas it devotes 20%. In which case is Dreamland likely to experience more rapid economic growth in the future? Explain your reasoning.

1. You and other college students are deciding whether to major in music or engineering. You learn that there is a shortage of engineers making it easy for engineering graduates to find employment while there is a glut of musicians for whom finding a job is difficult. As a result, you and many other college students decide to major in engineering. What economic principle does this illustrate?

a. Specialization leads to economic efficiency

b. Government intervention can improve efficiency when there is a market failure

c. Individuals do not normally take into account the decisions of other individuals

d. Markets tend to move towards equilibrium as individuals respond to incentives

e. Changes in incentives are unlikely to change the decisions people make

2. Which of the following describes the equity-efficiency trade-off?

a. Actions intended to make economic outcomes fairer can cause efficiency to decrease

b. Government intervention can increase efficiency in a market

c. There is always a more equitable outcome that is also more efficient

d. The least efficient economic outcome is the fairest outcome

3. John works eight hours per day. Today he has to decide whether to work overtime and stay one more hour in the office, or go back home and spend that hour studying for his economics exam. His company pays him $70 per day if he works 8 hours, and $100 per day if he works nine hours. Assuming that, if John studies one more hour, his exam score increases from 75 to 80, what is John's rational decision?

a. John decides to work overtime only if he values getting a 5 point increase on his exam score less than $30

b. John decides to work overtime only if he values getting an 80 on his exam more than $100

c. John decides to work overtime only if he values getting an 80 on his exam less than $100

d. John decides to work overtime only if he values getting a 5 point increase on his exam score more than $30