intermediate economics

INTERMEDIATE ECONOMICS (ECON 021)

Quiz One

July/10/2020

STUDENT NAME: …………………………………………………. SCORE………/30

Answer All Questions (Time Allowed: 30 Minutes)

PART I: Multiple choice (only 15 questions) 15 marks

In answering each of the following questions, Circle or tick each correct answer. More than one

answer may be correct in some cases.

1. Which of the following statements are (in general) true? a. Marginal cost (MC) is minimized where MC = Average Variable Cost (AVC) b. Average Total Cost (ATC) is minimized where MC = ATC c. Average Variable Cost (AVC) is minimized where MC = AVC d. Total revenue is maximized where MC = Marginal Revenue (MR)

2. Which of the following functions have unit elasticity at P = 6? a. Demand: Qd = 10/P b. Demand: log Qd = 100 - 3 log P c. Demand: Qd = 24 - 2 P d. Supply: Qs = 5 P

3. The function y = f(x) reaches a (relative) minimum where:- a. f(x) = 0 and f '(x) < 0 b. f(x) = 0 and f '(x) > 0 c. f '(x) = 0 and f ''(x) < 0 d. f '(x) = 0 and f ''(x) > 0

4. The supply and demand model applies when three of the following four conditions are

met. Which condition is not required?

a. There must be many buyers.

b. There must be many sellers.

c. The buyers and sellers must trade an identical item.

d. The item traded must be a product.

5. f(x) = 3x3 - 4x2 + 10 implies a. f(1) = 10 b. f '(x) = 9x2 - 8x + 10 c. f ''(x) = 18x – 8 d. f '(2) = 20

6. Which of the following predictions is not made by the supply and demand model? a. If there is excess demand, the price will rise. b. If there is excess supply, the price will fall. c. If there is no excess demand or excess supply, the market will be in equilibrium. d. A market which is out of equilibrium will always move rapidly to the equilibrium.

7. Suppose there is excess supply in a market and the price decreases. Which of the

following combinations of events will occur?

a. There will be a fall in quantity supplied and a rise in quantity demanded.

b. There will be a fall in quantity supplied and a rise in demand.

c. There will be a fall in supply and a rise in quantity demanded.

d. There will be a fall in supply and a rise in demand.

8. Suppose there is a decrease in supply in a market where the supply curve slopes upwards

and the demand curve slopes downwards. Which of the following would not occur?

a. An excess supply. b. A fall in price. c. A fall in supply. d. A fall in the equilibrium level of expenditure.

9. Which of the following are true? a. f(x) = ax3 - bx + c implies f '(x) = 3ax2 - b + c b. f(x) = 4x + 3 / x2 implies f '(x) = 4 - 6/x3 c. f(x) = 3x2/3 implies f '(x) = 6x-1/3 d. f(x) = 6x3 - 3x-2 + 5x + 7 implies f '(x) = 18x2 + 6x-3 + 5

10. Which of the following might not lead to an increase in the demand for a product that can

be stored?

a. A fall in the price of a complement.

b. A rise in consumer incomes.

c. An increase in the number of buyers.

d. An expected rise in price.

11. y = 100/x + 4x has a. a maximum point where x = 5 b. a minimum point where x = 5 c. a maximum point where x = -5 d. a minimum point where x = -5

12. Which of the following would not lead to a decrease in the supply of a product that can

be stored?

a. An increase in the demand for a joint product. b. A rise in the price of another input. c. A decrease in the number of firms supplying the product. d. An expected rise in the price of the product.

13. Suppose incomes double over a period of years. Which sorts of product will experience

the biggest increases in price?

a. Those with a PES close to 0.0 and an IED well above 0.0.

Those with a PES close to 0.0 and an IED well below 0.0

Those with a PES well above 1.0 and an IED well above 0.0

Those with a PES well above 1.0 and an IED well below 0.0

14. Suppose the price of a product increases from £50 to £70 and the quantity supplied rises

from 40 a day to 80. What is the PES?

a. 0.5

b. -0.5

c. 2.0

d. -2.0

15. Which of the following statements is false?

a. PES is infinity all along any horizontal supply curve.

b. PES is 1.0 all along any supply curve which passes through the origin.

c. PED is zero all along any vertical demand curve.

d. PED is -1.0 along any demand curve where spending would be the same at each

price.

Part II Short Answers

1. From Figure 1, explain three factors that can cause a change in demand from D1 to D2. (3 Marks)

Figure 1

(i)

(ii)

(iii)

2. What would be the effect of an increase in income on demand for normal goods and inferior goods? (2 Marks)

Part III Comprehensive Question

The weekly demand function for butter in the province of Hubei is Qd = 20000 - 500Px + 25M +

250Py, where Qd is quantity in kilograms purchased per week, P is price per kg in dollars, M is

the average annual income of Hubei Province consumer in thousands of RMB, and Py is the

price of a kg of margarine. Assume that M = 20, Py = $2, and the weekly supply function is such

that the equilibrium price of one kilogram of butter is $14.

Calculate the price elasticity of demand for butter at the equilibrium. What can we say about the

demand for butter at this price-point? What significance does this fact hold for suppliers of

butter? (10 Marks)