Economics Exam Questions: Efficiency, Opportunity Cost, and Market Equilibrium

Question # 1

Suppose that your college decides to give away 1000 tickets to the hockey game against your school’s biggest rival. The athletic department elects to distribute the tickets by giving them away to the first 1000 students who show up at the department’s office at 10 A.M. the following Monday.

a. Which groups of students will be most likely to try to get the tickets? Think of a specific example and then generalize. (2.5 marks)

b. What is the opportunity cost to students of distributing the ticket this way? (2.5 marks)

c. Productive efficiency occurs when a good or service (such as the distribution of tickets) is produced at the lowest possible cost. Is this an efficient way to distribute tickets? If possible, think of a more efficient method of distributing the tickets. (2.5 marks)

d. Is this an equitable way to distribute the tickets? Briefly explain. (2.5 marks)

You have exams in economics and chemistry coming up, and you have five hours available for studying. The following tables show the trade-offs you face in allocating the time you will spend studying each subject.

A. Use the data in the table to draw a production possibilities frontier graph and briefly explain. (4 marks)

B. Label the points representing choice C and Choice D. If you are at choice C, what is your opportunity cost of increasing your chemistry score? (3 marks)

C. Under what circumstance would choice A be a sensible choice? (3 marks)

As oil prices rose during 2006, the demand for alternative fuels increased. Ethanol, one alternative fuel, is made from corn. According to an article in the Wall Street Journal, the price of tortillas, which are made from corn, also rose during 2006: “The price spike (in tortillas) is part of a ripple effect from the ethanol boom.”

a. Draw a demand and supply graph for the corn market and use it to show the effect on this market of an increase in the demand for ethanol. Be sure to indicate the equilibrium price and quantity before and after the increase in the demand for ethanol. Explain your answer briefly. (4 marks)

b. Draw a demand and supply graph for the tortilla market and use it to show the effect on this market of an increase in the price of corn. Once again, be sure to indicate the equilibrium price and quantity before and after the increase in the demand for ethanol. Explain your answer briefly. (4 marks)

c. By 2015, the price of oil had fallen, which reduced the price of gasoline. The demand for ethanol fell along with the price of gasoline. What impact would the fall in the demand for ethanol have on the market for tortillas? (2 marks)