Econ 312 Midterm Exam

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ECON 312 Midterm Exam Solutions

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Midterm Exam #1
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
…show more content…
3) The pre-rent profit associated with the least fertile parcel of land is
A) $20,000
B) $47,500
C) $50,000
D) $2,000
E) $2,500
4) Suppose that instead of remaining fixed, the world price of grain falls by $0.25 per bushel and that the price decrease is permanent. Which of the following statements is true?
I. With continually renewed rental contracts, the farmers experience a decrease in overall profits.
II. With continually renewed rental contracts, the landlords experience a decrease in rental income.
III. With long-term rental contracts (assume 1 year contracts), both farmers and landlords suffer from the price decrease.
A) I and III only.
B) II and III only.
C) I only.
D) II only.
E) III only.
5) Holding city population constant, cities in China have greater population density than cities in Canada. Which of the following is likely to contribute to the relatively greater density of Chinese cities?
I. The typical Canadian is more likely to drive a car than the typical Chinese. II. China has a more developed highway system than Canada.
III. The typical Chinese person earns less income than the typical
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Agricultural users have a constant bid-rent that is the same at all distances from the center of the city.
a) 5 points
Using a diagram that shows just a residential bid-rent function and an agricultural bid-rent function, clearly illustrate how a federal gas tax would lead to more compact cities. Assume the gas tax is not refunded to local residents.
This is a gas tax that is collected by the Federal government and not refunded lump-sum (like some examples you’ve seen). This sort of a tax just increases the cost of commuting for everyone who commutes. So at any distance (greater than zero) from the center of the city, residential and business users are willing to pay less for land. The higher commuting costs lead to a steeper bid-rent function which moves the edge of the city in toward the center.
Note that the city edge would, in reality, not move as quickly as it does in these diagrams. It would take time for land use to change and the edge of the city to retreat. These models are meant to capture basic land-use incentives, not all the adjustment dynamics.
b) 5

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