ECON 2510 Name_____________
Exam #1 March 24, 1999

1. It is about _________________miles to the sun.
2. The first president of the U.S. was ___________________.

Answer four (4) of the following six (6) questions.

1. What is opportunity cost? Explain and give an example. What is economic cost, explicit cost, and an implicit cost? Explain being sure to distinguish between these terms. What is the law of increasing opportunity cost?

2. Distinguish between the following term's spillover costs, spillover benefits, exclusion principle, public goods, free-rider and quasi public good.

3. You are choosing between tow goods, X and Y, and hour marginal utility from each is as shown below. If your income is $9 and the prices of X and Y are $2 and $1, respectively, what quantities of each will you purchase to maximize utility? What total utility will you realize? Assume that other things remaining unchanged, the price of X falls to $1. What quantities of X and Y will you now purchase? Using the two prices and quantities for X, derive a demand schedule for X.

4. What is price ceiling? What is a price floor? How have they been used? What controversies arise in their use? Should the state control the cost of using an ATM? Discuss.


5. Assume a purely competitive firm has the following schedule of costs and can sell out put at $200 per unit. Determine how much the firm will produce and why. How could you show this graphically?

Output	TFC	TVC	TC	Output	Revenue	Profit
0	$300	$0	$300	0	$	$
1	$300	100	400	1
2	$300	150	450	2
3	$300	210	510	3
4	$300	290	590	4
5	$300	400	700	5
6	$300	540	840	6
7	$300	720	1020	7
8	$300	950	1250	8
9	$300	1240	1540	9
10	$300	1600	1900	10

6. Explain/describe the basic principle of comparative advantage. How does comparative advantage imply terms of trade between countries? Why is there a gain from trade? Why do governments intervene in and restrict trade?