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EC1301 - EC1301 NATIONAL UNIVERSITY OF SINGAPORE EC1301...

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Unformatted text preview: EC1301 NATIONAL UNIVERSITY OF SINGAPORE. EC1301 PRINCIPLES OF ECONOMICS (Special Term 1 :AY2007-2008) Time Allowed : 2, Hours INSTRUCTIONS TO CANDIDATES 1. This examination paper contains fifty (50) multipie choice questions and comprises thirteen (13) printed pages. 2. Answer ALL questions. Total mark is 80marks 3. This is a CLOSED BOOK examination. 2 EC1301' ' MULTIPLE CHOICE. Choose the one alternative that best completes the statement or I answers the question. - 1) Which of the following statements is true givenfthe following scenario: Wee Long decided to- go for his music class in the moming'even though-he wanted to sleep because he had not slept the whole night in order to watch soccer on television. A) The opportunity Cost of-sleeping is the value cfhis music class B) The opportunity cost of his music class is the value of his sleeping in the day C) The cost of his music class is more than his value of the soccer match D) The value of his sleep is less than his value of the soccer match Laundrx Service , Revenue $400,000 Labour Expense 150,000 Maintenance Expense 100,000 Net Income $_ 150,000 2) Refer to the table above for Question 2 and 3.-Suppose.Ace withdrew $150,000 from his account that earned 10 percent to invest into his laundry business. He quit his full-time job’ that paid $60,000 to manage this business. Ace’s opportunity cost equals: A) $75,000 B) $150,000 . C) $250,000 D) $325,000 3) Ace’s economic profit equals: A) $400,000 B) $150,000 C) $90,000 D) $75,000 Pairs of earrin s TV-C MC AVC TFC TC AFC ATC 0 100 1 50 2 95 3 66.67 300 4 5 270 4) Refer to the table above. Diminishing returns set in at which output level? A) first pair B) second pair C) third pair D) fourth pair E) fifth pair 3 EC1301 5) Suppose one knows two facts: first, there is a chronic shortage of rice and, second, the government regulates the price for rice. One can conclude that the A) people are hoarding rice. B) government has imposed a price floor that is too low.‘ C) government has imposed a price floor that is too high. D) government has imposed a price ceiling that is too low. E) government has imposed a price ceiling that is too high. 6) The market for bread is in equilibrium with the price elasticity of demand at 1.8 and the price elasticity of supply at 1.2. If the firm wanted to increase the amount they sold by 20%, they should A) decrease the price of bread by roughly 11% B) increase the price of bread by roughly 11% C) decrease the price of bread by roughly 3.6 times D) increase the price of bread by roughly 3.6 times 13) Cannot be determined . 7) Suppose demand (Q13) and supply (Q5) in the market can” be expressed by these equations: QD = 50 — 0.5P Q3 2 15 + 2P If the current market'priCe is $15, we know that A) sellers will lower price because of growing inventories B) buyers wili bid priceshigher because of overdemand C) price will be at equilibrium D) None of the above 8) Refer to the figure below. If this rice farmer is producing the profit maximizing level of output in a perfectly competitive market, his profit is: A) $0 B) $1,000 C) $1500 D) $2000 Price $ 24 20 ’18 100 350‘ 500 700 Q Sacks of rice 4 ' EC1301 Please use the..diagram below to answer Question 9—10 Price R$ SUpply (S) 2.00 -_. 1'50 Long-run MC 1.00 ....... E Demand (D) 200' 3350 Quantity (km per day) 9. The figure above shows-the market for taxicab services in a small Malaysian town with a long- run MC curve of R$l.50per km. If the taxi company was only one firm in a perfectly competitive market, he would earn , in the long-run: A) R$100 per day B) R$0 per day C) R$37.50 per day D) R$200 per day 10. Refer to the diagram above. If this same taxi company was able to lobby the local government to ' allow it to become the only taxi company in town, this firm would be Willing to spend up to to successfully lobby the government A) R$100 per day B)‘ R330 per day. C) R$37.50 per day. D) R$200 per day l l. Inuthe presence of externalities, market equilibrium is efficient because A) the expenditure of the consumers equals the producers surplus. B) the quantity that is sold equals the quantity that is bought. C) no more trades remain that benefit some without banning others. D) buyers and sellers enjoy equal amount of surpluses. E) none of the above. 5 EC1301 12. The following table shows the total revenue for a monopolist selling pink jeans: (please use the table to answer Question 12) lf marginal cost is constant at $10, the firm should produce A) Not produce at all B) 2 jeans C) 3 jeans D) 4 jeans E) 5 jeans 13) You have been hired as an economic consultant to a firm that produces widgets. The firm already has a factory, so it is operating in the short run, The hourly wage rate is $12, and each widget requires $2 worth of material and ten minutes of labour time to produce it (and these costs are constant regardless of the size of the factory). The finn’s demand curve and marginal revenue curve are given by the equations P=100—1.5Q and MR=100—3Q, where Q represents the number of widgets it produces, and P is the price in dollars. If you were the economic consultant, what price would you advise the firm to sell its widgets? A) $4 B) $32 C) $48 D) $52 E) Cannot be determined. Figure 4 DVD ran-dine. 6 EC1301 l4) Refer to Figure 4. Assume that there are only ten people like Person A and ten people like Person B in Clementi-Town who are willing to buy DVD movies (private good). Given that the market price went from $12 to $15, the price elasticity of demand (using initial vaers) for DVDs