ECON 312 Midterm Exam Solution All Possible Questions
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ECON 312 Midterm Exam Solution All Possible Questions 1) The effect of a (ceteris paribus) decrease in the cost of home production will be to 2) An increase in transport costs that has no effect on production costs (home or factory) will 3) A decrease in factory production costs (ceteris paribus) will 4) The building of the Canadian Pacific Railroad (which connected Toronto to the West) would have 5) According to Jared Diamond’s “Guns, Germs, and Steel” hypothesis, which of the following contributed to the dominant world position of European civilization by the mid-1800s? 6) Agglomeration externalities can arise due to 7) A piece of land that rents for $10,000 a year should sell for ________ if the interest rate is 5% and people expect the interest rate and rent to stay constant forever. 8) Assume that potential land users are equally capable (profitable) in their line of business, and that rental contracts are continuously renegotiated (i.e., there are no long-term contracts). The Leftover Principle says that 9) According to Ed Glaeser in Triumph of the City, cities can attract talent by 10) According to Ed Glaeser in Triumph of the City cities in decline (like Detroit) can benefit from End Section 1. Section 2: Short Answers 1) 15 points Consider a region with a population that is divided across two cities. The questions below ask you about different possible configurations of this region. Utility per worker curves are given for each city in the diagrams below. Recall that utility per worker is increasing in income and decreasing in congestion and rental costs. Consider the following three cases: Is this an equilibrium? If so, is it stable? Are the cities at their socially optimal size? It is an equilibrium but is not stable. The cities are not at their optimal size. Is this an equilibrium? If so, is it stable? Are the cities at their socially optimal size? Economics 312 Urban Land Economics VERSION 2 SOLUTIONS Midterm Exam #2 Section 1: Multiple Choice (3 points each) Select the most appropriate answer, and carefully bubble in the letter of the answer on your NCS marking card. Questions 1-4 refer to the following setup and diagram. Consider a farmer choosing between three pieces of land, each of different fertility. The world price of grain is $10 a bushel and is expected to remain fixed. Each diagram shows the cost curves associated with annual production on the land. Average production cost (non-rent costs per unit) at the profit maximizing quantity is denoted in each diagram. Assume all farmers have the same productivity on a given piece of land and assume free entry and a competitive market for land. 1) Which parcel—after rent is paid—will yield the highest profits for the farmer? A) All will yield the same profits. B) All will yield negative profits and so won’t be farmed. C) Parcel I. D) Parcel II. 1 E) Parcel III. 2) Given the annual rent earned by Parcel II in equilibrium, what would we expect Parcel II to sell for? Assume the annual interest rate is 5% A) $800,000 B) $1,440,000 C) $8,000 D) $160,000 E) None of the above. 3) The pre-rent profit associated with the least fertile parcel of land is A) $20,000