ECON1210 Introductory Microeconomics Final Examination December 14, 2022
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ECON1210 Introductory Microeconomics
Final Examination
Date: December 14, 2022, 09:30-11:30 (+ 15 minutes of grace period)
1. My university ID number is [ Answer01 ].
2. Consider Bill’s decision on the number of investment projects to take in a year. Suppose Bill’s total benefit (in dollars) from n investment projects in the coming year can be described by the following
function:
TB (n) = 1111^n
For example, the total benefit of 4 investment projects is 1111^4 = 2222 dollars. Suppose, at the
beginning of every year, Bill has to pay a lump-sum corporate tax of 500 dollars to the government, and the cost per investment project is 148 dollars. Based on this information, we expect Bill to take [ Answer02 ] investment projects in the coming year. (Assume that the number of investment projects can only be integers.)
3. The equations below show Calvin’s benefit of spending n days going out and m days staying at home during his upcoming holiday break. Assume that the number of days is perfectly divisible and can be distributed in any arbitrary quantity (say, 1.25 days).
Total benefit of going out: T B(n) = 334n − 10n 2
Average benefit of going out: AB(n) = 334 − 10n
Marginal benefit of going out: MB(n) = 334 − 20n
Total benefit of staying at home: T B(m) = 180m − 5m2
Average benefit of staying at home: AB(m) = 180 − 5m
Marginal benefit of staying at home: MB(m) = 180 − 10m
Suppose Calvin’s holiday break lasts for 11 days. He would spend [ Answer03A ] days going out and [ Answer03B ] days staying at home.
Cindy and Veronica constitute a small economy that produces only two goods: tea and cakes. We know that Cindy has the comparative advantage in producing tea and Veronica has the comparative advantage in producing cakes. If they fully specialize in the production that they have comparative advantage in, they will produce a total of 97 kgs of tea and 71 kgs of cakes per week.
4. If the admissible range for terms of trade is between 0.5 kgs of tea per kg of cakes and 3 kgs of tea per kg of cakes, we can infer that Cindy can produce [ Answer04A ] kgs of cakes per week and Veronica can produce [ Answer04B ] kgs of tea per week.
5. Continue from the previous question. Suppose this small economy opens up its trade with the rest of the world. The world prices are $1 per kg of tea and $X per kg of cakes. If both Cindy and Veronica will specialize in the production of tea only, we may infer that X is [ Answer05A ] (A. smaller; B. larger) than [ Answer05B ].
6. Continue from the previous two questions. Suppose the world price of tea remains $1 per kg but the price of cakes is $2 per kg. If Cindy and Veronica together decide to consume tea and cakes at the ratio of 1.7:1 (i.e., for each 1 kg of cakes, they would want to consume 1.7 kgs of tea), they will consume [ Answer06A ] kgs of tea and [ Answer06B ] kgs of cakes per week.
7. Tom and Jerry form a two-person economy. They both can produce food and shelter. Tom has the comparative advantage in producing food but Jerry has the absolute advantage in producing food. How many of the following statements are correct?
|
(i) (ii) (iii) (iv) |
Tom has a lower opportunity cost of producing food than Jerry. Tom can produce more food per week than Jerry. Tom cannot have the absolute advantage in producing shelter. Jerry must have the comparative advantage in producing shelter. |
A) 0
B) 1
C) 2
D) 3
E) 4
[ Answer07 ]
There are two groups of consumers, A and B, for herbal medicine with the following demand relations respectively:
Group A: P = 430 - 0.6Q
Group B: P = 570 - 0.1Q
The market supply of herbal medicine is
P = 215 + 0.6Q
where P is price per unit of herbal medicine (in dollars), and Q is quantity of herbal medicine.
8. Suppose the market is free of government intervention. We can compute that the market equilibrium price is [ Answer08A ] dollars per unit, and the market equilibrium quantity is [ Answer08B ] units.
9. Suppose the central planner forces the economy to produce and exchange herbal medicine with the quantity of 953 units. We will expect a minimum welfare loss of [ Answer09 ] dollars when compared to the market without intervention.
10. Suppose the central planner wants to achieve the same quantity (953 units) using taxation or subsidy. The central planner should impose a [ Answer10A ] (A. subsidy, B. tax) of [ Answer10B ] dollars per unit.
