ECON1101 - AUSTRALIAN NATIONAL UNIVERSITY First Semester...

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First Semester Examination (June 2005) MICROECONOMICS 1 (ECON1101) Study Period: 30 Minutes Writing Period: Three Hours Permitted Materials: Nonprogrammable Calculators Total points in this exam add up to 120 with Part A and Part B worth 60 marks each. Section A. Section A is worth 60 marks in total. Answer six of the following eight questions in the script “A” book. Each question is worth 10 marks. A1. Consider an economy that produces two goods, guns and butter, using two resources, capital and labour. Use a “bowed-out” production possibility frontier model to illustrate and explain what happens when: a. Immigration laws are relaxed. b. The working week is reduced to four days. c. A new and improved milking technology is introduced. d. World War III breaks out. A2. Use standard supply-and-demand diagrams to explain what happens to the equilibrium price and quantity of pizza in each of the following cases: a. The price of red wine falls. b. The price of cheese falls. c. The prices of red wine and cheese both fall. d. The government decides to subsidise pizza consumption! A3. Dennis lives on coffee and tim-tams. Use a budget constraint to illustrate and explain what happens to his utility-maximising consumption of coffee and tim-tams when: a. Coffee and tim-tams are both normal goods for Dennis, and his income goes down. b. Coffee is normal and tim-tams are inferior, and his income goes up. c. Coffee and tim-tams are complements, and the price of coffee rises. A4. Rising levels of obesity are causing concern across the globe. Some people have suggested that a “fat tax” on the consumption of fast food might reduce fast food consumption, and hence reduce obesity. Others say that this is unlikely to succeed, but that it would instead be a great way to raise revenue. What do you need to know in order to decide who you agree with? Explain. A5.
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ECON1101 - AUSTRALIAN NATIONAL UNIVERSITY First Semester...

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