ECON1101 2009 SEM2

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    DJ

    TH E UNIVERSITY OF NEW SOUTH WALES

    SCHOOL OF ECONOMICS

    SESSION 2009

    ECONllOl MICROECONOMICS I

    FINAL EXAMINATION

    TIME ALLOWED - 2 HOURS

    THIS PAPER IS WORTH 50 OF THE TOTAL SUBJECT MARK

    This examination paper consists of two parts - Part A an d Part B

    Part A consists of 30 multiple choice questions each worth one 1 mark.

    Answer al l the questions in Part A on the answer sheet provided, using pencil only:

    a Print your student number name an d ini tials in the space provided and markthe appropriate boxes below your student number name and initials.

    b Fo r each question, mark th e appropriate response a , b , c , or d .

    There is only one correct response to each question in Part A. There is no negativemarking.

    Part B consists of two 2 essay-type questions, each worth TWENTY 20 marks.

    Answer only ON E 1 question from Part B.

    Answers to questions in Part B mus t be wri tt en in ink. Pencil ma y b e used in answers toPart B for drawing sketching or graphical work only.

    This question paper may be retained by the candidate.

    Students may bring no n programmable hand held calculators.

    There a re nine 9 pages in this paper

    Page 1 of9

    llllllllllllllllllllllllllllllllllillllllllllllllllll> 4 4 4 8 4 5 9

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    PART A

    This section is worth marks

    rkyour answer on the Answer Sheet provided

    Question 1In t he competitive market model, th e supply curve for a commodity will shift upwards to th eleft if:

    a) The productivity of inputs increasesCb The price of th e commodity rises c) The number of producers increase d) The price of inputs increases

    Question 2

    In th e competitive market model, the demand curve for a commodi ty wil l shif t upwards to theright if:

    a) Income of consumers increaseCb Th e price o fa complement good rises c) The price ofa substitute good falls cl Th e level of technology rises

    Question 3Vea l a nd Beef ar e considered substitute goods for consumers. In a competitive market modelf or Veal, a fall in the pr ice of Beefwill cause:

    a) A movement downward a long the demand curve for Veal b A movement upward along the demand curve for Veal c) A shi ft lef twards of the demand curve for Veal d) A shift r ightwards of the demand curve for Veal.

    Question 4Sausages an d tomato sauce are considered to be complementary goods for consumers. In acompetitive market model for sausages an d tomato sauce, a r ise in th e price of sausages willcause:

    a) A movement downward a long the demand curve for sausages b A shift lef twards of the demand curve for sausages c) A shift leftwards of the demand curve for tomato sauce d) A shift rightwards of the demand curve for tomato sauce

    Question 5 ssume that there are only two counuies in th e world and they produce two goods, Cars andCotton. The opportunity cost of a ca r in Country A is 50 units of cotton and th e opportunitycost of a ca r in country B is 300 units of cotton. The maximum amount of cotton country Aca n possibly produce is 100,000 units of cotton and the maximum amount of cotton countryB ca n produce is 300,000. In this example:

    a Country A has a comparative advantage in cotton b) Country B has a comparative advantage in cars c) Country A ha s a n absolute advantage in cotton d) Countl:) B has an absolute advantage in cotton

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    u stion 6Assume there are two types of land in a small country on which either wheat or corn may begrown, There are acres ofland (Type A) more suitable for growing wheat and 10 acres ofland (Type B) more suitable for growing corn. Type A land will give 4 tons per acre if used

    for wheat and I tons per acre ifused for corn. Type B land will give 4 tons per acre if usedfor corn and I tons per acre ifused for wheat. If they allocate land efficiently which of thefollowing output combinations will be on their production possibilities curve?

