Sie sind auf Seite 1von 12

FAMILY NAME________________________ GIVEN NAME_________________________

STUDENT NUMBER___________________________________________

The University of New South Wales


School of Economics
ECON 1101: Microeconomics 1
Final Exam
November 2003

TIME ALLOWED: 2 hours, with 10 minutes reading time

This exam comprises three parts

um

en

Part A: 40 compulsory multiple Choice questions


Answer part I in the generalised (computer) answer sheet

Do
c

Part B: One compulsory question


Answer part B in a separate examination book

ap

Part C: Three questions (to be chosen from five)


Answer part C in a separate examination book

Th

ink

sw

This examination paper is not to be retained by the candidate

Part A begins on the following page.

Answers to parts B and C must


be written in ink. Pencils may
be used only for drawing and
graphical work

Econ 1101 Microeconomics I

Final Exam Nov 2003

Part A: Multiple Choice Questions (0.75 marks each)


Answer this part in the computerised answer sheet. A pencil must be used for the sheet.
Ensure that your identification details are filled in.
Choose the most correct answer to each question.
The marginal benefit of an activity is the
same as the total benefits of the activity.
total benefit divided by the level of the activity.
change in the activity divided by the change in benefits.
extra benefit associated with an extra unit of the activity.
little bit of benefit one gets from activities that are healthy but unpleasant.

2.
a.

The concept of opportunity cost:


suggests that when resources are used to produce one good, they cannot be used to
produce other goods.
indicates that scarcity is measured by the monetary sacrifice that must be made to
produce something.
is relevant only in market economies.
is relevant only in transactions between individuals.
can be overcome by shifting the production possibilities curve to the right.

a.
b.
c.
d.
e.

en

um

Do
c

4.

The most reasonable explanation for the upward-sloping supply curve and the law of
supply is that:
the costs of producing additional units increases and thus sellers will only be willing to
offer more for sale if the price is higher.
the good being produced is a necessity and sellers know they can raise prices.
producers are willing to reduce price only for volume purchases.
the demand curve for most goods is stationary and rarely moves.
the increase in price will lead to an decline in demand.

ap

a.
b.
c.
d.
e.

If one nation can produce a good at a lower resource cost than another nation, then we
can confidently say that, with respect to that good, it has
a comparative advantage
an absolute advantage.
comparative and absolute advantage.
relative advantage.
none of the above

sw

3.

ink

c.
d.
e.

Th

b.

1.
a.
b.
c.
d.
e.

Econ 1101 Microeconomics I

5.
a.
c.
e.

If the supply curve for motor oil is P = 4*Q, then at a price of $16 the price elasticity of
supply is
4.
b.
1 1/3
1.
d.
3/4
0

7.
a.
b.
c.
d.
e.

The demand curve describes the:


quantity of the good demanded at each level of income.
quantity of the good demanded at each price.
relationship between equilibrium prices and demand.
relationship between tastes, income, and prices.
relationship between tastes, income, and quantity demanded.

8.

If an increase in income causes a decrease in the quantity demanded of some good, then
the good is called
a Giffen good
an inferior good
a luxury good
a substitute good

10.
a.
b.
c.
d.
e.

en

um

Do
c

ap

a.
b.
c.
d.
e.

Suppose we observe that the equilibrium price of coffee falls and the equilibrium
quantity falls. Which of the following best fits the observed data?
An increase in demand with supply constant.
An increase in demand coupled with a decrease in supply.
An increase in demand coupled with an increase in supply.
A decrease in demand with supply constant.
A decrease in supply with demand constant.
A firm operating in circumstances of perfect competition faces a market price of $10 for
its product. It is producing 2000 units of output daily, at a total cost of $19,000. this
firm:
should increase the amount of its output to increase its profit.
should reduce the amount of its output to increase its profit.
should shut down to minimize its loss.
may or may not be at the output level yielding maximum profit---the information
furnished is not sufficient to answer this question.
is apparently now at its maximum-profit position.

sw

9.

ink

a.
b.
c.
d.

a.
c.
e.

If the supply curve for motor oil is P = 4 + 4*Q, then at a price of $16 the price elasticity
of supply is
4.
b.
1 1/3
1.
d.
3/4
0

Th

6.

