ECN1A: Principles of Microeconomics TA Sectionjaewookjung.weebly.com/uploads/2/1/5/2/21526362/2014ss... · 2018. 9. 9. · Q11. The market demand function for loanable funds is the

2nd Midterm Exam Review

ECN1A: Principles of MicroeconomicsTA Section

Jae Wook Jung([email protected])

with Akia Sasahara([email protected])

Department of Economics, UC Davis

July 24, 2014Slides revised: July 24, 2014

ECN1A Section Jae Wook Jung with Akira Sasahara


Outline

1 2nd Midterm ExamResultReview

2 ReviewChapter 12: The Capital MarketChapter 13: International Trade



Result

2nd Midterm: Result

• mean: 22.30/30• median: 23/30• s.d.: 5.14/30• highest: 30/30• lowest: 10/30



Result

2nd Midterm: Result



Review

2nd Midterm: Q1 (50.48% answered correctly)

• Which of the following cost functions is said to be the lower envelope ofsome other cost functions?

A. ATCB. AVCC. MCD. LATCE. None of the above

• Answer: D



Review


• Consider a perfectly-competitive increasing-cost industry in a state oflong-run equilibrium. Suppose that the demand for the productpermanently increases. Which of the following scenarios will be the mostplausible description of the outcome?

A. In the long run, price will increase and will exceed both short-run andlong-run average costs.

B. In the long run, price will remain constant and equal to the short-run averagecost, but the short-run average cost will exceed the long-run average cost.

C. In the long run, price will increase and will equal both the short-run and thelong-run average costs.

D. In the long run, price will increase but will be less than both the short-runand the long-run average costs.

E. None of the above

• Answer: C• increasing-cost industry: LATC is increasing in Q• perfect competition: P = MC



Review


• Which of the following statements is true?A. A consumer’s demand function for a product is the same as her marginal

willingness to pay function for that product.B. A consumer’s demand function for a product is the same as her total

willingness to pay function for that product.C. A consumer’s demand function for a product is the same as her marginal

cost of buying that product.D. All of the above.E. None of the above

• Answer: A• total willingness to pay?• marginal cost?



Review


• What is the breakeven point?A. The level of output at which economic profit is zero.B. The level of output at which price equals average cost.C. The level of output at which total revenue equals total cost.D. All of the above.E. None of the above

• Answer: D• breakeven: Π = 0• Π = TR − TC• =⇒ P − AC



Review


• The graph above shows the market demand and supply functions for a productproduced in a increasing-cost perfectly-competitive industry that is currentlypopulated by 1000 firms of identical size. The industry is in a state of long-runequilibrium with Π = 0. Suppose that the demand for this product increases by4,000 units. What will be the long-run equilibrium level of output?

• Answer: A. Between 6,000 and 10,000• What if it is a constant-cost industry?



Review


• The figure above shows the supply and demand functions for a product producedin a perfectly competitive market. Currently the industry is in a state of long-runequilibrium and there are no market failures. The government levies an excise taxof $16 per unit on this product. The incidence of tax on consumers will be: (usegeometric formulas to calculate)

• a change in consumer surplus?• Answer: C. $320



Review


• The figure above shows the supply and demand functions for a product producedin a perfectly competitive market. Currently the industry is in a state of long-runequilibrium and there are no market failures. The government provides aneconomic subsidy of $16 per unit for the production of this good. As a result thetotal surplus will equal: (use geometric formulas to calculate)

• new quantity under the subsidy: 70• Answer: B. $840



Review


• Which of the following statements is correct?A. If price elasticity of demand is -0.74 and the product price decreases, total

revenue will decrease.B. If price elasticity of demand is -0.54 and the product price decreases, total

revenue will increase.C. If price elasticity of demand is -2.63 and the product price increases, total

revenue will increase.D. If price elasticity of demand is -1.00 and the product price increases, total

revenue will decrease.E. None of the above.

