Final Exam 2016, questions and answers PDF

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MURDOCH UNIVERSITY Final Examination (1)

Unit Code:

BUS171

TIME ALLOWED:

Unit Title:

Foundations of Economics Internal and External

2 hours plus 10 minutes reading time

INSTRUCTIONS Section A: Answer all questions in this section on the answer sheet provided. This section contains 20 multiple choice questions. Section A is worth 20 marks. Section B: Answer any one (1) question from Part 1 of this section and any one (1) question from Part 2 of this section. Answers are to be written in the booklet provided. Section B is worth 30 marks. This paper contains: 20 multiple choice questions in Section A. 3 written questions in Section B, Part 1. 3 written questions in Section B, Part 2. The Computer Answer Sheet and Answer Booklet must be returned together with the question paper.

EXAMINATION AIDS TO BE PROVIDED BY THE UNIVERSITY 2B pencil Computer answer sheet Answer booklet

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Section A: Multiple Choice Students should answer all twenty (20) multiple choice questions. Section A is worth 20 marks. Include your answers on the ANSWER SHEET using the 2B pencil supplied. Fill in your NAME and STUDENT NUMBER on your Answer Sheet following the instructions provided.

1) How are the fundamental economic questions answered in a totally free market economy? A) The government alone decides the answers. B) Households and firms interact in markets to decide the answers. C) Individuals, firms, and the government interact in markets to decide the answers. D) Only producers decide how much is produced and have many goods and services people buy.

2) Which of the following would shift a country's production possibility frontier inward? A) Discovering a cheap way to convert sunshine into electricity. B) Producing more capital equipment. C) An increase in the unemployment rate. D) A law requiring workers to retire at the age of 50. 3) The demand curve for big-screen televisions (TVs) would shift to the left if big-screen TVs are ‘normal goods’ and: A) the market price of big-screen TVs increases. B) there is an increase in the supply of big-screen TVs. C) consumer incomes fall during an economic contraction. D) the prices of component inputs into the production of big-screen TVs rise. 4) The supply curve of soybeans will shift to the right, if there is: A) a technological advance in growing soybeans. B) a decrease in the number of soybean farmers. C) an increase in the price of soybean fertiliser. D) a decrease in the price of soybeans.

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5) If at a price of $20, 60 units of a product were sold, but following a price rise to $30, 40 units were sold, which of the below shows the correct price elasticity of demand value using the midpoint formula? All mathematical calculations below are correct. A) [(-20/50)]/[(10/25)] = -1.0 B) [(20/60)]/[(10/20)] = +0.67 C) [(10/30)]/[(-20/40)] = - 0.67 D) [(20/60)]/[(30/40)] = +0.44

6) If the cross-price elasticity of demand between two goods is negative, this means the two goods are: A) substitutes. B) normal. C) inferior. D) complements. 7) Which of the following is the best example of a short-run adjustment in production? A) The local bakery installs more ovens in the bakery. B) A farmer buys more land. C) A department store hires two more shop assistants. D) Toyota motor vehicle company builds a new vehicle assembly plant. 8) If a firm hires one more worker, with all other factors of production fixed, and the output level continues to increase but at a decreasing rate, the firm is experiencing: A) economies of scale. B) diminishing returns to a factor input. C) increasing returns to a factor input. D) diseconomies of scale.

9) If a typical firm in a perfectly competitive industry is earning economic profit, then: A) all firms in the industry will continue to earn profits. B) new firms will enter in the long run causing market supply to decrease and market price to rise increasing profits. C) the number of firms in the industry will remain constant in the long run. D) new firms will enter in the long run causing market supply to increase and market price to fall decreasing profits.

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10) Which of the following applies when productive resources are used to produce the goods and services that reflect consumer preferences? A) Allocative efficiency. B) Productive efficiency. C) Dynamic efficiency. D) A centrally planned economy exists. 11) When a proposed merger between two companies is being reviewed by the Australian Competition and Consumer Commission (ACCC), the most important consideration from the below is: A) the level of advertising that is done in the industry. B) how elastic the demand is for each firm's product. C) how profitable the firms are. D) whether or not there are other competitors in the industry. 12) Refer to the graph below for this question.

In the above graph, the efficient level of output for society is: A) Q1. B) Q2. C) Q3. D) Q4.