Final Exam Nov 2003

Econ 1101 Microeconomics I

11.
a.
b.
c.
d.
e.
12.
a.
b.
c.
d.
e.

Final Exam Nov 2003

Suppose that the firm described in the previous question sees its total cost increase to
$19,025 as it increases its output to 2001 units. This firm:
should increase the amount of its output to increase its profit.
should reduce the amount of its output to increase its profit.
should shut down to minimize its loss.
may or may not be at the output level yielding maximum profit---the information
furnished is not sufficient to answer this question.
is apparently now at its maximum-profit position.
A firm in a competitive industry has a short-run marginal cost function given by SMC(y)
= 15 + 2y. An excise (per-unit) tax of $10 is imposed on all firms in the industry. This
firms short-run marginal cost will change to
25 + 12y
15 + 12y
15 + 20y
25 + 2y
25 + 20y
Which of the following is true of a monopoly at its profit maximizing quantity?
P=MR=AR
P=MR, P is less than AR
MC=MR=P
MC=MR, MC is less than P
none of the above is necessarily true, since a monopoly can choose both P and Q without
any regard for the demand curve.

14.
a.
c.
e.

If the monopolist's demand curve is P=50 10*Q, then marginal revenue is zero when Q
equals
50 units.
b.
10 units.
5 units.
d.
2.5 units.
0 units.

15.
a.
b.
c.
d.
e.

Industries where economies of scale exist will tend to be


dominated by a single firm.
resistant to cutting price.
comprised of many equal sized firms.
less concerned with expanding output.
highly profitable.

16.
a.
b.
c.
d.
e.

If all firms in a perfectly competitive industry earn a normal profit, then


new firms will enter the industry.
old firms will exit the industry.
the number of firms in the industry is stable.
market supply will shift to the left.
market supply will shift to the right.

Th

ink

sw

ap

Do
c

um

en

13.
a.
b.
c.
d.
e.

Econ 1101 Microeconomics I

Final Exam Nov 2003

Use the accompanying diagram to answer questions


17 to 21.
The diagram shows a market in which the demand
and supply were originally those represented by the
curves D and S. A per-unit tax was then imposed on
this market, and the post-tax situation is represented
by the supply curve S.
17.
a.
c.
e.

19.
a.
c.
e.

The amount of tax revenue raised by this tax is equal to the area
EGJCI.
b.
AGJH.
EAHI.
d.
EGJI.
IJC.

20.
a.
c.
e.

After the tax is imposed, consumer surplus and producer surplus are represented,
respectively, by the areas
MAC and KAC
b.
MEI and KGJ
MGJI and KGJ.
d.
EAHI and GAHJ
IHC and JHC.

21.
a.
c.
e.

The deadweight loss due to the tax is represented by the area


EACI.
b.
LKCI.
HJC.
d.
IHC.
IJC.

a.
b.
c.
d.
e.

en

um

Do
c

ap

sw

ink

22.

a.
c.
e.

After the tax is imposed, the equilibrium price paid by buyers and equilibrium quantity
sold are given respectively by
A and B
b.
E and F
G and F
d.
E and B
A and F

If buyers and sellers were free to pursue their own selfish interests, according to the
invisible hand theory, the result would be
anarchy.
exploitation of workers and natural resources.
an equitable allocation of resources.
poor consumers service.
an efficient allocation of resources.

Th

18.

The distance that represents the per unit


amount of the tax is
0G.
b.
0A.
HJ.
d.
IH.
EG.

Econ 1101 Microeconomics I

Final Exam Nov 2003

23.
a.
b.
c.
d.
e.

Which of the following core principles applies to the prisoner's dilemma?


No cash on the table.
Smart for one, dumb for all.
Low hanging fruit.
All for one, one for all.
Scarcity.

24.
a.
b.
c.
d.
e.

Which of the following is a Nash Equilibrium for the


accompanying game?
A plays strategy Z and B plays strategy X.
A plays strategy X and B plays strategy Z.
both players play strategy X
both players play strategy Z
none, this game does not have a Nash equilibrium

25.
a.
b.
c.
d.
e.

The reason most cartels end or cease to be effective is


enforcement of antitrust legislation.
the development of substitutes.
one of the member firms absorbs the other firms.
consumers discover the agreement and buy from other firms.
there is an incentive on the part of members to cheat on the agreement.

26.
a.
b.
c.
d.
e.

