WUAHN UNIVERSITY BUSINESS SCHOOL FINAL EXAM INTRODUCTORY ECONOMICS Instructor:Jiandong Wen Tie:8.00-10.00.an3y15.2000 INSTRUCTION You have two hours to write the exam.Full marks are 100 points.Answer all questions.Read questions carefully before you work on them.Make sure you have understood what you are required to do and note the value allocted to each question.Write out your answer in a concise way.A few words are enough if they keep to the point.So do not try to spread your expression. Remember not to write in Chinese on this test paper unless permitted for some part. Good Luck! Part I:Multiple choice.There are four answers for each question but only one of them is correct. Mark the comect one.Caution:note that some of answers are not straightforward and it may take time to obtain correct answers.So you had better treat them carefully.(30 points) 1.Which one of the following should be counted into GDP of China? A.Budweiser Beer produced in Wuhan by Anheuser-Busch Brewing Company (an U.S. bursiness) B.Revenue from selling my stock shares of one company. C.Subsidies from govemment to low income families. D.None ofabove. 2.After a new fuel-effective engine that runs on cheap alcohol is invented, A.The demand for gasoline falls B.The price of gasoline declines. C.The equilibrium use of gasoline decreases. D.All of the above. 3.Which one of the following cannot describe a (perfectly)competitive fim? A.It just enpoys normal profit in any case. B.It can raise price by reducing output. C.The price will increase ifall firms produce less output. D.It buses its decision on others'decision 4.Which one of the following statements about the rulle MR-MC is correct? A.MR=MC is a necessary condition for all firms to maximize profits. B.A competitive firm maximizes its profit by setting price at such a level that MR-MC is satisfied C.Even if MR=MC is met by a monopolist,is still possible for the monopolist to sulTer loss. D.Both A and C. $If-one chooses to coesume more music CD. A.The marginal utility of music CD is larger than the marginal utility of a novel. B.The music CD is cheaper than the novel. C.The marginal utility of last dollar spent on the music CD is larger than the marginal utility of
1 WUAHN UNIVERSITY BUSINESS SCHOOL FINAL EXAM INTRODUCTORY ECONOMICS Instructor: Jiandong Wen Time: 8:00-10:00, January 15, 2000 INSTRUCTION: You have two hours to write the exam. Full marks are 100 points. Answer all questions. Read questions carefully before you work on them. Make sure you have understood what you are required to do and note the value allotted to each question. Write out your answer in a concise way. A few words are enough if they keep to the point. So do not try to spread your expression. Remember not to write in Chinese on this test paper unless permitted for some part. Good Luck! Part I: Multiple choice. There are four answers for each question but only one of them is correct. Mark the correct one. Caution: note that some of answers are not straightforward and it may take time to obtain correct answers. So you had better treat them carefully. (30 points) 1. Which one of the following should be counted into GDP of China? A. Budweiser Beer produced in Wuhan by Anheuser-Busch Brewing Company (an U.S. business). B. Revenue from selling my stock shares of one company. C. Subsidies from government to low income families. D. None of above. 2. After a new fuel-effective engine that runs on cheap alcohol is invented, ------ A. The demand for gasoline falls. B. The price of gasoline declines. C. The equilibrium use of gasoline decreases. D. All of the above. 3. Which one of the following cannot describe a (perfectly) competitive firm? A. It just enjoys normal profit in any case. B. It can raise price by reducing output. C. The price will increase if all firms produce less output. D. It bases its decision on others’ decision. 4. Which one of the following statements about the rule MR=MC is correct? A. MR=MC is a necessary condition for all firms to maximize profits. B. A competitive firm maximizes its profit by setting price at such a level that MR=MC is satisfied. C. Even if MR=MC is met by a monopolist, it is still possible for the monopolist to suffer loss. D. Both A and C. 5. If ---, one chooses to consume more music CD. A. The marginal utility of music CD is larger than the marginal utility of a novel. B. The music CD is cheaper than the novel. C. The marginal utility of last dollar spent on the music CD is larger than the marginal utility of
