Principles of Microeconomics ECO 2023

Principles of Microeconomics ECO 2023

PART A – Questions 1 – 7

Consider a market where demand is D: P = 30 – Q and supply is S: P = 0.5Q.

1.     Equilibrium quantity Qe is

a.     17

b.    18

c.     19

d.    20

2.     Equilibrium is price Pe

a.     $10

b.    $11

c.     $12

d.    $13

3.     Consumer surplus CS is

a.     $199

b.    $200

c.     $201

d.    $202

4.     Producer surplus PS is

a.     $98

b.    $99

c.     $100

d.    $101

5.     Total surplus TS is

a.     $220

b.    $300

c.     $323

d.    $444

6.     When the government imposes a price floor = $20, disequilibrium between quantity demanded and quantity supplied results in

a.     Deficit = 10

b.    Surplus = 10

c.     Deficit = 30

d.    Surplus = 30

7.     Total surplus TS’ with the price floor is

a.     $220

b.    $225

c.     $230

d.    $235

PART B – Questions 8 – 28

Use the following assumptions to answer all questions:

·         There are three countries – Argentina, Britain and Canada.

·         Each country produces and consumes two kinds of goods – crude oil and beef.

·         All countries make their goods from a single type of input – labor – and each country has 24 hours of labor available to produce crude oil and beef.

·         Each country demands 2 (two) barrels of crude oil. This assumption simply means that a country must have exactly 2 barrels of crude oil – it may produce them domestically, it may import them from abroad, or it makes some domestically and imports the rest.

·         Countries produce goods using the technology described in the table below:

Technology

Hours of labor needed to produce one unit of good

Using the above assumptions, answer the following questions:

·         Calculate the quantities of crude oil and beef produced in each country in autarky (when they do not trade and each country produces its own crude oil and beef)

·         Order the countries according to their absoluteadvantage in production of crude oil

·         Order the countries according to their absoluteadvantage in production of beef

·         Consider the case where countries are free to specialize and trade. In the table below calculate each country’s opportunity cost of producing one unit of each good.

·         Now consider the effects of specialization and trade. Calculate the quantities of crude oil and beef produced in each country, consistent with the country’s comparative advantage.

Based on the above calculations, answer questions 8 through 28:

Consider autarky, when countries do not trade and each country produces its own crude oil and beef.

8.     In autarky, Argentina produces _____ barrels of oil.

a.     0

b.    4

c.     2

d.    6

9.     In autarky, Britain produces _____ barrels of oil.

a.     0

b.    2

c.     4

d.    6

10.  In autarky, Canada produces _____ barrels of oil.

a.     0

b.    1

c.     2

d.    3

11.  In autarky, Argentina produces _____ pounds of beef.

a.     1

b.    3

c.     0

d.    2

12.  In autarky, Britain produces _____ pounds of beef.

a.     1

b.    3

c.     0

d.    2

13.  In autarky, Canada produces _____ pounds of beef.

a.     1

b.    3

c.     0

d.    2

14.  Country of _____ has absolute advantage in production of crude oil.

a.     No country

b.    Britain

c.     Canada

d.    Argentina

15.  Country of _____ has absolute advantage in production of beef.

a.     No country

b.    Britain

c.     Canada

d.    Argentina

Consider effects of specialization, when countries are allowed to trade.

16.  When countries specialize, Argentina produces _____ barrels of oil.

a.     1

b.    5

c.     10

d.    0

17.  When countries specialize, Britain produces _____ barrels of oil.

a.     0

b.    5

c.     2

d.    15

18.  When countries specialize, Canada produces _____ barrels of oil.

a.     0

b.    5

c.     4

d.    15

19.  When countries specialize, Argentina produces _____ pounds of beef.

a.     12

b.    70

c.     15

d.    40

20.  When countries specialize, Britain produces _____ pounds of beef.

a.     0

b.    2

c.     15

d.    40

21.  When countries specialize, Canada produces _____ pounds of beef.

a.     12

b.    0

c.     15

d.    40

22.  Country of _____ has comparative advantage in production of crude oil.

a.     Argentina

b.    Canada

c.     Britain

d.    No country

23.  Country of _____ has comparative advantage in production of beef.

a.     No country

b.    Britain

c.     Canada

d.    Argentina

24.  Countries gain from trade because specialization increases _____.

a.     Trade deficit

b.    Efficiency

c.     Unemployment

d.    Inflation

25.  Countries should trade with trading partners that _____.

a.     Are equally technologically advanced

b.    Use superior technology in every industry

c.     Use diverse technologies, because trade benefits all

d.    Use less advanced technology in every industry

26.  Total production of crude oil in all three countries combined is

a.     $0

b.    $2

c.     $4

d.    $6

27.  When countries do not trade (autarchy), total production of beef in all three countries combined is

a.     $0

b.    $2

c.     $4

d.    $5

28.  When countries trade, total production of beef in all three countries combined is

a.     $10

b.    $12

c.     $14

d.    $64

29.  The basic characteristic of the long run is that: 
A. barriers to entry prevent new firms from entering the industry.
B. the firm has sufficient time to change the size of its plant.
C. the firm does not have sufficient time to cut its rate of output to zero.
D. a firm does not have sufficient time to change the amounts of any of the resources it employs.

30.  The law of diminishing returns indicates that: 
A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
B. because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped.
C. the demand for goods produced by purely competitive industries is downsloping.
D. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.

31.  Variable cost is: 
A. the cost of producing one more unit of capital, say, machinery.
B. any cost which does not change when the firm changes its output.
C. average total cost multiplied by the firm's output.
D. any cost that rises with output in the short run.

32.  In the above figure, curves 1, 2, 3, and 4 represent the: 
A. ATC, MC, AFC, and AVC curves respectively.
B. MC, AFC, AVC, and ATC curves respectively.
C. MC, ATC, AVC, and AFC curves respectively.
D. ATC, AVC, AFC, and MC curves respectively.

33.  Refer to the above data. If product price is $60, the firm will: 
A. shut down.
B. produce 4 units and realize a $120 economic profit.
C. produce 6 units and realize a $100 economic profit.
D. produce 3 units and incur a $40 loss.

34.  Refer to the above diagram for a pure monopolist. Monopoly price will be: 
A. e.
B. c.
C. b.
D. a.

35.  Refer to the above diagram for a pure monopolist. Monopoly output will be: 
A. between f and g.
B. h.
C. g.
D. f.

Consider a market with the market demand D: P = 100 – Q, which is served by two Cournot duopolistic producers with the constant marginal cost MC = $10 and no fixed cost.

36.  In Nash equilibrium, the output of each firm, is

A.    20

B.    30

C.    40

D.    50

37.  In Nash equilibrium, the market output is

A.    40

B.    60

C.    80

D.    100

38.  In Nash equilibrium, the market price is

A.    $30

B.    $40

C.    $50

D.    $60

39.  In Nash equilibrium, profit of each firm is

A.    $900

B.    $1000

C.    $1100

D.    $1200

40.  When these two firms collude to form a cartel, the market output is

A.    10

B.    20

C.    35

D.    45

41.  When these two firms collude to form a cartel, the market price is

A.    45

B.    55

C.    60

D.    70

42.  When these two firms collude to form a cartel, the profit of each firm is

A.    $1012.50

B.    $1450.50

C.    $1560.25

D.    $1860.25

43.  Under pure competition a large number of identical firms in this market would produce a market output of

A.    80

B.    90

C.    100

D.    110

44.  Under pure competition the market price in this market would be

A.    $10

B.    $14

C.    $15

D.    $18