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EXAMINATION PAPER
FACULTY OF BUSINESS AND LAW
Department of Economics
a. their decisions always lead to outcomes that are optimal for society.
b. their decisions never lead to outcomes that are optimal for society.
c. they use marginal analysis to determine their optimal activity level.
d. they choose an activity level that maximizes total benefits.
4. You won a free ticket to see an Eric Clapton concert (the ticket has no
resale value). Bob Dylan is performing on the same night and is your
next-best alternative activity. Tickets to see Dylan cost $40. On any given
day, you would be willing to pay up to $50 to see Dylan. Assume that
there are no other costs of seeing either performer. Based on this
information, what is the opportunity cost of seeing Eric Clapton?
a. $0
b. $10
c. $40
d. $50
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MAE101 Economic Principles
Trimester Two 2015 Examination
What is the minimum expected sale price of the new house that the
developer would need to receive in order to decide to build it?
a. $700,000
b. $400,000
c. $350,000
d. Not enough information is provided.
a. 500 pretzels
b. 250 pretzels
c. 300 potato chips
d. 600 potato chips
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MAE101 Economic Principles
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Production possibilities
for Erehwon
a. Australia should buy its shoes from other nations, using Australian
resources to produce other items.
b. Australia should place a quota on imported shoes sufficient to
maintain desired domestic levels of production.
c. Australia should subsidize its shoe industry, allowing effective
competition with foreign shoemakers.
d. Australia should place a tariff on the import of shoes produced by
cheap foreign labour.
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MAE101 Economic Principles
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10. Suppose that a decrease in the price of X results in more of good Y sold.
This would mean that X and Y are:
a. complementary goods
b. substitute goods
c. unrelated goods
d. normal goods
PX QX PY Income
200 100 150 10000
300 80 150 10000
200 60 210 10000
200 150 150 14000
11. Comparing the first row with the second row, the own-price elasticity of
demand is:
12. Comparing the second row with the third row, the cross-price elasticity of
demand is:
13. Comparing the first row with the fourth row, the income elasticity is:
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MAE101 Economic Principles
Trimester Two 2015 Examination
14. Amy buys a new dog for $150. She receives consumer surplus of $100
on her purchase. Her willingness to pay is:
a. $50
b. $100
c. $150
d. $250
15. Suppose you make jewellery. If the price of gold falls, we would expect
you to:
a. the equilibrium price would increase but the impact on the amount
sold in the market would be ambiguous.
b. the equilibrium price would decrease but the impact on the amount
sold in the market would be ambiguous.
c. both equilibrium price and equilibrium quantity would increase.
d. equilibrium quantity would increase but the impact on equilibrium
price would be ambiguous.
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MAE101 Economic Principles
Trimester Two 2015 Examination
The graph below shows supply and demand in a market. Use this to answer
Questions 17, 18, and 19.
17. According to the graph above, a binding price ceiling would exist at a
price of:
a. $15.00
b. $13.00
c. $11.00
d. none of the above
18. In the graph above, suppose that the tax of $4.00 is imposed on sellers.
The amount of the tax that sellers would pay would be:
a. $1.00
b. $2.00
c. $4.00
d. indeterminate
19. According to the graph above, if the tax were imposed on consumers,
then:
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MAE101 Economic Principles
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20. Some developing countries have used price ceilings to keep rice cheap
to assist the poor. At the ceiling price:
21. Firms that shut down in the short run are unable to avoid their:
a. fixed costs
b. intermediate costs
c. variable costs
d. marginal cost
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MAE101 Economic Principles
Trimester Two 2015 Examination
Use the following table to answer questions 22, 23, and 24.
Measures of Production and Cost for Splashy Kayak Factory, which operates
in a perfectly competitive industry. The only variable costs are labor, which
costs $24 per worker. Some of the table has been completed for you, though
you may need to complete more of it to answer the questions.
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MAE101 Economic Principles
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26. Allowing an inventor to have the exclusive rights to market her new
invention will lead to which of the following?
(i) a product that is priced higher than it would be without the exclusive rights
(ii) desirable behaviour in the sense that inventors are encouraged to invent
(iii) higher profits for the inventor
27. Price discrimination adds to social welfare in the form of which of the
following?