last dollar spent on the novel. D.A.B,or C. 6.Increasing return to scale leads to-. A.Falling long run average cost. B.Falling long run marginal cost C.Falling short nun marginal cost. D.Falling short run average cost. 7.Marginal propensity to consume is defined as A.The ratio of consumption to income. B.The ratio of the change in consumption to the change in income. C.The ratio of the change in income to the change in consumption. D.The ratio of income to consumption. 8.In the short rn,if price is less than average cost but larger than average variable cost,. A.Competitive firms keep producing and monopolists shout down. B.Competitive firms shout down and monopolists keep producing C.Both competitive firms and monopolists continue to produce. D.Both competitive firms and monopolists shout down. 9.Average variable cost is increasing when-. A.Marginal cost is less than average cost B.Marginal cost is greater than average variable cost C.Marginal cost is less than average variable cost D.Fixed cost is greater than varable cost. 10.Which one of the following is correct regarding Disposable Income (DIy? A.DI GDP-depreciation-indirect tax+traresfer payment B.DI GDP-depreciation-indirect tax-retained profit C.DI -National Income -direct tax transfer payment D.DI National Income +direct tax -transfer payment 11.Suppose we measure how much GDP is produced by China in 1999 in invariant prices of.say. 1992.What we measure should be called as--. A.Polential GDP B.Actual GDP C.Nominal actual GDP. D.Real potential GDP 12.If output is less than desired aggregate expenditures.we say- A.Actual investment is lrger than planned investment B.Output will decrease. C.Firms are accumulating inventories more than they planned. D.All of A.B,and C hold 13.Which one of the following is correct when talking about imperfect competition? A.Prices are set above marginal cost.(Prices are larger than marginal oost fr sure) B.Price is possible to equl marginal revenue. C.In the long nn.firms may earn economic profit. D.Firms do not need to follow the rule MR-MC. 14.Natural monopoly prevails in the market,if 2
2 last dollar spent on the novel. D. A, B, or C. 6. Increasing return to scale leads to ---. A. Falling long run average cost. B. Falling long run marginal cost. C. Falling short run marginal cost. D. Falling short run average cost. 7. Marginal propensity to consume is defined as ---. A. The ratio of consumption to income. B. The ratio of the change in consumption to the change in income. C. The ratio of the change in income to the change in consumption. D. The ratio of income to consumption. 8. In the short run, if price is less than average cost but larger than average variable cost, ---. A. Competitive firms keep producing and monopolists shout down. B. Competitive firms shout down and monopolists keep producing. C. Both competitive firms and monopolists continue to produce. D. Both competitive firms and monopolists shout down. 9. Average variable cost is increasing when ---. A. Marginal cost is less than average cost. B. Marginal cost is greater than average variable cost. C. Marginal cost is less than average variable cost. D. Fixed cost is greater than variable cost. 10. Which one of the following is correct regarding Disposable Income (DI)? A. DI = GDP – depreciation – indirect tax + transfer payment B. DI = GDP – depreciation – indirect tax – retained profit C. DI = National Income – direct tax + transfer payment D. DI = National Income + direct tax – transfer payment 11. Suppose we measure how much GDP is produced by China in 1999 in invariant prices of, say, 1992. What we measure should be called as--. A. Potential GDP. B. Actual GDP. C. Nominal actual GDP. D. Real potential GDP. 12. If output is less than desired aggregate expenditures, we say---. A. Actual investment is larger than planned investment. B. Output will decrease. C. Firms are accumulating inventories more than they planned. D. All of A, B, and C hold. 13. Which one of the following is correct when talking about imperfect competition? A. Prices are set above marginal cost. (Prices are larger than marginal cost for sure) B. Price is possible to equal marginal revenue. C. In the long run, firms may earn economic profit. D. Firms do not need to follow the rule MR=MC. 14. Natural monopoly prevails in the market, if ---
