Part A -

1. Draw and explain a production possibilities frontier for an economy that produces milk and cookies. What happens to this frontier if a disease kills half of the economy's cow population? Explain.

2. Does a change in consumers' tastes lead to a movement along the demand curve or a shift in the demand curve? Explain. Does a change in price lead to a movement along the demand curve or a shift in the demand curve? Explain.

3. Define the equilibrium of a market. Describe the forces that move a market toward its equilibrium.

4. If demand is elastic, how will an increase in price change total revenue? Explain.

5. Is the price elasticity of supply usually larger in the short run or in the long run? Why?

6. Give an example of a price ceiling and an example of a price floor. Explain.

7. What determines how the burden of a tax is divided between buyers and sellers? Why?

Part B -

1. Explain how buyers' willingness to pay, consumer surplus, and the demand curve are related.

2. What happens to producer and consumer surplus when the sale of a good is taxed? How does the change in producer and consumer surplus compare to the tax revenue? Explain.

3. How do the elasticities of supply and demand affect the deadweight loss of a tax? Why do they have this effect?

4. Draw the supply-and-demand diagram for an importing country. What is consumer surplus and producer surplus before trade is allowed? What is consumer surplus and producer surplus with free trade? What is the change in total surplus? Explain.

5. Give an example of a negative externality and an example of a positive externality.

6. Define public good and give an example. Can the private market provide this good on its own? Explain.

Part C -

1. Draw the marginal-cost and average-total-cost curves for a typical firm. Explain why the curves have the shapes that they do and why they cross where they do.

2. Does a competitive firm's price equal marginal cost in the short run, in the long run, or both? Explain.

3. Draw the demand, marginal-revenue, and marginal-cost curves for a monopolist. Show the profit-maximizing level of output. Show the profit-maximizing price.

4. Compare the quantity and price of an oligopoly to those of a competitive market. Explain.

5. What is the prisoner's dilemma, and what does it have to do with oligopoly? Explain.

6. Draw a diagram depicting a firm in a monopolistically competitive market that is making profits. Now show what happens to this firm as new firms enter the industry. Explain.

7. Does a monopolistic competitor produce too much or too little output compared to the most efficient level? What practical considerations make it difficult for policy-makers to solve this problem? Explain.

Part D -

1. Explain how a firm's production function is related to its marginal product of labour, how a firm's marginal product of labour is related to the value of its marginal product, and how a firm's value of marginal product is related to its demand for labour.

2. Give two examples of events that could shift the supply of labour. Explain.