You have 120 minutes for this exam. The points total 120 too. You may use notes but not electronic devices. The more your examples are specific, the more you use appropriate technical terms, the more you go beyond repetition of the questions themselves, the better your answers.

1. Regarding the attached clipping from the Wall Street Journal on June 27, 2011, during the turmoil of the civil war in Libya:

a) Near the end of the first column is the phrase "discount the SPR [managers] will allow from benchmark prices". Please explain that phrase.

b) In the middle of the fourth column it says the SPR is releasing only "sweet" crude. Why should this type of crude attract more interest from buyers? What price premium does "sweet" crude usually receive?

c) At the bottom of the second column, it says Goldman Sachs [a major investment bank] didn't change it longer-term price forecast in response to the release from the SPR. Does this make sense to you?

2. Regarding the attached clipping from the Wall Street Journal on March 12, 2013:

a) It says in the third paragraph the US sugar prices, at about 20 cents per lb, are trading at their lowest level in the last 4 years. How do those prices compare to a longer time frame, say 40 years?

b) Near the end of the article, it says that beet processors can borrow against their output at 24.09 cents per lb while processors from sugar cane at 18.75. Does this difference in borrowing points make sense to you?

c) Evidently, if beet processors default on the loans, the USDA ends up with the sugar, and which it must sell to ethanol producers rather than sugar users. Who benefits from this restriction on the use of the sugar?

3. A natural-gas pipeline company has one operating division that buys gas from producers in Alberta Canada and sells to local consumers, another division that buys and sells in the Chicago area, and another that offers to transport gas, including other divisions', from Alberta to regions in the US, including Chicago, at a set fee. That is, various parts of the company post these prices in US dollars per million BTU (BritishThermal Unit). (It is the buyer at the bid and the seller at the ask.)

$5.80    bid Alberta
$5.82    ask Alberta
$5.91    bid Chicago
$5.95    ask Chicago
$0.10    transport fee from Alberta to Chicago

Does this company, notorious for the bureaucratic and independent way each division sets its prices, present any arbitrage opportunities for more astute traders, including routine buyers of natural gas in Chicago and routine sellers of natural gas in Alberta? The natural gas moves quickly through the pipeline so interest costs can be ignored. [Give some sense of your reasoning; an answer of merely "no", even if correct, will not receive much credit.]4. "In the long and troubled history of England and Ireland, no issue provoked so much anger or so embittered relations between the two countries as the indisputable fact that huge quantities of food were exported from Ireland to England throughout the period when the people of Ireland were dying of starvation" (p. 70, Cecil Woodham-Smith, The Great Hunger: Ireland 1845-9).

In the 1840s, Ireland, an island, was under the political control of England, another island. The typical Irish family leased a small amount of land, on which it grew potatoes, while working as agricultural laborers on larger estates, which grew wheat (and oats) for export. Wheat was much the more valuable crop by weight (potatoes are mostly water). Indeed, potatoes rarely appeared even in local markets, as the typical family ate what it grew, and those potatoes were a large fraction of the typical family's total income, implicitly. Wheat was the food exported when a fungus devastated the potato crops for several years in a row.

a) Please draw graphs representing the potato market in Ireland, the wheat market in Ireland, and the wheat market in England representing the situation before the potato blight devastated the potato crop. (Other markets could be included, such as the labor market in Ireland, but these three suffice.) Pay special attention to what groups need to be made distinct in the graphs. Briefly defend your assumptions about the supply and demand elasticities in your graphs.

b) How do these graphs of three markets relate to the current situation for quinoa in Bolivia (see attached article)?

c) How is it possible that market signals caused exports of wheat in the face of famine in Ireland? Please show your argument graphically. Which curves shift and why?

d) Would a statutory export monopoly over wheat have behaved in this manner?