    (a) 24 tons of wheat and 46 tons of corn(b) 50 tons of wheat and 50 tons of corn(c) 45 tons of wheat 25 tons of corn(d) 40 tons of wheat and 40 tons of corn

    u stion 7Which statement about the substitution effect is true

    (a) It is the effect of a percentage decrease in quantity substituted equal to the percentage

    decrease in priceof

    a commodity. b forms the basis of the rational spending rule(c) refers to the extent to which consumers of substitute commodities are better of f as a

    result of a price change,(d) Always causes demand for the good to increase following a decrease in the price of

    the good.

    u stion 8Assume that the demand for alcoholic drinks is inelastic. The competitive market modelpredicts that the effect of a restriction of supply of this commodity by introducing earlyclosing hours on clubs and hotels is, ceteris paribus

    (a) A higher price and lower total expenditure on the commodity by drinkers(b) A lower price and lower total expenditure on the commodity by drinkers(c) A lower price and higher total expenditure on commodity by drinkers(d) A higher price and higher total expenditure on the commodity by drinkers

    u stion 9Which of the following statements about a monopolist is true

    (a) The supply curve for a monopolist is the Short-run Marginal Cost Curve above theminimum point on the Average Variable Cost Curve

    (b) is possible for a monopolist to produce an efficient level of output(c) A monopoHst will always produce an output level where Long- run Average Costs are

    falling

    (d) A monopoIist will always make an economic profit.

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    QuestionThe diagram below illustrates two parallel demand curves for a commodity. Price elasticityof supply for this commodity is:

    ;Price

    Supply

    A

    Dema

    Demand

    Litres per Week

    a) The same at B s at A and equal to I b The same at B as at A and greater than 1c) Greater at A than at B d) Greater at B than at A

    Question Which of the following statements about an oligopolistic market is true?

    a) The market is characterised y a large number of rival finns each selling a slightlydifferentiated product

    b) The typical firm tends to operate at the minimum point of the Long -run Average Costcurve.

    c) the long run, surviving finns charge a price which is equal to Average Cost andmake zero economic profit.

    d) The finns operating in the market are mutually dependent

    Question 2A perfectly competitive firm will, in the short-run:

    a) Shut-down if price falls below the minimum point of the Average Total Cost Curvebut lies above the minimum point of the Average Variable Cost Curve

    b) Make a nonnal profit ifprice equals its Average Variable Costs c) Maximise profit if price s above Marginal Costs but equal to the Marginal Revenue d) Shut down if Marginal Revenue is below the minimum point of the Average Variable

    Cost curve.

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    Question The Ground used for the NRL Grand Final between the Bulldogs and the Titans can hold50,000 people. The downward sloping demand curve for tickets for the event intersects thesupply curve at a very high price. The NR L organisers decide to make the game more

    affordable for the low income fans by placing a price ceiling below the equilibrium price.This action will result in:

    a A decrease in consumer surplus b No change in quantity sold c An increase in consumer surplus d No change in producer surplus

    Question 14The deadweight loss created by a per unit sales tax imposed on the producer of a good, ceterisparibus:

    a Increasesas

    the demand for the good becomes less price elastic. b Decreases as the demand for the good becomes less price elastic. c Decreases as the elasticity of supply becomes more price elastic d Increases as the elasticity of supply becomes less price elastic

    Question 15Which of the following statements is true for a firm operating in an imperfectlycompetitive market in which the firm has some market power? a The demand curve facing the finn is perfectly inelastic at the current market price b The demand curve facing the firm is significantly less elastic for price increases than

    for price decreases c Marginal Revenue is less than Average Revenue d Average Revenue is less than Marginal Revenue

    Question 16The Coase theorem says that

    a Government action is required to correct an externality b Where Bargaining costs are high an efficient outcome may notbe achieved in the

    presence of an externality c The level of output will depend upon how property rights are assigned d If the two parties involved are the same size, an efficient outcome can be achieved

    Question 17If a per-unit sales tax is imposed on a commodity for which the price elasticity of demand isequal to one n absolute vale and the price elasticity of supply is greater than I:

    a The incidence of the tax will fall entirely on consumers b The incidence of the tax will fall more on producers than on consumers c The incidence of the tax will fall more on consumers than on producers d The incidence of the tax will be shared equally by consumers and producers

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    Question 8The minimum point on the Short-run Average Total Cost curve:

    (a) Is the point where the Law of Diminishing returns sets in(h) Is the point where the profit earned hy the firm is normal(c) Is the output level where the firm is using both the fixed and variable factors in the

    optimum combination(d) Shows the price level