Exam in microeconomics (April 5, 2008)
Section 1. Multiple Choice Questions. Attention!!! Write the first word of the first question on your answer sheet.
Marking scheme: 1 point for a correct answer, -0.25 for a wrong answer, 0 if the answer has not been given.
1. A profit-maximizing firm that produces and delivers pizza bought 20 cars for delivery on January 1, 2007. On January 1, 2008, it bought 5 more cars. Assuming that the firm sells output and buys inputs on perfectly competitive markets that change would be most likely explained by:
A. Larger traffic jams, that made it more difficult to deliver pizza on time.
B. Higher minimum wages, that increased the cost of labor of pizza bakers.
C. A decrease in market demand for pizza, that the firm was trying to compensate by offering faster delivery to its customers.
D. A reduction in the real interest rate.
E. A and D.
2. Mr. Müsli, a Swiss farmer, considers selling one of his farms. If the farm stays in possession of his family, it will annually bring $50 000 of net profit. Assuming that he cares about the family interests and the market interest rate will stay at 5%, he should sell it:
A. For $50 000.
B. For $1 000 000.
C. For $250 000.
D. For $52 500.
E. Since the farm will serve his family infinitely, Mr. Müsli shouldn’t sell it, whatever the price may be.
3. Vasya Pupkin consumes only three goods. Consider the following graph, that describes the relationship between Vasya’s income (I) and the amount of these goods (q1, q2 and q3) that he buys.
Q q1
q2
q3
0
I
A.
B.
C
.
D.
E.
6.
A
.
B.
According to the graph we can say that:
A. Good 1 is inferior, good 2 is normal, and good 3 is a luxury.
B. Good 1 is a luxury, good 2 is normal, and good 3 is inferior.
C. Goods 1 and 2 are normal, good 3 is inferior.
D. Goods 3 is normal, goods 1 and 2 are inferior.
E. All three goods are normal.
4. Mary likes dancing and reading. This
indifference curve describes all combinations of books and dancing
lessons that give her a level of utility
.
According to the graph:
A. She likes dancing lessons twice as much as books.
B. She prefers to consume books and dancing lessons together, rather than only books, or only dancing.
C. The marginal rate of substitution of dancing for books doesn’t diminish.
D. Marginal utility of books is twice as large as marginal utility of dancing lessons.
E. More than one answer is correct.
5. John Q. Public spends all his income on coffee and cigars, which are perfect substitutes for him. Mr. Public used to buy only coffee and no cigars – until recently, when he received an in-kind subsidy of 50 jars of coffee from the government. Now, it can be said that:
A. One cup of coffee gives Mr. Public as much utility as one cigar – and the subsidy hasn’t changed that.
B. Having received some coffee for free, he would now spend some of his income to buy cigars he couldn’t afford before.
C. His consumption bundle will now include 50 more jars of coffee.
D. More than one answer is correct.
E. Nothing can be said for sure.
6. Suppose that in 2010 a worldwide energy crisis has driven the retail price of gas in Russia up by 50%, whereas the price of coal rose by 25%. Next year, economic experts announced that an average Russian citizen bought less coal, due to:
A. Negative income effect, offsetting the positive substitution effect.
B. Negative substitution effect, offsetting the positive income effect.
C. Negative output effect.
D. A combination of negative income and substitution effects.
E. none of the above.
7. According to the graph above, if X is a normal good:
A. Substitution and income effects for X will work in the same direction.
B. The new optimum must lie on the EF segment.
C. In the new optimum, X must be greater than XA.
D. In the new optimum, X must be greater than XF.
E. None of the above.
8. At the current output of trinkets, marginal social costs are lower than marginal social benefit. Therefore we can say, that:
A. The government should subsidize trinket production.
B. The government would improve social welfare by setting a quota on trinket production.
C. The government would improve social welfare by setting a binding price ceiling.
D. Trinket market is out of equilibrium.
E. All of the above.
9. A pure public good…
A. …would never be produced in an unregulated competitive equilibrium.
B. …is a good produced by natural monopolies.
C. …is a good for which the law of diminishing marginal utility doesn’t hold.
D. All of the above.
E. None of the above.
10. Which of the following is not an example of a market failure?
A. A firm discovers that the demand curve for its output is downward-sloping.
B. People drive on heavily congested but free motorways.
C. People can enjoy free public parks.
D. A decrease in coffee production would also decrease the sales of cream.
E. More than one answer is correct.
11. According to the graph above, the equilibrium quantity of the good and social cost of the externality are equal to:
A. F; SEABF
B. F; SABC
C. F; SADC
D. E; SADC
E. E; SABC
12. Pareto-efficient resource allocation…