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13) A good that is non-rival and non-excludable is a: A) private good. B) quasi-public good. C) public good. D) common resource. 14) If a country has a comparative advantage in producing a good, this means that: A) using the same amount of resources, this country can produce more of the good than any other country. B) using the same amount of resources, this country can produce the good at a lower opportunity cost than any other country. C) the country is the only possible producer of the good in the world. D) the country has a monopoly in the production of the good. 15) The Australian dollar will appreciate relative to the Japanese yen, ceteris paribus, if: A) Australian interest rates increase relative to interest rates in other countries. B) Australia’s company taxes are raised. C) speculators think the value of the dollar relative to the yen will soon fall. D) there is an increase in the demand for yen on international currency markets.

16) If a country receives an influx of new workers from immigration, the: A) long-run aggregate supply curve will shift to the right. B) long-run aggregate supply curve will shift to the left. C) economy will move up along the long-run aggregate supply curve. D) economy will move down along the long-run aggregate supply curve. 17) Refer to the table below. The official unemployment rate is approximately: A) (400/7000) x 100 = 6.0%. B) (400/7400) x 100 = 5.0%. C) (400/9000) x 100 = 4.0%. D) (2400/9400) x 100 = 25%. Persons 7000 400 2000

Employed Unemployed Not in the labour force

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18) Demand-pull inflation is characterised by: A) high levels of aggregate demand which then pulls prices down to lower levels. B) the short-run aggregate supply curve shifting to the right. C) rising prices and rising employment in the short run. D) the short-run aggregate supply curve shifting to the left. 19) To help reduce the severity of an economic contraction, the Reserve Bank of Australia (Australia’s central bank) could: A) decrease government spending to balance the budget. B) decrease taxes to increase aggregate demand. C) lower interest rates by decreasing the cash rate. D) conduct contractionary monetary policy. 20) Crowding out results in: A) higher interest rates and more private borrowing for investment. B) higher interest rates and less private borrowing for investment. C) lower interest rates and more private borrowing and government borrowing for investment. D) lower interest rates and more private borrowing for investment.

End of Multiple Choice Questions

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Section B: Written answers. TWO questions must be answered from Section B. All questions are worth equal marks. Section B is worth 30 marks. (15 marks per question, with the division of marks as indicated). Students must answer ONE complete question from Part 1 and must also answer ONE complete question from Part 2.

______________________________________________ PART 1. Answer any ONE (1) question from this section. You cannot choose parts from different questions; all parts must be from the same question. 1.

Answer BOTH of the following:

(a) Explain the concept of opportunity cost, and explain why this is such an important concept in economics. (5 marks) AND (b) According to a recent news article, this year there are “huge (wheat) harvests from the big growers in Russia and the US”. (Financial Times, 26 August 2016). Use an appropriate economic model (graph) to show the effect of this on the international market for wheat, and explain the impact this will have on Australian farmers. Also explain the effects of this on related markets. (10 marks) 2.

Answer BOTH of the following:

(a) Discuss the factors that would lead a firm to experience economies of scale and diseconomies of scale. (7 marks) AND (b) Explain whether a perfectly competitive industry is more or less efficient than a monopoly. Include an appropriate economic model in your answer. (8 marks)

3.

Answer BOTH of the following:

(a) Explain, using your knowledge of market failure and using an economic model, why governments in many countries subsidise education. (9 marks) AND (b) Why does the ‘tragedy of the commons’ arise? Briefly explain the economic policies that can be used to address this? (6 marks)

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PART 2. Answer any ONE (1) question from this section. You cannot choose parts from different questions; all parts must be from the same question.

4.

Answer BOTH of the following:

(a) Explain the economic arguments in favour of free world trade.

(8 marks)

AND (b) Explain the main determinants of a floating exchange rate. 5.

(7 marks)

Answer ALL of the following:

(a) Outline the shortcomings (problems) of GDP: (i) as a measure of total production in an economy and (ii) as a measure of economic wellbeing. (5 marks) (b) Explain the main types of unemployment?

(5 marks)

(c) Explain the economic problems that can be caused by high rates of inflation.

(5 marks)

6.

Answer BOTH of the following:

(a) Explain how the Reserve Bank of Australia (RBA) changes interest rates in Australia. (6 marks) AND (b) During a recession, it is common for a government to change economic policy so that it operates with a budget deficit. Using an appropriate economic model, explain why a government would do this, and discuss any potential problems that may occur as a result of this policy. (9 marks) *********************** END OF PAPER ***********************

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Answers to Multiple Choice Questions Semester 2 2016

1. B 2. D 3. C 4. A 5. A 6. D 7. C 8. B 9. D 10. A 11. D 12. B 13. C 14. B 15. A 16. A 17. B 18. C 19. C 20. B

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