sample final solution

# sample final solution - THE UNIVERSITY OF HONG KONG School...

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THE UNIVERSITY OF HONG KONG School of Economics & Finance 2007-2008 1 st Semester Examination Economics: ECON1001A to H Introduction to Economics I A to H Professor Y. K. Fan, Dr. S. Demurger, Dr. M. Lo & Dr. K. F. Wong December 15, 2007 2:30-4:30p.m. Candidates may use any self-contained, silent, battery-operated and pocket-sized calculator. The calculator should have numeral-display facilities only and should be used only for the purposes of calculation. It is the candidate’s responsibility to ensure that his calculator operates satisfactorily. Candidates must record the name and type of their calculators on the front page of their examination scripts.

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Part I: Multiple Choices (80 points total). Choose the BEST answer. 1. Sally earned \$25,000 per year before she became a mother. After she became a mother she told her employer that she would not be willing to work for anything less than \$50,000. Her decision is based on A) The high cost of raising a child. B) her desire to save for her child’s college expenses. C) her increased value to her employer. D) inflation. E) the value she places on spending time with her child. 2. Lorie wants to go to a friend’s house this evening, but has promised her mother that she would clean the house during that time. Her brother, Todd, has offered to clean the house for her if she will pay him \$20. Lorie replies, “I’ll pay you ten dollars (and not a cent more!).” The A) \$20 represents Lorie’s benefit of going to her friend's house this evening. B) \$10 represents Lorie’s opportunity cost of cleaning the house this evening. C) \$20 represents Todd’s benefit and Lorie's opportunity cost of going to her friend's house this evening. D) difference between the \$20 Todd has asked for to clean the house and the \$10 Lorie has offered represents the economic surplus of going to her friend’s house this evening. E) \$20 represents the opportunity cost of cleaning the house and the \$10 is the marginal benefit of going to her friend’s house this evening. 3. If the government wanted to use the incentive principle to discourage smoking, it would A) publicize the health risks associated with second-hand smoke. B) increase taxes on cigarettes, raising the price of a pack. C) subsidize tobacco companies. D) subsidize hospitals for treating lung disease. E) invest more money in health research. 4. Anticipating a lack of food in stores as a result of Hurricane Andrew, the Smith family took funds from their savings account to purchase the equivalent of a few months of canned goods to stockpile in their pantry. Fortunately, there were no shortages as a result of Hurricane Andrew, and the Smith family will eventually consume the food. As a result of their pre- Hurricane Andrew preparations, the Smith family incurred A) an opportunity cost equal to the cost of the food purchased.
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sample final solution - THE UNIVERSITY OF HONG KONG School...

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