8/10/2019 ECON1101 2009 SEM2

1/9

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

8/10/2019 ECON1101 2009 SEM2

2/9

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

P age 2 of

8/10/2019 ECON1101 2009 SEM2

3/9

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.

Page 3 of

8/10/2019 ECON1101 2009 SEM2

4/9

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.

Page 4 of

8/10/2019 ECON1101 2009 SEM2

5/9

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

Page f9

8/10/2019 ECON1101 2009 SEM2

6/9

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 where the firm s Marginal Cost Curve becomes the firm s

short-run Supply curve

Question Which of the following statements about a monopoHst is true?(a) A profit maximising monopolist will always set price and output at a level where demand

is price-elastic.(b) A profit maximising monopohst always produces where Average Revenue equalsAverage Cost(c) A profit maximising monopolist will, in long run equilibrium, always use a scale of plantthat minimises Long- run Average Costs.(d) A profit maximising monopolist will produce where Marginal Cost equals price.

Question 2In the competitive market for wool, the imposition of a legally enforced minimum priceabove the market equilibrium price will, ceteris paribus:

(a) Create more excess supply of wool, the higher the elasticity of supply,(b) Create more excess demand for wool, the greater the elasticity of demand,(c) Create more excess supply of wool, the lower the elasticity of supply,(d) Create more excess demand for wool, the greater the elasticity of supply

Question Assume that demand and supply curves for a pal1icular chemical product are given by thefollowing equations:

Demand: Qd 150 PSupply: Qs 5 P . 30

Price is measured in per ton; quantity is measured in tonsThe equilibrium price and quantity is:

(3) 5, 30 tons

(b) 9, tons(c) 6, 50 tons(d) 10, 50 tons

Question 22If consumption of a commodity generates a favourable externality,

(a) Marginal social cost of production is greater than marginal private cost of product(b) Marginal social benefit is greater than marginal private benefit(c) The commodity will be under-priced and over-supplied a competitive market(d) The commodity will be over-priced and over-supplied a competitive market

Page 6 of9

8/10/2019 ECON1101 2009 SEM2

7/9

Question 23The equation of the demand curve for a product has been reliably estimated as:

Qd 48 - 0.6 PP is measured in The point elasticity of demand when the price is 20 can be estimated as

(a) -0.6(b) -0.8(c) -1.33(d) -0.33

Question 24

Which o f the following may not be a cause of market failure ?(a) The presence of barriers to entry(b) The presence of economies of scale(c) The presence of government intervention in the market(d) The presence of externalities in production and consumption

Question 25The publishers of two rival newspapers, Thymes and Oobe are consideling their pricingstrategies.Assume that their strategy choices can be modelled as a choice between two alternativestrategies: High Price or Low Price.The following pay-off matrix gives the expected monthly profits (in '000) for eachmagazine rhymes Oobe) under alternate strategies:

GOBE

High Price Lo w Price

High Pr ice (25, 29) 7 35)

THYMES Low Price 37 s (23, 19)

Which of the following statements is true?(a) The Nash equilibrium is for both to set a high price.Cb The collusive (co-operative) equilibrium is for both to set a low price(c Setting a low price is a dominant strategy for lHYMES(d) Setting a high price is a dominant strategy for GO

Question 26A public good is one that

(a) Is non-rival but mayor may not be non-excludable(b) Has some degree of being both non-rival and non-excludable(c) Is non-excludable but may or may not be non-rival(d) Has some degree of being either non-rival or non- excludable

Page 7 of9

8/10/2019 ECON1101 2009 SEM2

8/9

Question 27In the case of a regulated natural monopoly with high fixed costs, a price set by the

government to equal long -run Average Cost will result in:(a) An efficient outcome because Marginal Revenue equals Marginal Cost(b) n economic profit for the producer(c) A loss equal to average fixed costs for the producer(d) An inefficient outcome because price is greater than Marginal Cost

Question 28Frank: is considering moving to Perth. There is a 70 per cent chance that he will find ajob thatpays 1000 a month more than what he currently earns, and a 30 per cent chance that he willfind one that pays 3000 a month less. The expected value per month of moving to Perth is;

(a) 200 b - 200(c) 700(d) 900

Question 29Dave is risk averse while Scat is risk neutral. Both are confronted with the followinggamble: win 5000 with the probability of 65 per cent or lose 9000 with the probability of per cent. One can predict that:

(a) Both might accept the gamble(b) Only Scat will accept the gamble(c) Only Dave will accept the gamble(d) Neither will accept the gamble

Question 30A cinema charges a lower admission price for oon- working patrons over the age of 60(seniors) than for other adults seeking entry to see a movie. This price discrimination mightbe profitable for the cinema if:

(a) The demand for admission by seniorS is less elastic than the demand by other adults(b) The demand for admission by seniors is more elastic than the demand by other adults(c) TIle demand for admission by seniors increases at all price level for all movies

(d) The demand curve for admission by seniors shiftsto

the left

Page 8 of

8/10/2019 ECON1101 2009 SEM2

9/9

P RT

ch question in this p rt is worth m rks

Answer only ONE 1 question from this part

Question Bl1 Construct a diagrammatic model of a market which is supplied by a single fm n with

monopoly power, showing the Average and Marginal Cost curves and the Average

and Marginal Revenue curves for the monopolist. (5 marks

2. Use your diagram to help you to explain the firm s pricing and production decisions

if:

a The aim is to maximise profit

b. The aim is to maximise revenue

c The aim of the fum is to maximise the volume of sales, subjeet to making at

least normal profit. 3marks

3 Explain why the profit maximising behaviour by the monopalist results in an

inefficient allocation of resources from society s point of view. (6 marks

4 Under what circumstances might a monopoly provide a better outcome from society s

point of view than a more competitive market structure? marks

OR

Question B2

Consider an industry whose production process releases chemicals into a large river in

a heavily populated area.

Use the competitive market model to show that in the absence of any regulation, the

industry will over produce from th e point of view of allocative efficiency. Use a

diagram to illustrate your answer. 8 marks

2 Explain the Coase Theorem. Will the Coase Theorem be applicable in this case? Give

reasons for your answer (6 marks)

3 Discuss other fonns of intervention by government aimed at correcting the market

failure problem in this case. 6 marks)

This is th e en d of the exam.

Page 9 of9