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MAE101 Economic Principles
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a. (i) only
b. (iii) only
c. (i) and (iii)
d. (ii) and (iii)
30. Four friends decide to meet at a Chinese restaurant for dinner. They
decide that each person will order an item from the menu and they will
share all dishes. When the final bill for the meal comes, they decide they
will split the cost evenly among each of the people at the table. When the
food is delivered to the table, each person faces incentives similar to
those associated with:
32. If a uranium mine does not bear the entire cost of cleaning up its waste
then it will:
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MAE101 Economic Principles
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33. Assume that your housemate is very messy. Suppose she gets a $100
benefit from being messy but imposes a $200 cost on you. The Coase
theorem would suggest that an efficient solution would be for:
(i) your housemate to pay you at least $100 but no more than $200 and you
clean up after her.
(ii) you to pay your housemate at least $100 but no more than $200 to clean up
after herself.
(iii) your housemate to pay you at least $100 but neither of you cleans up.
a. (i) only
b. (ii) only
c. (iii) only
d. (i) or (ii)
34. On the island of Borneo, orangutans live in wild rain forests; many
entrepreneurs are purchasing this land and developing it into palm oil
plantations. Because orangutans can threaten plantation workers, they
kill orangutans that venture onto the plantations; some other human
inhabitants eat the meat of the orangutans; and some poachers capture
baby orangutans to sell in the black market for exotic animals. In short,
the orangutans of Borneo face an indirect threat (habitat loss) and direct
threats.
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MAE101 Economic Principles
Trimester Two 2015 Examination
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MAE101 Economic Principles
Trimester Two 2015 Examination
SECTION B
In this section, there are two parts. In Part 1, answer the only question,
number 1, either (a) or (b). In Part 2, answer any three of questions 2, 3, 4,
and 5. Part 1 is worth four (4) marks; Part 2 is worth 27 marks each of
questions 2, 3, 4, and 5 is worth nine (9) marks. This section is worth 31
marks.
Part 1
If each movie studio just cancelled one blockbuster that costs $100
million to make each year and donated that to say education, imagine
how much better off we would be.
OR
(b) Use separate diagrams to illustrate (i) a royalty tax on mining and (ii) a
resource rent tax on mining. Compare the impact of the two taxes on the
level of mining activity.
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MAE101 Economic Principles
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Part 2
Answer Three (3) of the Following Four (4) Questions Each Is Worth
Nine (9) Marks
2. Principles of Economics
(a) Bakers sells customers bread because they are kind people.
(b) Doctors often keep their sick patients waiting. This is because sick
people have lower opportunity costs.
(c) When firms increase advertising, they force consumers to move along
their demand curve.
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MAE101 Economic Principles
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MAE101 Economic Principles
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(i) With the aid of a diagram, discuss why the price of paintings by
famous artists has been rising over time.
(ii) With the aid of a diagram, discuss why the price of laptops has
been falling over time even though demand has been rising.
(b) Compare and contrast a price ceiling, a price floor, and a tax.
(3 marks)
Draw a standard supply-and-demand graph and identify the
equilibrium with no intervention -- let the equilibrium price be $5 and
the equilibrium quantity be 15.
Now, suppose that the government imposes a tax of $3; this yields
an equilibrium quantity of 11 in which the price that consumers pay
is $7 and the price that firms receive is $4. Label these on your
graph; then, identify areas that represent consumers' surplus,
producers' surplus, deadweight loss, and tax revenue.
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MAE101 Economic Principles
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(b) Consider the following seminar articles and their goods: (7 marks)
(iii) state what type of good it is: private good, club good, common
resource, or public good.
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MAE101 Economic Principles
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5. Trade (9 marks)
The table below shows the production possibilities for Japan and Australia
showing production alternatives for each country per worker per year. Assume
that Japan's population is 50 million and Australia's population is 10 million.
Japan Australia
Steel 120 kg 25 kg
Concrete 20 kg 100 kg
(c) Assume that each country allocates half of its population to Steel
production and half of its population to Concrete production; what would
be total joint production. (1 mark)
(d) On what concept is trade based? If Japan and Australia were to trade,
what would each produce? Provide an example of production such that
each could consume more than its production in part (c). What price
could they trade at that would get them from their production to such an
allocation? (4 marks)
(e) What concept is implied by the shape of the joint production possibilities
frontier in your graph? (1 mark)
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MAE101 Economic Principles
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END OF EXAMINATION
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