ECN1A: Principles of Microeconomics TA...
Transcript of ECN1A: Principles of Microeconomics TA...
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
2nd Midterm Exam Review
Outline
1 2nd Midterm ExamResultReview
2 ReviewChapter 12: The Capital MarketChapter 13: International Trade
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Result
2nd Midterm: Result
• mean: 22.30/30• median: 23/30• s.d.: 5.14/30• highest: 30/30• lowest: 10/30
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Result
2nd Midterm: Result
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
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
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Review
2nd Midterm: Q6 (27.62% answered correctly)
• 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
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Review
2nd Midterm: Q9 (47.62% answered correctly)
• 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?
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Review
2nd Midterm: Q11 (66.67% answered correctly)
• 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
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Review
2nd Midterm: Q16 (60.95% answered correctly)
• 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?
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Review
2nd Midterm: Q22 (67.62% answered correctly)
• 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
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Review
2nd Midterm: Q24 (41.90% answered correctly)
• 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
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Review
2nd Midterm: Q25 (63.81% answered correctly)
• 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
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Review
2nd Midterm: Q26 (70.48% answered correctly)
• 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
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
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
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
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%
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 12: The Capital Market
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)
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 12: The Capital Market
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)
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 12: The Capital Market
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%
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
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)
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 13: International Trade
Gains from Trade
• Q8. What is the free-trade price of this good?• where exports (supply) will equal imports (demand).• Answer: C) $12
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 13: International Trade
Gains from Trade
• Q9. What will be the free-trade quantities of exports and imports?• Answer: B) 40 units
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 13: International Trade
Gains from Trade
• Q10. What will be the change in consumer surplus in Country A as aresult of free trade?
• Answer: D) +$240
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 13: International Trade
Gains from Trade
• Q11. What will be the change in producer surplus in Country A as aresult of free trade?
• Answer: B) -$160
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 13: International Trade
Gains from Trade
• Q12. What will be the net gain from trade in Country A?• = $240 - $160• Answer: B) +$80
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 13: International Trade
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
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 13: International Trade
Gains from Trade
• What will be the new equilibrium quantity of trade between the twocountries?
• Answer: A) 60 units
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 13: International Trade
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
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 13: International Trade
Tariff in a Small Country
• Q20. As a result of the tariff the change in producer surplus will equal:• Answer: A) +$6
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 13: International Trade
Tariff in a Small Country
• Q21. As a result of the tariff the change in consumer surplus will equal:• Answer: -$56
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 13: International Trade
Tariff in a Small Country
• Q22. The government revenue from the tariff will equal to• Answer: B) $40
ECN1A Section Jae Wook Jung with Akira Sasahara
2nd Midterm Exam Review
Chapter 13: International Trade
Tariff in a Small Country
• 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
ECN1A Section Jae Wook Jung with Akira Sasahara