• total revenue = P ×Q• Answer: A



Review


• The figure above shows a consumer’s demand function for a normal good. Whatis the arc price elasticity of demand when the price decreases from $30 per unit to$20 per unit?

•∆QQ̄

∆PP̄

=−25

1025

= −1

• Answer: B. |e| = 1.00



Review

2nd Midterm: Q27(45.71% answered correctly)

• The figure above shows the MC, ATC, and AVC curves for a profit-maximizingperfectly-competitive firm. If the market price of this product is P = $5 per unit,how much of the fixed cost will the firm be able to cover?

• At P = MC = $5, q = 2• Answer: A. $2



Chapter 12: The Capital Market

Rate of Return

• Q10. Suppose the price of output equals P = $10, MPK = 1, 000, andK = $200, 000. Then

A) ROR = 15%B) ROR = 10%C) ROR = 7.5%D) ROR = 5%E) None of the above

• VMPK = P ×MPK = ROR × K• Answer: D) ROR = 5%




Market Demand in Capital Market

• Q11. The market demand function for loanable funds is theA) The horizontal sum of the individual firms demand functions at different

interest ratesB) The vertical sum of the individual firms demand functions at different levels

of loanable funds.C) Is horizontal at the market interest rateD) Is vertical at the given level of loanable funds.E) None of the above

• Answer: A)




Market Demand in Capital Market

• Q12. Which of the following events will cause the market demandfunction for capital to shift to the right?

A) A decrease in the price of output.B) A decrease in the interest rate.C) An increase in the price of output.D) An increase in the interest rate.E) None of the above.

• VMPK = P ×MPK• increase P =⇒ increase VMPK• Answer: C)




User Cost

• Q14. Assume: Interest rate = 12%, depreciation rate = 10%, inflationrate = 2%, rate of return on capital = 25%. Then the user cost equals

A) 14%B) 16%C) 18%D) 20%E) None of the above

• interest rate + depreciation rate - inflation rate• ROR > user cost so increase K• Answer: D) 20%



Chapter 13: International Trade

Gains from Trade

• Q7. The following graphs show the supply-demand diagrams for twocountries. Which country has a comparative advantage in the productionof this good?

• Answer: A) Country B• lower autarky price (cost)




Gains from Trade

• Q8. What is the free-trade price of this good?• where exports (supply) will equal imports (demand).• Answer: C) $12




Gains from Trade

• Q9. What will be the free-trade quantities of exports and imports?• Answer: B) 40 units




Gains from Trade

• Q10. What will be the change in consumer surplus in Country A as aresult of free trade?

• Answer: D) +$240




Gains from Trade

• Q11. What will be the change in producer surplus in Country A as aresult of free trade?

• Answer: B) -$160




Gains from Trade

• Q12. What will be the net gain from trade in Country A?• = $240 - $160• Answer: B) +$80




Gains from Trade

• Q16. Country B producers invent a new technologies that increases theirsupply by 40 units at any price. What will be the new world price?

• Supply curve shifts out by 40 units in Country B.• Answer: C) $10




Gains from Trade

• What will be the new equilibrium quantity of trade between the twocountries?

• Answer: A) 60 units




Tariff in a Small Country

• Q19. The following graph shows the supply-demand diagrams for asmall importing country. The world price of the product is $2 per unit.The government impose a tariff of $2 per unit on this product. As a resultof the tariff the production of the product will increase to

• Answer: B) 4 units





• Q20. As a result of the tariff the change in producer surplus will equal:• Answer: A) +$6





• Q21. As a result of the tariff the change in consumer surplus will equal:• Answer: -$56





• Q22. The government revenue from the tariff will equal to• Answer: B) $40





• Q23. As a result of the tariff the net national loss will equal• producers’ gain = $6• consumers’ loss = $56• government’s revenue = $40• Answer: A) $10


Documents

ECN1A: Principles of Microeconomics TA Sectionjaewookjung.weebly.com/uploads/2/1/5/2/21526362/2014ss... · 2018. 9. 9. · Q11. The market demand function for loanable funds is the