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Additional Practice Problems for Exam 1
ECON 634 August 2010 Bangalore

The problems below are similar to problems that students have had the greatest difficulty correctly solving on recent exams. Correct answers are provided at the end of the problem set. Exam 1 will cover many more items than just the concepts presented here. This exercise is just meant to give you additional practice on the types of problems that have given students the most difficulty.

Q1 When the transactions costs associated with completing an activity by entering into a contract with another firm rise, the likelihood that this activity is done “external” to the firm by contracting with another firm _____ and the odds that it is done “internally” within the firm ____.
A rises; falls B falls; rises

Answer the next 4 Questions by 1st creating the following graph: Draw a standard supply and demand diagram, refer to it as Figure 1 label the intersection point of the supply and demand curves as Point A move from Point A up and to the left along the demand curve and label a point on the demand curve Point B move from Point A down and to the right along the demand curve and label a point on the demand curve Point C move from Point A up and to the right along the supply curve and label a point on the supply curve point D move from Point A down and to the left along the supply curve and label a point on the supply curve point E

Q2 If Figure 1 represents the market for solar power cells and it initially is in equilibrium at Point A, the new equilibrium in the market after a technological innovation gain in the production of solar power cells would be:
A Point A B Point B C Point C
D Point D E Point E

Q3 If Figure 1 represents the market for solar power cells and it initially is in equilibrium at Point A, the new equilibrium in the market after a large rise in the cost

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