in Clementi is equal to A) 0.75 B) l C) 1.33 D) 3.33 E) Cannot be determined 15) Suppose you are an electrician and there are no licensing of electricians in the past. A new law. will go into effect next month, where the government will license electricians, whereby practising electricians do not have to take a test but new electricians have to take a challenging test. Because - of this law, you expect A) price to fall B) price to rise. C) electrical services to increase . D) both B and C Senior Citizen 3; Younger $2n $15 $10 $5 2 4 6 8 Q i 2 3 4 6 8 In hundreds of meals . In hundreds of meals 0 Figure 4.1 16. Refer to Figure 4.1 that shows two groups of demand curves and marginal revenue curves for meals per week at Fratelli's Italian restaurant by 2 types of customers: senior citizens and younger patrons. Given that marginal cost of each meal is always constant at $10 a meal, the restaurant should A) Charge both senior citizens and younger patrons the same price B) Charge younger patrons less than senior citizens C) Charge senior citizens less than younger patrons D) The price cannot be determined from the information given. 7 EC1301 Clyde Clyde does Confess not confess 3 onnie 0,20 10,0 confess Bonnie does 0,10 5,5 not confess Table 3 1?) Refer to Table 3 for Question 17-19. Bonnie and Clyde are suspected of having committed a crime. They are being interrogated individually'and need to decide if they should confess or not confess. The first number in each cell refers to the number of years of prison time Bonnie will receive if she takes that action and the second number in each cell refers to the number of years of prison time Clyde will receive if he takes that action. The best strategy for Bonnie is to and the best strategy for Clyde is to A) con-fess; confess B) not confess; confess C) not confess; not confess D) confess; not confess 18) This is an example of the prisoner’s dilemma. A) True ' B) False 19) How many dominant strategies does this game have? A) None B) One C) Two D) Three 20) Suppose that the marginal benefit of the last coke you drank gave you 20 utils and the marginal benefit of the last hamburger you ate gave you 10 utils, you can conclude that A) You should spend less on hamburgers and more on coke B) You should spend more on hamburgers and less on coke C) Buy more coke if the price of coke is less than double that of hamburgers D) Buy more hamburgers if the price of hamburgers is less than double that of coke 21) The pizza delivery industry is monopolistically competitive. Little Joe's Pizzeria raises its prices by 10%, but all the other pizzerias in town keep their prices the same. Which of the following is most likely to occur? A) Little Joe's Pizzeria will not be able to sell any pizzas B) Little Joe's Pizzeria will lose some of its customers C) Little Joe's Pizzeria's profits will increase D) The number of customers served by Little J oe‘s Pizzeria will increase 8 EC1301 22) If a market is currently served by an insecure monopolist, he can A) always deter entry by lowering the price of his output B) deter entry in the short run but not in the long run C) deter entry in the long run but not in the short run D) deter entry only if the minimum quantity for a competitor to enter is low E) none of the above 23) As new firms enter a monopolistically competitive industry, which of the following will occur? A) The demand and marginal revenue curves facing each firm begin to shift to the right B) The demand curve facing each firm begins to shift to the right but the marginal revenue curve remains constant C) The demand curve facing each firm shifts to the left, but the marginal revenue curve remains constant D) The demand-and marginal revenue curves facing each firm begin to shift to the left 24) Which is a market failure? A) a NUS student who has bid up the points for EC1301 and you no longer have enough points to qualify to enrol in the class B) an ebay (auction) buyer who at the last minute offered a higher price and won the auction leaving you with nothing, even though you valued it higher than the closing price. C) A library closes down because not enough people use its facilities D) No one participates in class because they are scared that by sharing information, they are helping others score better in the exams. 25) A negative externality A) shifts the marginal private benefit curve leftwards and the output produced is less than the social optimum. B) shifts the marginal private cost curve to the right and the output produced is less than the social Optimum. _ C) shifts the marginal private cost curve to the left and the output produced is more than the social optimum. D) shifts the marginal private benefit curve rightwards and the output produced is more than the social optimum. 9 EC1301 MACROECONOMICS 26) Suppose national income in 2007 was $910 million, depreciation-for the year was $60 million, net income from abroad was $100 million, indirect taxes were $200 million. What was GNP for 2007? A) $910 million ' B) $1,070 million C) $1,210 million D) $1,170 million 27) As an Indian national, buying a Korean car (last year’s model) in a Singapore shop, I am contributing to the Singapore’s GDP for this year. A) True B) False 28) If the actual unemployment falls below the natural rate of unemployment A) GDP rises B) Real output equals potential output C) Potential output exceeds real output D) All of the above E) None of the above 29) Refer to the Table above. Assuming the country of Banana Split only produces bananas and ice-cream, and using 2006 as the base year, the GDP deflator for 2007 is A) 80 B) 125 C) 128 D) 160 E) 130 30) Refer to the same Table as Question 28. The inflation rate using the GDP deflator