11. How many of the following statements is(are) correct?
|
(i) (ii) (iii)
(iv) |
The demand curve of a normal good can be upward sloping. Producer surplus equals additional units produced beyond what consumers demand at a price. In a perfectly competitive market with positive external cost (but zero external benefit), the market equilibrium does not occur at the point where excess demand and excess supply are both exactly zero. The supply curve shows the maximum price suppliers must receive in order to produce an additional unit of the good. |
A) 0
B) 1
C) 2
D) 3
E) 4
[ Answer11 ]
12. Consider a perfectly competitive market that consists of numerous potential buyers and numerous potential sellers. Assume that each potential buyer can buy at most one unit of the good, and each potential seller can sell at most one unit of the good. Also assume downward-sloping demand curve and upward-sloping supply curve. How many of the following statements are correct?
|
(i) |
When there is excess demand, the competition among unsatisfied buyers will drive the market price |
|
|
up. |
|
(ii) |
When there is excess supply, the competition among unsatisfied buyers will drive the market price |
|
|
up. |
|
(iii) |
There is no excess supply or excess demand when the market is in equilibrium. |
|
(iv) |
All potential buyers in the market will consume the good when the market is in equilibrium. |
|
|
A) 0 B) 1 C) 2 D) 3 E) 4 [ Answer12 ]
How many of the following events can cause a(an) decrease in demand for a(an) inferior good, X? |
|
13. |
|
|
(i) |
an improvement in the technology of producing X |
|
(ii) |
an increase in the price of X |
|
(iii) |
new producers entering the market of X |
|
(iv) |
a decrease in the income level |
A) 0
B) 1
C) 2
D) 3
E) 4
[ Answer13 ]
Initially, Utopia is a closed economy and there is no foreign buyer in its milk market. Suppose the demand and supply of milk in Utopia are given as follows:
|
Demand: Supply: |
P P |
= 78 - 82Q = 3 |
in which Q is the quantity of milk in million units and P is the price per unit of milk in dollars.
14. When Utopia is a closed economy, the equilibrium price is [ Answer14A ] dollars per unit and the equilibrium quantity is [ Answer14B ] million units.
15. The Utopian government signs a trade agreement with a foreign country X. According to the trade agreement, country X will purchase 6 million dollars worth of milk from the Utopian market, regardless of the price. After country X enters the market, on the new market demand curve, when the price is
6 Utopian dollars per unit, the total quantity demanded for milk will be [ Answer15 ] million units.
16. After country X enters the market, the market equilibrium quantity is [ Answer16A ] million units. The quantity of milk purchased by the domestic residents in Utopia will be [ Answer16B ] million units.
The demand relation for beef takes the form of
QB = 289 - 2.4PB + 0.5PF + 1.5I
where PB is the price of beef, and PF is the price of fish, and I is the income. At one equilibrium, QB = 566.9, PB = 69, and PF = 77.
17. We can infer that the income elasticity of demand for beef is [ Answer17 ] at the equilibrium.
18. We can further infer cross-price elasticity of demand for beef with respect to price of fish to be [ Answer18 ] at the equilibrium.
At the initial equilibrium, the price of oil is 68 dollars per barrel and the quantity is 7000 barrels per day. The price elasticity of demand for oil is -0.3 and the price elasticity of supply is 0.45. Because of a recent
oil discovery, quantity supplied is expected to increase by 350 barrels per day at any given price.
19. Given this information, we predict that the equilibrium price will [ Answer19A ] (A. increase, B. decrease) by [ Answer19B ]%.
20. In addition, we predict that the equilibrium quantity will [ Answer20A ] (A. increase, B. decrease) by [ Answer20B ]%.
The demand and supply in the market for solar power are as follows:
|
Demand: Supply: |
Qd = 5610 - 1000P Qs = 1000P - 1870 |
kWh kWh |
where P is price per unit of solar power (in dollars per kWh), and Q is quantity of solar power in kWh. To stimulate the development of this environment-friendly industry, the government is considering a subsidy policy.
21. If the imposed subsidy is 2 dollars per kWh of solar power, the government expenditure on this policy will be [ Answer21 ] dollars.
22. Suppose the government has a budget of $5500 for this subsidy. The subsidy that the government sets can be at most [ Answer22 ] dollars per kWh.
The residents of Utopia have complained to the government that the price of gasoline is too high. In response, the government of Utopia promises to consider two specific policies proposed by the residents: (1) a price ceiling on gasoline, and (2) a price ceiling on crude oil. The market supply and demand curves of gasoline are given by the following equations.
|
Demand: Supply: |
Q = 20 - P Q = 3.3P - 9 |
2023-07-10