Final Exam 2018, questions PDF

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THE AUSTRALIAN NATIONAL UNIVERSITY First Semester Examination – June 2017

MICROECONOMICS 1

ECON1101

Study Period: 30 Minutes Writing Period: 3 Hours Permitted Materials: Writing instrument, Ruler

INSTRUCTIONS

This exam is worth a total of 150 marks and is composed of two parts. Failing to follow the exam instructions may lead to a deduction of one or more marks. The first part (Part A) is composed of shorter answer questions worth a total of 100 marks. Answer ALL ten questions in Part A. Each question is worth 10 marks. The second part (Part B) has longer answer questions and is worth a total of 50 marks. Answer only TWO of the three questions in Part B with each question worth 25 marks. On the front of your examination script, please indicate which two questions in Part B you have chosen. Your answers should be clearly and neatly written, relevant to the question asked, and use material presented in this course. Answers, which are difficult to read and include irrelevant information, will receive lower marks. Providing graphs, equations, and definitions in your answers may be very helpful. Read the questions carefully and take time to compose your answer. Marks will be determined by your explanation.

Page 1 of 4 - Microeconomics 1 (ECON1101)

PART A Answer ALL of the following ten questions. For ease of marking, please place each answer on a separate page. Each question has a statement in italics. You are asked to carefully explain whether each statement in italics is true, false, or uncertain. Each question is worth 10 marks. Your marks will depend on the quality of your explanation, which should show that you understand the economic concepts behind your argument, and not on how much you write.

A.1.

An increase in income will increase the consumer’s demand for a good.

A.2. With relatively elastic demand, a fall in the price will result in higher sales revenues.

A.3.

Consumption efficiency is achieved in competitive markets.

A.4.

Increasing returns to scale may be due to learning-by-doing by firms.

A.5.

In the long run, a firm’s break-even point and shutdown are the same.

A.6. The efficient market hypothesis implies that investors can easily beat the financial market.

A.7. As the wage rises, income and substitution effects result in an increase in the quantity of labour supplied.

A.8. From a game theory perspective, it is not surprising that member countries of the Organization of Petroleum Exporting Countries (OPEC) do not honour production agreements.

A.9.

A monopolist produces an output level which is inefficiently low.

A.10. Fishing in the ocean is an example of a common resource.

Page 2 of 4 - Microeconomics 1 (ECON1101)

PART B Answer only TWO of the following three questions. Be sure to indicate on the front cover of the script book which two questions you are answering. For ease of marking, please place each answer on a separate page. Each question you answer is worth 25 marks. As a guide to the student, the approximate possible marks for each part of a question are provided.

B.1. Assume that Crunch ‘n Munch is a producer/product in the breakfast cereal industry which is in long-run equilibrium. Using an appropriate diagram, a) (9 marks) Indicate on the diagram and carefully explain Crunch ‘n Munch’s profit-maximizing output and price. b) (9 marks) Indicate on the diagram and carefully explain the consumer surplus resulting from the purchase of Crunch ‘n Munch. Do the same for the deadweight loss resulting from this firm’s inefficient output level. c) (7 marks) If this firm was forced to produce and sell the efficient level of output, carefully explain what would happen to the firm. Explain whether this would benefit consumers.

B.2 The Effect of Unions on Wages: Consider two labour markets or industries that employ workers of the same skill level. a) (5 marks) Assume no union is present in either industry. Draw an appropriate diagram for each labour market and indicate the wage in each market. Briefly explain whether wage rates in the two industries which employ similar workers would be the same or different. Now suppose a union organizes workers in one of the labour markets and is able to negotiate a higher wage for its members. b) (12 marks) Using your earlier diagrams for part a), carefully indicate and explain the impact on wages and employment in the unionised market as well as on the nonunionised market. c) (8 marks) Carefully explain whether the resulting labour allocation across the two markets is efficient or not.

Page 3 of 4 - Microeconomics 1 (ECON1101)

B.3. Assume the following information for Australia and for the United Kingdom (UK) who only trade with each other and only produce coal or drugs: Australia

UK

Labour Hours Needed Per Unit of Coal Per Unit of Drug

12 24

24 8

Wage / Hour

w

wf

a) (9 marks) Carefully explain which country has a comparative advantage in coal and which country in drug production. b) (6 marks) According to one of the assigned readings, “Trade increases the amount of production in the world.” Construct a numerical example illustrating how if each country, i.e., Australia and the UK, altered its allocation of labour hours across coal and drug production, the total international production of each good could increase. c) (10 marks) Without further information on product demand, carefully explain the numerical range the equilibrium relative wage w / wf will lie in.

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