for 2007 (using 2006 as the base year) is higher than the inflation rate using the CPI for 2007 compared to 2006 (using 2006 as the base year basket). A) True B) False 3 i) If nominal GDP grows faster than pOpulation, the real GDP per capita will decrease. A) True B) False C) Cannot be determined 10 EC1301 32) Singerpour Pte Ltd grows cotton and uses it to make clothes. In the current year, the firm produces clothes valued at $20000, half of which it sells to consumers and half it sells to a T—' shirt design company which takes the shirts and adds special designs which it sells to surfers in the region for $30000. How much is GDP increased in the economy? A) $13000 B) $30000 c3 $40000 1))$50000 33) Which best explains what happens when a Malaysian consumer purchases a new locally produced computer in a Singapore shop. A) There will be an increase in exports B) There will be an increase in imports spending C) There will be an increase in consumption spending D) There will be an increase in both consumption and imports spending 34) Given a production function Y = A*K*L and knowing that A costs $10, K cost $5 and L cost $1, how much more A’ , K and L should i buy if I want to produce the most efficient amount of Y? A)A>K>L B)L>K>A C)AHL D)AHA 35) Suppose the consumption function in a closed economy is given by C = Ca +0.9Y, and an economic shock reduces Ca by $15 million, how much will GDP decrease by? A) $20 million - B) $60 million C) $80 million In $150rnflhon. E) $35 million 36) Whenever the unemployment rate is pushed the natural rate, . A). above; wages begin to fall bringing down costs B) above, increasing prices force wages to increase C) above; rising prices causes wages to decrease D) below; decreasing prices force wages to decrease E) below, wages begin to fall bringing down costs 37) When the amount of capital decreases in an economy, real wages in general decrease. A) True B) False 33) 39) 40) 41) 42) 43) 11 EC1301 Which of the following statements regarding aggregate supply are correct? A) When oil prices increase, long run aggregate supply shifts to the right. B) When a country has more immigrants, long run aggregate supply shifts to the right. . C) In a recession, the long run aggregate supply curve shifts to the left. D) In a boom, the long run aggregate supply curve shifts to the right. An implication of the long-run aggregate supply curve is that continuous increases in the money supply will result in continuous: A) increases in prices. B) decreases in output and prices. C) decreases in output. D) increases in output and prices. If a bond is selling for $5440 and promises to pay $6000 in 2 years time. Given that the interest rate is currently 5% but you know that it will become 6% in a year’s time, should you buy this bond? A) Yes B) No Suppose that the current bank interest rate is greater than the equilibrium interest rate. Which of the following occurs? 1. There is an excess supply of money II. The value of bonds falls III. Money demand falls A)l. B)i and 11. (3)1 and Ill. D)l, ii and Ill. Using the mode] of the money market, suppose that the Monetary Authority of Singapore (a central bank) reduces the reserve requirement (or required reserve ratio) and simultaneously prices fall in the economy. As a result the: A) interest rate will not change. B) interest rate will increase. C) interest rate will decrease. D) effect on the interest rate is indeterminate. Classical misperceptions theory says that nominal wages are slow to adjust which induces firms to reduce production. A) True B) False 44) 45) 46) 47) 12 EC1301 In the short-run A) wages and prices are flexible B) GDP is dependent by the current supply of goods and Services C) fiscal policies have an impact on aggregate supply D) none of the above Suppose that the unemployment rate in Singapore is above the natural rate. We would expect: A) prices to rise, money demand to fail, interest rates to fall, and total. demand to “fall. B) prices to rise, money demand to rise, interest rates to rise, and total demand to fall. C) prices to fall, money demand to fall, interest rates to fall, and total demand to rise. D)prices to fall, money demand to rise, interest rates to fall, and total demand to fall. Short—run AS Figure 6 Refer to Figure 6. Suppose that the Japanese economy is originally not in equilibrium at point C. In the long run, when the government increases taxes, the economy moves to point: A)A. B)B. C) C. D)D. If the Monetary Authority of Singapore (a central bank) intervenes in the international currency market by selling US dollars to buy Singapore dollars, then Singapore imports and Singapore exports A) increase; increase. B) increase; decrease. C) decrease; increase. D) decrease; decrease. 13 EC1301 48) If the money supply increases when the Bangladesh economy is at full employment, aggregate demand . In the long run, , and real GDP will A)decreases; the price level falls; return to potential GDP B) decreases; real GDP decreases; increase to potential GDP C) increases; the price level rises; return to potential GDP D)increases; real GDP increases; increase further. 49) In a liquidity trap, money demand in the economy is unresponsive to interest rate changes. A) True B) False Output per Day of Work Good A Good B 10 5 3 50) Refer to the above Table. According to the data, which of the following statements is true? A) Chinese workers cannot gain from trade with India. B) Labor productivity in both goods is higher in India than in China. C) Wages will be higher in India than in China. D) China should sell Good A to India to buy Good B E) China should sell Good B to India to buy Good A m— END OF PAPER h ...
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