S. Klepper, Economics 73-100, Fall 2007

Exam III

There are a total of three major questions, each weighted according to the points listed to the left of the question. These are the points apportioned to each question. They sum to 100

Each of the major questions has a series of subsidiary questions. Each of these subsidiary questions is a true-false question. To answer the question, indicate in your exam booklet whether the answer is true or false and provide a brief explanation for your answer. Correct answers with insufficient explanations will get no points. When you finish, hand in only your exam booklet.

The exam is open-book and open-notes. If you have any questions at all, then ask the proctor to help you. Do not introduce any assumptions (beyond those introduced in class) without consulting the proctor.

[26] 1. The United States was started by immigrants, and for many years immigrants helped fuel the growth of the United States. Immigrants were generally young, and they came over to the United States when wage rates were high and unemployment low in the United States. This tended to increase competition for jobs, which in turn decreased wages. Thus, immigration acted as a buffer. When conditions were most favorable for young men in the United States, immigration was greater, which drove down the wages of young men. Alternatively, when conditions were worse, there was less immigration and less downward pressure on the wages of young men. In the late 1920s controls were instituted that greatly restricted immigration. Thus, by the time the Great Depression occurred, immigration was heavily restricted, and subsequently immigration was no longer an important force in the United States.

Suppose that immigration had not been restricted at all. Assume that all immigrants are 20 years of age when they come to the United States. Which of the following correctly predict how not restricting immigration would have altered demographic patterns in the United States according to the economic theory of fertility discussed in class? Mark true for correct statements and false for incorrect ones.

_____1. The fertility rate would have been lower over the period 1937-1957, especially the latter half of the period after World War II.

_____2. A greater percentage of young women aged 20 to 24 would have worked after World War II over the period 1945 to 1955.

_____3. A greater percentage of 60 year-old women would have worked after World War II over the period 1945 to 1955.

_____4. The cycles in the fertility rate would have become more severe, so that the rise in the fertility rate from 1937 to 1957 would have been greater and the fall in the fertility rate in the period 1957 to 1977 would also have been greater.

_____5. The suicide rate of young men aged 15 to 24 would not have risen as sharply over the twenty year period 1957-1977.

_____6. The suicide rate of men aged 55 to 64 would have increased over the twenty year period 1957-1977.

[40] 2. Consider the fifth market experiment concerning perfect competition. Suppose that all aspects of the experiment were the same except that one out of every five sellers, which are referred to as type 2 sellers, had the following cost schedule:

Unit	Cost
1	$.34
2	.43
3	.51
4	.69
5	.74
6	1.10
7	1.50

The other four out of every five sellers, which are referred to as type 1 sellers, had the same cost schedule as in the version of the experiment conducted in class. All other aspects of the experiment were the same as the version of the experiment conducted in class—there were three buyers for every five sellers, sellers of both types were offered nothing in round 1 if they sold no output and $.99 in round 2 if they sold no output, and all traders were offered a $.05 commission for each unit traded in round 1 and for units four and higher traded in round 2. Which of the following correctly describe rounds 1 and 2 of the experiment under these circumstances according to the model of perfect competition? Mark true if a statement correctly predicts an outcome and false otherwise.

_____7. In round 1, the price would be lower than in the version of the experiment conducted in class.

_____8. In round 1, both types of sellers would sell the same number of units of output.

_____9. In round 2, at a price of $.69 type 2 sellers would supply four units of output.

_____10. In round 2, if the price were high enough to induce type 2 sellers to supply a positive level of output, they would supply at least four units of output.

_____11. In round 2, the number of units traded would be the same as the version of the experiment conducted in class.

_____12. In round 2, some type 2 sellers would sell a positive level of output.

_____13. In round 2, 25% of the type 1 sellers would exit the market (i.e., sell no output).

_____14. In round 2, excluding the commission all sellers would earn a profit of $.99.

[34] 3. In the last year gasoline prices have risen steadily in the U.S. In part this is due to a limited number of refineries in the United States that convert oil into gasoline. To remedy this problem, the federal government is considering building refineries that would have the capacity to produce 150,000 gallons of gasoline per day. Its plan would be to offer these 150,000 gallons of gasoline for sale at the market price for gasoline, whatever it might be.

Suppose that currently the gasoline refining industry is perfectly competitive and in long-run equilibrium. If the federal government institutes its plan and offers for sale 150,000 gallons per day of gasoline at the market price, which of the following are predictable consequences in the short run and in the long run?

_____15. In the short run, the market demand curve for gasoline will shift to the right.

_____16. In the short run, all private (i.e., non-government) gasoline refineries will earn negative economic profits.

_____17. In the short run, the number of gallons of gasoline purchased per day will rise by 150,000.

_____18. In the long run, the price of gasoline will be the same as before the government plan.

_____19. In the long run, the number of gallons of gasoline purchased per day will be 150,000 greater than before the government plan.

_____20. In the long run, some private gasoline refineries will exit.