Please answer each of the questions below, in the space provided. You can take the full period, though the test shouldn’t take more than 90 minutes. These questions total 86 points. This test is worth 15 points out of the quarter’s total of 100, so your score on this test will be multiplied by 0.17 to determine how many of those 15 points you’ve accrued.

1. [5 pts.] Name each flow in the "circular flow of capitalism," illustrated schematically in Figure 1.

A:

B:

C:

D:

E:
 
 
 

C

G

I

M

X

Y

3. [2 pts.] What are two commonly used measures for the "quality" of an economy? (If a newspaper wants to do an article on "How’s the Washington economy doing?" what are two measures it might use?)
 

4. [4 pts.] What’s the "law of diminishing returns" (you can be quite simple and informal). Explain why this is generally true (use an example or use general terms — whatever’s easier for you).
 
 

Questions 5-11 refer to Figure 2.

5. [1 pt.] If Figure 2 is a typical supply-demand graph, which line is the supply curve? (Use 2 letters to denote a curve).
 

6. [1 pt.] Which is the demand curve?
 

7. [2 pts.] Why does the upward-sloping curve have an upward slope?
 

8. [2 pts.] Why does the downward-sloping curve have a downward slope?
 
 

9. [1 pt.] On Figure 2, draw a new demand curve that represents what happens when consumers’ tastes change to want more of the product — for example, the increased demand for pork (in response to both medical research on the effects of large amounts of beef in American diets and major marketing efforts by pork producers).

10. [1 pt.] If the supply curve for pork remains constant (which has in reality not happened), what should happen to the price of pork?

11. [1 pt.] What should happen to the amount of pork produced and sold?

12. [2 pts.] Define "opportunity cost."
 

13. [2 pts.] Let’s say you’re producing 10,000 widgets a day, at an average cost of 3.5 cents per widget. It would cost 5 cents per widget to produce an additional 5,000 widgets a day.

a) Why might it cost that extra 1.5 cents per widget to increase widget production? (There are several possible answers: you only need to give one).
 

b) From what we’ve learned so far (i.e., assuming perfect competition and ignoring questions of long-term strategy), under what circumstances would it make sense to increase production to 15,000 widgets a day?
 

14. [3 pts.] Define "economic rent" and "location rent," and mention the relationship between the two terms.
 

Here’s the equation we’ve used to understand the determinants of location rent for agricultural land at a particular point:

15. [11 pts.] Give a name to each of the letters on the right-hand side of Equation 1, and give the appropriate units of measurement for the left-hand side and for each of the letters on the right-hand side of the equation. (You can use generic units, like "monetary unit" or specific units, like "dollars" or "francs." It doesn’t matter which specific units you use, they just need to be the right kind of unit — i.e., "kilometers" vs. "mile" is fine, but "kilometers" doesn’t substitute for "dollars").
 

letter	name	units of measurement
LR	location rent
Q
p
c
f
k

Figure 3 shows a graphic depiction of Equation 1.

16. [1 pt.] In the letters of Equation 1, what’s being measured on the vertical axis?

17. [1 pt.] In the letters of Equation 1, what’s being measured on the horizontal axis?

18. [1 pt.] What’s point A, in the letters of Equation 1?

19. [1 pt.] What’s the slope of line AB, in the letters of Equation 1?

20. [2 pts.] We have been assuming that the rent (or sales price, which equals the capitalized rent over time) for a piece of land is described by line AB. Several assumptions underlie this: name two.

22. [1 pt.] Draw another line on Figure 3, reflecting a crop that uses land more intensively than the crop whose line I’ve drawn, and which faces higher transport costs than the crop whose line I’ve drawn. Label its highest point C and its lowest point D.

23. [2 pts.] Would this second crop likely be able to pay a competitive rent anywhere in our one-dimensional landscape?

If so, where? (You can answer by marking the appropriate part of the appropriate axis, or by labeling some points and giving your answer here, as two letters that describe a line segment).
 
 

24. [4 pts.] Let’s play just a little. Let’s tell a story that a new variety of the second crop has become widely used. The seeds for this new variety cost no more than the old variety, but the new variety grows faster and is more resistant to pests. Therefore, fewer fertilizers and pesticides are needed, and the production costs for this crop fall. The first crop (the crop whose line I drew for you) has no similar change. What happens to Figure 3? Draw whatever you need to draw, but also tell me in English:

1. what happens to the line for that crop
2. why (in terms of the formula)
3. what happens to the landscape

26. [2 pts.] In plain English, what is Equation 2 saying?
 
 

Figure 4 is a set of lines that could be described with Equation 2.

27. [1 pt.] What’s measured on the vertical axis? FIGURE 4

28. [1 pt.] What’s measured on the horizontal axis?

29. [1 pt.] Mark (on Figure 4) with a "T" the point on the appropriate axis where (geographically, in our one-dimensional landscape) the land use represented by the line AB would give way to the land use represented by the line CD.

30. [2 pts.] Let’s play with this a bit. Draw (on Figure 4) a line that represents the land use represented by CD, if that land use (like manufacturing) suddenly required more land for single-story layouts and car parking, and faced lower transport costs because of a shift from rail (with expensive right-of-way) to truck (with less expensive right-of-way).

Tell me below, what would happen to the location of that land use?
 
 
 
 

31. [2 pts.] In this simple framework, what are two reasons why the spatial extent of urban land uses (the "edge of the city") might increase?
 
 

32. [5 pts.] Let’s call that increase (in question 31) "urban sprawl." Why do some people dislike urban sprawl? Who benefits from urban sprawl? Suggest one action that should reduce urban sprawl, and then note at least one negative consequence of that action.
 

Let’s make sure you understand some of the basic premises of these models.

33. [2 pts.] What institutional arrangements regarding (a) land ownership and (b) land use are we assuming?

(a)

(b)
 

34. [2 pts.] For the models to make sense, in what two general ways must land uses differ from one another?
 

35. [1 pt.] For the models to make sense, how must places differ from one another?
 

36. [2 pts.] Here’s a free-form answer: no right or wrong, as long as you write something sensible. Do you find this approach useful? Follow your "yes" or "no" with (a) a general reason why, and (b) a specific case, of some importance to you (personally or intellectually), where you find this approach useful or not useful.
 

37. [6 pts.] (a) What’s the difference between "contagious" and "hierarchical" diffusion? (b) Give an example of each (you can make up examples, or use ones you know about), and (c) explain (in somewhat general terms) why some ideas (or technologies, or diseases) would diffuse in one way, and others might diffuse in the other way.