Which of the following is not an example of an activity with an external cost?


Noise pollution from a steel mill.
Keeping junk in the front yard.
A car burning oil.
Having to buy batteries for the new remote that came with the new TV.
Speeding on the Interstate.

100 A
75 B

50 A
400 B

200 A
50B

150 A
300 B

en

um

28.
a.
b.
c.
d.
e.

Which of the following would not be subject to the tragedy of the commons?
Whales in the ocean.
Timber on public lands.
Cattle on a ranch.
Buffalo roaming free in the West.
The atmosphere.

ink

sw

ap

Do
c

a.
b.
c.
d.
e.

If people can purchase and sell the right to perform activities that cause externalities, the
resulting solution will be efficient. This describes
the Tragedy of the Commons.
a positional externality.
an external benefit.
the Coase Theorem.
the problem of unpriced resources.

Th

27.

A
B

Econ 1101 Microeconomics I

29.

Final Exam Nov 2003

a.
b.
c.
d.
e.

If you buy a new car, use it for a day, and then try to sell it, you will find that the price
you can get is several thousand dollars less than its price when new. This is because
buyers prefer new cars to used cars regardless of price
you paid too much for your new car
used cars are unreliable
there have been technological improvements in car design
your desire to sell the car signals that there is a problem with the car

30.
a.
b.
c.
d.
e.

The Lemons Model explains how


asymmetric information decreases the average quality of goods for sale.
people with lower quality goods are more likely to sell them.
reservation prices for used goods are lower.
there is a downward spiral in the average quality of used cars.
all of the above

31.
a.
b.
c.
d.
e.

A free rider is someone who


pays for the good and gets the benefit of consumption.
does not pay for the good but still enjoys the benefits of consumption.
does not pay for the good and does not enjoy the benefits of consumption.
pays for the good and does not get the benefits of consumption.
can be excluded from consumption.

en

Use the accompanying diagram to answer questions


32 and 33.
The firm illustrated in the graph is a(n)
natural monopoly.
monopoly.
perfect competitor.
oligopoly.
monopolistic competitor.

33.

The socially efficient output is ________ with


a price of ________.
Q1; P1.
b.
Q2; P2.
Q3; P3.
d.
Q1; P3.
Q4; P1.

Do
c

ap

sw

ink

34.
a.
b.
c.
d.
e.

The reason a warranty on a used car communicates credible information is because


everyone offers one.
it indicates the car is of below average quality.
only the owners of better than average quality cars can afford to provide a warranty.
it indicates the car is of average quality.
no one actually uses a warranty.

Th

a.
c.
e.

um

32.
a.
b.
c.
d.
e.

Econ 1101 Microeconomics I

Final Exam Nov 2003

A firm would be classified as a natural monopoly if


there are few substitutes.
it were the only supplier of all natural products.
its marginal costs are always less than its average costs.
it is the only producer.
it were regulated by the government.

36.
a.
b.
c.
d.
e.

The term institutions, when used by economists, refers to:


organisations like the IMF and the World Bank
sets of commonly accepted rules which govern interactions in society
government agencies such as the post office
long standing rivalries and non-rivalries
the information generated by search processes

37.
a.
b.
c.
d.
e.

Economic Institutions arise in response to


public demand as expressed through the electoral process
the need to reduce transactions costs
repeated violations of the law by large corporations
the need for individuals to have social contact with others
none of the above reasons

38.
a.
b.
c.
d.
e.

Which of the following items is an example of a nonrival but excludable good?


Pay-per-view movies.
Corn.
National defense.
Free-to-air TV.
advertising time on the Oprah show (a popular TV talk show).

39.
a.
b.
c.
d.
e.

The marginal cost curve for information is upward sloping because


most information is false.
consumers start with the least expensive sources and progress to more expensive sources.
there is only so much to learn about a product.
some information is useless.
most information is misleading.

40.
a.
b.
c.
d.
e.

Market failure is said to happen when


a student fails a marketing exam
the government uses exclusive contracting to regulate a natural monopoly
markets are prevented from functioning by government regulation
a free market fails to generate an efficient outcome
the price of essential goods rises to unacceptable levels

Th

ink

sw

ap

Do
c

um

en

35.
a.
b.
c.
d.
e.

