4.     The decision to enrol in an MBA program is a rational one for a university student if the:

(a)     opportunity cost of gaining an MBA equals zero.

(b)     marginal cost exceeds the marginal benefit of gaining an MBA.

(c)     student considered the social benefits of this decision.

(d)     marginal benefit of gaining an MBA exceeds the marginal cost.

5.     Which of the following statements is correct?

(a)     If two variables are directly related, a graph of the two variables has a negative slope.

(b)     When a line slopes downwards moving to the right, the variable

measured on the x-axis and the variable measured on the y-axis are directly related.

(c)     When a line slopes upwards moving to the right, the variable measured on the x-axis and the variable measured on the y-axis are directly related.

(d)     The more it rains, the more umbrellas people buy. Thus rainfall and umbrella purchases are inversely related.

6.     As the price of petrol increases, fewer people buy cars that are petrol guzzlers. A graph showing this relationship would:

(a)     have a direct relationship.

(b)     have a positive relationship.

(c)     be a vertical line.

(d)     have a negative slope.

7.     With y measured on the vertical axis and x measured on the horizontal axis, the slope of a straight line is defined as:

(a)     x/y.

(b)     (change in x)/(change in y).

(c)     (change in y)/(change in x).

(d)     y/x.

8.     When two variables in a graph are related to a third, changing the third causes:

(a)     a shift of the curve.

(b)     a movement along the curve.

(c)     no change in the curve because the third variable isn't on the axes.

(d)     either a shift or a movement in the curve but more information is needed to determine which one occurs.

9.     When drawing a production possibilities frontier, which of the following is held constant?

(a)     The quantity of the goods and services that are produced.

(b)     The prices of goods and services.

(c)     The available factors of production and the state of technology.

(d)     The amount of money in an economy.

10.   While moving along a production possibilities frontier, the amount of labour , the amount of capital , and the level of technology

.

________

11.   Assume that an association of workers has lobbied the federal government to  require that all workers retire once they reach the age of fifty five. What impact would this law have on the nation's production possibilities frontier?

(a)     The number of young workers would increase so the production possibilities frontier would shift outward.

(b)     The nation would move to a new position on its production possibilities frontier but the frontier itself would not shift.

(c)     The level of unemployment would decrease so the production possibilities frontier would shift outward.

(d)     The production possibilities frontier would shift inward.

16.   Assume the price of leather used to produce shoes increases. The higher price of leather , the supply of shoes and the supply curve of shoes

.

(a)     decreases; shifts leftward

(b)     decreases; shifts rightward

(c)     increases; shifts rightward

(d)     increases; shifts leftward

17.   A competitive market is in equilibrium. There is an increase in demand, but no change in supply. As a result the equilibrium price , and the

equilibrium quantity .

(a)     falls; decreases

(b)     falls; does not change

(c)     rises; increases

(d)     falls; increases

18.   Suppose the government imposes a carbon tax on motor vehicle builders. But

the price of petrol has doubled due to an oil supply crisis which has reduced oil   production. In the market for cars, these changes mean that supply and demand have both changed with the effect on the demand larger than the effect on the

supply. The result is that the price of cars will and the number of cars sold will .

(a)     rise; increase

(b)     rise; decrease

(c)     fall; decrease

(d)     fall; remain the same

19.   An increase in the equilibrium price and a decrease in the equilibrium quantity can be the result of:

(a)     an increase in demand.

(b)     a decrease in supply.

(c)     a decrease in demand.

(d)     an increase in supply.

20.   If the price of a good rises, then moving along a demand curve the percentage change in the quantity demanded will be:

(a)     either positive, negative or zero depending on how the demand curve shifted.

(b)     zero.

(c)     positive.

(d)     negative.

21.   Suppose the price of a xbox game rose from $15 to $17, and the quantity demanded decreased from 1,000 per month to 900 per month. Using the  midpoint formula, the per cent change in price led to a(an)

per cent change in the quantity demanded.

22.   If the cross elasticity of demand is negative, that means the goods:

23.   Suppose Charlotte derives $100 in marginal benefit from her first skiing trip and $80 from her third trip. Her marginal benefit from her second trip is likely to be:

(a)     an amount that cannot be calculated without additional information.

24.   If the marginal benefit of a hamburger is greater than its marginal cost then, to increase efficiency:

(a)     production of hamburgers should be stopped.

(b)     more hamburgers should be produced.

(c)     fewer hamburgers should be produced.

(d)     nothing should be done, as in this case the efficient quantity of hot dogs is being produced.

25.   Australia’s Gross domestic product is the market value of all the in a given time period.

(a)     goods and services produced by Australian companies in all countries

(b)     Australian-produced goods and services bought in Australia

(c)     final goods and services produced by all firms located in Australia

(d)     goods and services bought by Australians

26.   If the Australian economy is at full employment and the Reserve Bank increases the quantity of money:

(a)     aggregate demand increases, an inflationary gap appears, and the money wage rate starts to rise.

(b)     potential GDP and aggregate supply increase together and the price level does not change.

(c)     aggregate demand increases, a recessionary gap appears, and the money wage rate starts to rise.

(d)     aggregate supply increases, the price level starts to fall, and an expansion begins.

27.   The multiplier will increase if the marginal propensity to consume or the marginal tax rate .

Question 1.

Distinguish between comparative and absolute advantage.

(6 marks)

Question 2.

(a) Read the quote below and explain why the drought will lead to a rise in the price of bread.

“Wheat and corn prices surged last week and could hit the items in your grocery basket by mid-summer. It is a case of two extremes: drought in Europe and North America has sparked fears of a supply crunch of wheat,  while supplies of corn are being threatened by flooding and heavy rain in the U.S. Midwest. ”

(6 marks)

(b) Referring to the quote above and using the theory of supply and demand explain why the price of corn has risen and explain its effect on the price of cereals (corn is used to produce cereals).

(8 marks)

Question 3.

Suppose Domino’s Pizza increases the price of a pizza from $3.00 to $3.25 and in response, the quantity demanded decreases from 1,500 pizzas per week to 1,300 pizzas per week.

Explain whether the demand for pizzas is elastic or inelastic. How would total revenue received by Dominos change under this scenario?

(6 marks)

Question 4.

(a) Explain the concept of economies of scale. Explain how an organisation such as

Starbucks would realise economies of scale in its business operations (use examples to support your answer).

(7 marks)

(b) Wages are lower in the Middle East than in Australia. Explain how this fact will make Starbucks average cost and marginal cost curves different in its Middle   East cafés compared to its Australian cafes.

(7 marks)

Question 5.

Sebastian and Levi must spend a day working together. Sebastian likes to smoke cigars and the price of a cigar is $2. Levi likes a smoke-free environment. Sebastian’s marginal benefit   from a cigar a day is $20 and Levi’s marginal benefit from a smoke-free environment is $25   a day. Using Coase theorem explain what is the outcome if they meet at Sebastian’s home?  What is the outcome if they meet at Levi’s home?

(10 marks)

Question 6.

The Snowdownian economy is in recession and has a large recessionary gap. Describe what automatic fiscal policy might occur? Describe a fiscal stimulus that could be used that would reduce the recessionary gap?

(10 marks)