A.The limited market and decreasing long-run average cost allow only one firm to produce efficienthy.(i.e,one firm can produce at a much lower cost than two or more firms coexist to produce) B.The government grants only one firm to produce exclusively for the market. C.The firm control all natural sources needed for producing the special good D.High oosts of entry discourage ocher firms from entering the market 15.Suppose govemment imposes a tax on a producer.Which one of the following is true? A.The tax burden will split between producers and consumers in ary cases B.Only producer bears the burden. C.The whole tax is shifted to consumers. D.Consumers do not need to pay any part of the tax if the market demand curve is horizontal. PART II:Give one example for each concept in the following (10 points) Government transfer payments,final goods,inermediale goods,inferior goods,and natural monopoly PART III:True or False.You are required to choose one of the following two questions.(10 points) 1.If a competitive fir is unlucky to fall into loss,it may still keep producing or shout down. However.if the lss happens to a monopoly.the firm simply responds by shouting down n any case. 2.Both market demand curve and aggregate demand curve slope downward.We may explain market demand curve by substitution effect But substitution effect does not work in explaining dowmard-sloping aggregate demand curve. PART IV:Conceptual.You are required to choose twe from following three questions (20 points) 1."By 1989 the Shoreham nuclear power plant,which had already cost more than S5billion to build,was ready to be tumed on.But because of intense local opposition the operating licenses had not been granted.Opponents argued that.inctdoag e 55 biton akeady spent the nuclear plant was far more expensive than the altematives. Supporters replied that cosing We plan wood mean at 5 bwon i consdrucdo costs would have been wasted Give your comments on two opposite arguments.Which group are correct,opponents or supporters?Are both correct?Or both wrong?Explaint 2."The govemment should protect the shoe industry from ruinous foreign competton. This will help consumers because the higher price of domestically produced shoes will lower demand and will ultimately end up lowering the price to consumers
3 A. The limited market and decreasing long-run average cost allow only one firm to produce efficiently. (i.e., one firm can produce at a much lower cost than two or more firms coexist to produce). B. The government grants only one firm to produce exclusively for the market. C. The firm control all natural sources needed for producing the special good. D. High costs of entry discourage other firms from entering the market. 15. Suppose government imposes a tax on a producer. Which one of the following is true? A. The tax burden will split between producers and consumers in any cases. B. Only producer bears the burden. C. The whole tax is shifted to consumers. D. Consumers do not need to pay any part of the tax if the market demand curve is horizontal. PART II: Give one example for each concept in the following (10 points): Government transfer payments, final goods, intermediate goods, inferior goods, and natural monopoly PART Ⅲ: True or False. You are required to choose one one of the following two questions. (10 points) 1. If a competitive firm is unlucky to fall into loss, it may still keep producing or shout down. However, if the loss happens to a monopoly, the firm simply responds by shouting down in any case. 2. Both market demand curve and aggregate demand curve slope downward. We may explain market demand curve by substitution effect. But substitution effect does not work in explaining downward-sloping aggregate demand curve. PART IV: Conceptual. You are required to choose choose two two from following three questions. (20 points) 1. “By 1989 the Shoreham nuclear power plant, which had already cost more than $5billion to build, was ready to be turned on. But because of intense local opposition the operating licenses had not been granted. Opponents argued that, including the $5 billion already spent, the nuclear plant was far more expensive than the alternatives. Supporters replied that closing the plant would mean that 5 billion in construction costs would have been wasted.” Give your comments on two opposite arguments. Which group are correct, opponents or supporters? Are both correct? Or both wrong? Explain! 2. “The government should protect the shoe industry from ruinous foreign competition. This will help consumers because the higher price of domestically produced shoes will lower demand and will ultimately end up lowering the price to consumers.
