ECON10004 Introductory Microeconomics

Semester 1, 2017

REVIEW SESSION 1 - MCT

Question No. [1]
You are offered the opportunity to work as a tutor in Introductory
Microeconomics. You estimate your total opportunity cost from doing
different numbers of hours of tutorials to be the amounts shown in the Table
below. Payment for tutorials is $100 for the first hour each week, and $75 for
every subsequent hour. How many hours of tutoring would you choose to do
each week if you are a rational decision-maker?

Hours of Total
tutoring Opportuni a) 1
per week ty cost b) 2
0 0 c) 3
1 $40 d) 4
2 $90 e) 5
3 $150
4 $220
5 $300
Question No. [2]
Suppose the demand for e-books is Q = 100 10P, where P refers to the
monthly subscription fee, and Q is the number of e-books per month. The e-
book retailer currently charges a monthly subscription fee of $2. Which of the
following statements are correct?

a) The price elasticity of demand for e-books depends only on the slope of the
demand curve, so we can deduce that it is price elastic.
b) Without knowing the supply curve, we cannot deduce the price elasticity of
demand.
c) If the e-book retailer increases the subscription fee to $5, consumer
expenditure will increase.
d) At the current price, the demand for e-books is price inelastic.
e) Both (c) and (d).
Question No. [3]
An increase in demand for international travel on passenger jets occurs.
Possible cause(s) of this increase in demand that has occurred might
be:

a) A decrease in the cost of production of passenger jets

b) An increase in consumers incomes, provided that international
travel on passenger jets is an inferior good
c) A decrease in the price of substitutes, such as travel by
international shipping
d) Increases in the speed of travel with the introduction of a new
generation of super-fast passenger jets
e) Both (a) and (d)
Question No. [4]
The market for beer is perfectly competitive. An increase in consumer
income (assuming beer is a normal good), and an increase in costs of
production for beer occur. The effect on the market for beer will be:

a) A decrease in the demand for beer, and a decrease in the supply of beer
b) An increase in the equilibrium quantity traded of beer, and it is not
possible to say what will happen to the equilibrium price of beer
c) An increase in the equilibrium price of beer, and no change in the
equilibrium quantity traded of beer
d) An increase in the equilibrium price of beer, and it is not possible to say
what will happen to the equilibrium quantity traded of beer
e) An increase in demand for beer, and an increase in supply of beer
Question No. [5]
Consider the following perfectly competitive market for a good:
QS = 30 + 6P
QD = 150 6P
Now suppose that supply increases by 36 at each price (for example,
now at P = 0, QS = 66). After the increase in supply - which of the
following is correct?

a) The equilibrium price decreases by $3, and the quantity traded

increases by 18
b) The equilibrium price decreases by $8, and the quantity traded
decreases by 18
c) The equilibrium price decreases by $3, and the quantity traded
decreases to 108
d) The equilibrium price increases by $3, and the quantity traded
increases to 108
e) The equilibrium price is unchanged, and the quantity traded increases
by 20
Question No. [6]
Notepads and pens can be considered to be complements.
Woodchips are an input to notepads, and plastic is an input to
pens. Assume markets for notepads, pens, woodchips and plastic,
are all perfectly competitive. Suppose that the equilibrium price of
notepads increases, and the equilibrium price of pens decrease.
Which of the following could explain these changes?

a) A decrease in the supply of plastic

b) An increase in the demand for wood chips
c) An increase in the demand for plastic
d) An increase in the supply of plastic
e) Either (b) or (d)
Question No. [7]
The government of OZLand announces that on 1 July 2008 it will
introduce a new tax on digital TVs. The announcement is made
on 1 January 2008. It is known that the effect of the tax will be
to increase the price of digital TVs after 1 July 2008. Prior to 1
July 2008 it would be expected that the effect of buyers knowing
that the tax will be introduced would be to:

a) Increase the equilibrium price of digital TVs

b) Decrease demand for digital TVs
c) Decrease the equilibrium quantity traded of digital TVs
d) Be zero since the tax has not been introduced yet
e) Both (a) and (c)
Question No. [8]
Suppose that Australian and US dollars are traded in a perfectly competitive
market. Treat the price in this market as the amount of $US that can be
traded for $1AUS (referred to as the US/AUS exchange rate), and the quantity
traded as the quantity of $AUS traded. Suppose that the expected future
profitability of US businesses decreases so that the expected future return
earned on owning shares in US businesses declines. The predicted effect
would be:

a) A decrease in the US/AUS exchange rate

b) An increase in the US/AUS exchange rate
c) An increase in the supply of $AUS in the US
d) A decrease in demand for $AUS in the US
e) No change in the US/AUS exchange rate
Question No. [9]
Government is seeking advice on the distribution of the tax burden on buyers
and producers of sugar to reduce the incidence of obesity. Which of the
following is true?
a) If buyers pay the tax to government they bear the burden
b) If sellers pay the tax they bear the burden
c) a and b
d) Buyers bear more of the burden if demand is less elastic than supply
e) Sellers bear more of the burden if demand is less elastic than supply
Question No. [10]
Suppose in a competitive market the demand for and the supply of
immunization against flue is given by Qd =100-5P and Qs =-10+10P, where Qd
is quantity demanded, Qs is quantity supplied, and P is market price. If a price
ceiling of P=8 is imposed in the new market outcome

a) Quantity supply exceeds demand quantity

b) A shortage with quantity demand greater than quantity supplied
c) Excess demand
d) Both b and c
e) There is no change in quantity demanded or supplied