Microeconomics Unit Review: Name:

Section 1: Business Organizations

Instructions: Read each situation and determine whether it is describing an owner of a “Sole Proprietorship”, “Partnership” or “Corporation”. (Some descriptions will have more than one correct answer)

Description: / Sole-Proprietorship / Partnership / Corporation
  1. Jasmine operates with a large amount of risk, but she also receives nearly all of the profits from her company.

  1. Roberto assumes a large amount of risk and is also put on edge by the fact that he could be responsible for someone else’s actions.

  1. Aaron’s company has a very easy time raising capital for new projects and expansions.

  1. Mason feels frustrated because he feels like he is being ignored when giving suggestions about how his company should operate.

  1. Pat feels comfortable at his company because it is so easy to pursue new product ideas quickly.

  1. Johnny feels relaxed knowing that even if his company fails, his personal assets are safe.

  1. Jill has the comfort of knowing that even after she dies her company will continue to operate smoothly.

  1. Zack appreciates the fact that he has a large degree of control over his company while still focusing only on the things he does well.

  1. Emily is concerned that she could lose everything if her company goes under.

Section 2: Market Structures

Instructions: Read each description and determine whether it is describing a “Monopoly”, “Monopolistic Competition”, “Pure Competition” or “Oligopoly”.

Description: / Monopoly / M.C. / P.C. / Oligopoly
  1. Jane has no control over her price, and must sell products for little to no profit.

  1. Sean sells specialty hot dogs. He can change his price somewhat but has to be careful not to over-do it or he’ll lose customers.

  1. Tom’s company has often been criticized because many people feel they are far more wasteful than they should be.

  1. Kevin is a mechanic. He is constantly checking the price of his competitors because he knows that he must keep his price close.

  1. Susan has an informal agreement with her competition that she won’t change her price if they don’t either.

  1. Despite her love of cooking Sarah is afraid to open a bakery because there are so many large bakeries that already exist.

  1. Troy regularly wears a crown to his son’s soccer matches, claiming he is “the burger king of Atlanta” because people recognize him.

  1. Megan does not care about the price of her product because her product has no ready-made alternatives.

  1. Henry is frustrated because consumers won’t buy his product despite pulling out ad’s in the local paper.

  1. Tony wants increase the profit of his ice cream store, so he decides to buy a dairy farm.

  1. Marco realizes his pizza business isn’t making enough money so to compensate he purchases a sneaker company.

Section 3: Circular Flow **answer on a separate sheet of paper**

Instructions: Read the questions and answer based on your knowledge of the interactions between firms and households.

  1. Draw and label your own Circular Flow diagram.
  2. You satisfy your sweet tooth with a late night trip to the store and buy ice cream. What market are you acting in?
  3. When Ford Automotive hires you as a quality control manager, which flow is this representing?
  4. Jordan works at Target. Malaya works at Pink Berry. One evening after getting off work, Jordan drops in to Pink Berry to get some frozen yogurt from Malaya. Which market is Jordan working in? Which market is Malaya working in?
  5. Households are always buyers on? Firms are always buyers on?

Section 4: Supply and Demand**answer on a separate sheet of paper**

Instructions: Several scenarios are given below, read each one carefully. After reading the scenarios draw a supply and demand graph that reflects each question. Make sure to include what happened to “equilibrium price” and “equilibrium quantity”. Also include whether there is a “shortage” or “surplus” created. (Each question is independent of the one before it)

Scenario 1: In the town of Kennesaw, Dunkin Donuts and Krispy Kreme are seen as substitutes by consumers. Because flour is so cheap (the primary input in donuts) both stores usually charge a market price of just $1 dollar per donut. In addition to donuts people in Kennesaw love coffee and consider it to be a compliment to donuts in general. Using this descriptions complete the following prompts.

  1. Dunkin Donuts runs a week long promotion where donuts are $.50 each. Krispy Kreme chooses not to respond. Show the graph for both Dunkin Donuts and Krispy Kreme.
  2. Due to Columbian worker riots the world price of coffee rises. Show the graph the donuts in general.
  3. Gucci Mane’s new rap song called “Krispy KremefoSuppa” hits the radio and people begin to crave Krispy Kreme around dinner time. Show the graph for both Krispy Kreme and Dunkin Donuts.
  4. Because of a poor wheat harvest the price our flour goes up. Show the graph for donuts in general.
  5. A new donut shop called “Sublime Donuts” opens up in Kennesaw, show the graph for donuts in general.
  6. Dunkin Donuts raises their price to $1.50 while Krispy Kreme keeps their price constant at $1. Show the graph for both.
  7. The government institutes a price floor of $1.50 per donut. Show the graph for donuts in general.
  8. Because donuts are linked to obesity the government imposes a $.25 cent tax per donut on all donut makers. Show the supply and demand for donuts in general.

Scenario 2: Taylor Made is a golf club manufacturer, because golf is played outside the spring and summer are always their busiest seasons of the year. In the golf industry Callaway golf clubs are seen as a substitutes for Taylor Made. Golf balls are seen as a compliment to golf clubs because one cannot be used without the other.

  1. Taylor Made knows that it will be able to charge more for golf clubs in April since it will be the beginning of the golfing season in much of the country. On a supply and demand graph show the action Taylor Made is likely to make in the middle of winter when they cannot charge as much.
  2. Golfers know that golf clubs often get marked up in price once spring arrives. Knowing this, show on a supply and demand graph the likely action of golf club buyers in mid-December when prices are lower.
  3. The government announces a new “get active” initiative designed to get people outdoors and exercising. Because of this golf club purchases are now accepted as a tax write off. Show the graph for golf clubs as a whole.
  4. In an effort to gain market share Callaway reduces the price of their golf clubs to $50 cheaper than Taylor Made. Show the graph for Callaway and Taylor Made.
  5. Because of the steep price of golfing the government announces a price ceiling of $400 dollars for a set of golf clubs. Show the graph for golf clubs in general.
  6. The price of golf balls drops, show the graph for Taylor Made and for Callaway.