Econ 1101 Microeconomics I

Final Exam Nov 2003

Part B: Compulsory question


Answer this question in a separate answer book.

You must answer this question


Provide short, clear answers. Each part is worth 3 marks.
Question 1
What does the term zero economic profit mean? Explain why in long run equilibrium
all firms in a competitive industry will earn zero economic profit.

(b)

Give an example of an activity (good or service) that generates a positive externality.


Explain why an unregulated (free) market will not lead to an efficient level of this
activity.

(c)

What is a public good? What are the main reasons that such a good cannot be
profitably produced by private firms?

(d)

Explain why first-come first-served is not an efficient way to distribute seats on an


overbooked flight. Describe an efficient way to distribute such seats, and explain why it
is efficient.

Th

ink

sw

ap

Do
c

um

en

(a)

Econ 1101 Microeconomics I

Final Exam Nov 2003

10

Part C: Answer three of the following five questions (questions 2 6).


Answer part C in a separate answer book.
Question 2

(1 + 2 + 3 marks)

Identify all the Nash equilibria in each of the following games.


a.
Column

Left

Right

Top

0, 0

-1, -1

Bottom

-1, -1

1, 1

Left

Right

Top

1, 1

4, -1

Bottom

-1, 4

3, 3

Row

b.
Column

um

en

Row

Do
c

c.

You: $100
Them: $100
C

ap

They choose
D

You: $60
Them: $105

Th

ink

sw

You Choose

B
E

You: $500
Them: $400

They choose
F

You: $50
Them $420

Econ 1101 Microeconomics I

Question 3

Final Exam Nov 2003

11

(2 + 2 + 2 marks)

Ann, Dow, and Trish have demand for parkland given by


PA = 8 x

PD = 9 x

PT = 11 x

Where P is the price the person is willing to pay per acre of parkland created, and x is the
number of acres of parkland.
The social marginal cost of creating parkland is:
MC(x) = x
What is the efficient number of acres of parkland that should be created?

b.

If this many acres were established, what is the efficient level of contribution per acre
that each person should make?

c.

If the three individuals were required to make equal contributions per acre, how many
acres would be established?

en

a.

(2 + 2 + 2 marks)

um

Question 4

Do
c

The supply and demand curves for t-shirts are given below.
supply:

P = 5 + 0.15 Q
P = 30 - 0.1 Q

ap

demand:

What is the equilibrium price and quantity for t-shirts?

b.

The process of making t-shirts results in chemical waste that is dumped in to a nearby
stream, creating $5 worth of damage to the environment per shirt. What is the socially
optimal number of t-shirts that should be produced?

c.

Describe a policy that the government could implement to assure that the socially optimal
number of t-shirts is produced and sold, and explain why the policy would work.

Th

ink

sw

a.

Econ 1101 Microeconomics I

Final Exam Nov 2003

Question 5

12

(1 + 2 + 3 marks)

A medium-sized town has 100 identical barbershops, all owned by the conglomerate
Haircuts-To-Go.
Each barbershop can produce up to ten haricuts a day at a constant marginal cost of $10, and a
further ten haircuts a day at a constant marginal cost of $15. No more than twenty haircuts can
be produced.
The demand curve for haircuts in the town (served by the 100 shops) is given by:
P = 26 0.001 Q

or

P = 26

1
100

a.

Find the marginal revenue curve for Haircuts-To-Go.

b.

Calculate its profit maximising price and quantity.

In response to a public outcry, the government breaks up Haircuts-To-Go, and the 100
barbershops come to be owned by separate small businessmen (mostly the former store
managers). The haircuts industry is now perfectly competitive.
Find the equilibrium price and quantity in the newly competitive industry.

en

c.

Question 6

(1 + 2 + 1 + 2 marks)

P = 10 + 0.1 Q

Do
c

Supply:

um

The market for widgets has a supply and a demand curve given by:

Demand: P = 100 0.5 Q

Find the equilibrium price and quantity of widgets.

b.

Calculate the consumer surplus, producers surplus, and total surplus generated in this
equilibrium.

sw

ap

a.

Th

ink

The government judges widgets to be immoral, and places a quantity restriction on the
production of widgets. Henceforth, no more than 100 widgets can be produced in this economy.
c.

Calculate the new equilibrium price of widgets.

d.

Find the loss in total surplus that is caused by this government restriction.
END OF EXAM