Show with a diagram why this statement is wrong Write out a comreet analysis of the impact of a restriction of foreign shoe supply on the market for shoes. 3.Suppose you are running the food concession at the athletic events for your college.You sell hot dogs,colas,and pocato chips.What are your inputs of capital.labor,and materials?If the demand for the hot dogs declines,what steps could you take to reduce output in the short run? In the long run? PART V:Calculation (30 points) Consider a real economy without money and discuss it in environment as defined in the class. Suppose the marginal propensity to consume (with respect to DI)of Wuhanese is 0.8 and Wuhan City spends 20%of their GDP on"imported"products from outside Wuhan Answer all questions below. (1)Do algebra carefully to obtain a formula of expression.in terms of marginall propensity to save.consumption expenditures C'.investment 7.government purchases G.taxes 7. and"et exporr deteminaticn of equilbrium ouput in Wuhan (10 points) (2)Suppose Wuhna govemment spends 10 million more on locall products.How much does Wuhan increase its output by?(4 points) (3)Suppose Wuhan goverment taxes Wuhanese 10 million more RMB.What is the effect on total GDP of the region?(4 points) (4)If Wuhan government passed an act to stop selling of products from outside Wuhan. What is the effect on GDP of increased purchases of 10 million RMB by the govemment? Compare this answer to the result of (2).Is there any difference?Why or why not? (you may answer the last part of this question in Chinese)(4 points) (5)Suppose Wuhan government levies a tax on Wuhanese by 10 million RMB (lump-sum tax) and then spends all tax revenues on local products.And assume there is mo "import" from outside Wuhan.Will the GDP in Wuhan change?How much.if it does? DEFEND your answer by doing algehra or in word (If you are defending your answer in werd,you may be allewed to do it im Chimese.)(4 points) (6)Responding to high kvel of unemployment in Wuhan,the transfer paryments spent rise by 10 million RMB.How does it influence GDP in Wuhan and how much?Does it have the same effect as that in (2y?Explain (4 points) Now,have a breald ENJOY THE FIRST SPRING FESTIVAL OF NEW MILLENNIUM
4 Show with a diagram why this statement is wrong. Write out a correct analysis of the impact of a restriction of foreign shoe supply on the market for shoes. 3. Suppose you are running the food concession at the athletic events for your college. You sell hot dogs, colas, and potato chips. What are your inputs of capital, labor, and materials? If the demand for the hot dogs declines, what steps could you take to reduce output in the short run? In the long run? PART V: Calculation (30 points) Consider a real economy without money and discuss it in environment as defined in the class. Suppose the marginal propensity to consume (with respect to DI) of Wuhanese is 0.8 and Wuhan City spends 20% of their GDP on “imported” products from outside Wuhan. Answer all questions below. (1) Do algebra carefully to obtain a formula of expression, in terms of marginal propensity to save save , consumption expenditures , investment , government purchases , taxes , _C _I _G _T and “net export” , for determination of equilibrium output in Wuhan. (10 points) _X (2) Suppose Wuhna government spends 10 million more on local products. How much does Wuhan increase its output by? (4 points) (3) Suppose Wuhan government taxes Wuhanese 10 million more RMB. What is the effect on total GDP of the region? (4 points) (4) If Wuhan government passed an act to stop selling of products from outside Wuhan. What is the effect on GDP of increased purchases of 10 million RMB by the government? Compare this answer to the result of (2). Is there any difference? Why or why not? (you you may may answer answer the the last last part part of of this this question question question question in in Chinese Chinese Chinese Chinese ) (4 points) (5) Suppose Wuhan government levies a tax on Wuhanese by 10 million RMB (lump-sum tax) and then spends all tax revenues on local products. And assume there is no no “ “ import” from outside Wuhan. Will the GDP in Wuhan change? How much, if it does? DEFEND your answer by doing algebra or or in word. (If If you you are are defending defending defending defending your your answer answer in in word, word, you you may may be be allowed allowed allowed allowed to to do do it it in in Chinese. Chinese. Chinese. Chinese. ) (4 points) (6) Responding to high level of unemployment in Wuhan, the transfer payments spent rise by 10 million RMB. How does it influence GDP in Wuhan and how much? Does it have the same effect as that in (2)? Explain! (4 points) Now, have a break!