Download Sample Exam Questions

Sample Exam Questions
Economics 503
Microeconomics
1. Assume that the newspaper market in Hong Kong is characterized by
monopolistic competition. The marginal cost of producing South China Morning
Post and Ming Pao are approximately equal. SCMP sells at a price of HK$8 per
copy while Ming Pao sells at a price of $6 per copy. In the long run, would we
expect that SCMP was earning higher profits or lower profits than Ming Pao?
Explain why or why not?
2. As an experiment, McDonalds raises the price of two of its sandwiches. The
following chart shows the sales per restaurant per week
Big Mac
Filet o’ Fish
Before
P
$12
$20
Q
1200
500
After
P
$15
$24
Q
800
450
Calculate the elasticity of demand for these two sandwiches. Calculate the
marginal cost of producing each sandwich is HK$10. What is the profit
maximizing price for each sandwich?
3. A person has $100 to spend on either apples or oranges. The price of apples is $5
and the price of oranges is $10 dollars. What is the ratio of the marginal utility of
apples relative to the marginal utility of oranges when the consumer is choosing
the optimal amount of apples and oranges? Draw the budget constraint, clearly
marking the intercepts. Draw the indifference curve at the optimal combo of
apples and oranges.
4. The following table shows information on the Long run average total cost curve
and the demand curve. Plot the following data on a graph. Show the areas of
economies and diseconomies of scale and constant returns to scale. What is the
minimum efficient scale? What is the scale of production in this economy?
Quantity
LR ATC
1
33
2
27
3
25
4
25
5
30
6
38
7
50
Price
Quantity
50
43
36
29
22
15
8
1
2
3
4
5
6
7
5. Consider two industries: gravel and gourmet restaurants. The first produces an
undifferentiated product while there are a large number of potential types of
cuisine, each with its own particular qualities. There are not large barriers to entry
into either industry. Explain in which industry firms will be operating at a scale
closest to an efficient level. Why?
Macroeconomics
6. What are the three types of policy lags? Is the combined lag likely to be longer for
fiscal or montetary policy?
7. Which will cause a larger short-run increase in prices, an anticipated or
unanticipated increase in aggregate demand? Why? Will they cause the same
increase in prices in the long run?
8. Suppose that the central bank increases the money supply. Assume that the output
level is below the potential GDP before the increase of money supply.) In order to
increase money, the central bank uses the open market operation. Explain what the
central bank should do in the open market operation. How does the central bank
increase the monetary base and money supply?
9. Suppose that the change of money supply is not expected by the public and that the
increase of money supply is not enough to achieve the potential GDP in the short run.
Describe the short-run equilibrium, and the transition to the new long run equilibrium by
using AD/AS diagram and money market diagram. What happens to the output, the price
levels, and the resource prices?
10. Suppose that the central bank increases the money supply and that this change is
expected. The output level is at the potential GDP before the increase of money
supply. Describe the short-run equilibrium, and the transition to the new long run
equilibrium by using AD/AS diagram. What happens to the output, the price
levels, and the resource prices?
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