I.

True or False
1. Profit equals marginal revenue minus marginal cost.

2. Accountants often ignore implicit costs. T

3. The increase of price makes the demand increase. F
4. Diminishing marginal productivity implies decreasing total product F
5. A monopolist maximizes profit by producing an output level where marginal cost equals price.
F
6. If the nominal interest rate is 8% and the inflation is 3.5%. The real interest rate is 4.5% T
7. Buying stocks, bonds and the other financial assets is investment T
8. The rate of change in the GDP deflator measures the change in prices of fixed basket of goods.
F
9. The CPI contains the price of imported goods while the GDP deflator only contains prices of
domestic goods. T
10. A rise in the price of imports will not be reflected in the GDP deflator. T
11. A mother who has left work to bring up a child or someone entering higher education would
not be classed as unemployed as they are not actively seeking employment. T
12. In order to increase the money supply, FED will sell government bond. T
13. In long-run, Aggregate Supply Curve slopes upward. T
14. A profit- maximizing firm in a competitive market will increase production when average
revenue exceeds marginal cost. F
15. In competitive markets, firms that raise their prices are typically rewarded with larger profits.
F
16. A popular resort restaurant will maximize profits if it chooses to stay open during the lesscrowed "off season" when its total revenue exceed its variable costs. F
17. Because there are many buyers and sellers in a perfectly competitive market, no one seller
can influence the market price. T
18. "The more taxes imposed, the less people use cigarette" is a positive statement. T

19. The marginal cost curve of firms in competitive market is the supply curve of them. T
20. The monopolists have no supply curve. T

II. Multiple choices

1. A country country's trade balance
A. must be zero
B. must be greater than zero
C.is greater than zero only if exports are greater than imports
D. is greater than zero only if imports are greater than exports.
2. Which of following both raise net exports?
A. Exports rise, imports rise
B. Exports rise, imports fall
C. Imports rise, exports rise
D. Imports rise, exports fall
3. For a firm in a perfectly competitive market, the price of the good is always
A. Equal to marginal revenue
B. Equal to total revenue
C. Greater than average revenue
D. Equal to the firm's efficient scale of output
4. Which of the following would be considered a topic of study in microeconomics?
A. The effect of changes in saving rates on GDP
B. The impact of minimum-wage laws on employment in the fast-food industry
C. The impact of monetary policy on the rate of inflation
D. The effect of tax policy on the rate of economic growth
5. An industry is a natural monopoly when
i. The government assists the firm in maintaining the monopoly

ii. A single firm owns key resource

iii. a single firm can supply a good or service to an entire market at a smaller cost than could 2 or
more films
A.ii only
B. iii only
C. i and ii only
D. ii and iii only
6. A demand curve is the
A. curve that relates income with quantity demanded.
B. upward-sloping line relating price with quantity supplied.
C. downward-sloping line relating the price of the good with the quantity demanded.
D. none of the above answers is correct.
7. If a good is normal, then an increase in income will result in
A. a lower market price
B. a decrease in the demand for the good
C. an increase in the demand for the good
D. no change in the demand for the good

8. According to the graph, at the equilibrium price,

A. 20 units would be supplied and demanded.
B. 40 units would be supplied and demanded.
C. 60 units would be supplied and demanded.
D. 60 units would be supplied, but only 20 would be demanded.
9. According to the graph, at a price of $7,
A. a surplus would exist and the price would tend to rise.
B. a surplus would exist and the price would tend to fall.
C. the market would be in equilibrium.
D. a shortage would exist and the price would tend to fall
10. The price of mocha latte at Starbucks increases from 3$ to 5$ per cup. The quantity
sold falls from 15 to 5 cups per hours. The elasticity of demand is
A. 3
B. 2
C. -2
D. -3
11. Suppose a producer is able to separate customers into two groups, one having a price
inelastic demand and the other having a price elastic demand. If the producers objective is
to increase total revenue, she should
A.charge the same price to both groups of customers.
B.increase the price for both groups of customers.
C.increase the price charged to customers with the price elastic demand and decrease the price
charged to customers with the price inelastic demand.
D.decrease the price charged to customers with the price elastic demand and increase the price
charged to customers with the price inelastic demand.

12. Suppose that an increase in the price of carrots from $1.20 to $1.40 per pound raises the
amount of carrots that carrot farmers are willing to supply from 1.2 million pounds to 1.6
million pounds. Using the midpoint method, what would be the elasticity of supply?
A.0.50
B.0.54
C.1.86
D.2.00
13. Exchange rates are 1200 yen per dollar, 0.8 euro per dollar, and 10 pesos per dollar. A bottle
of beer in New York costs 6 dollars, 1200 yen in Tokyo, 50 pesos in Canon. Where is the most
expensive and the cheapest beer that order?
A. Cancun, New York
B. New York, Tokyo
C. Tokyo, Cancun
D. Munich, NewYork
14. When we want to measure and record economic value, we use money as the
A. Liquid asset
B. Medium of exchange
C. Unit of account
D. Store of value
15. The discount rate is
A. The rate at which public banks lend to other public banks.
B. The rate at which the Central bank lends to banks.
C. The percentage difference between the face value of a Treasury bond and what the Fed pays
for it.
D. The percentage of deposits banks hold as excess reserves.
16. If the GDP deflator is 150 and the nominal GDP is $9000 billion, then the real GDP is
A. $135 billion

B. $1350 billion
C. $600 billion
D. $6000 billion
17. Which of the following lists 2 things that both increase the money supply?
A. raise the discount rate, make open market purchases
B. raise the discount rate, make open market sales
C. lower the discount rate, make open market purchases
D. lower the discount rate, make the open market sales.
18. Unemployment data is collected
A. from firms and unemployment insurance claims
B. through a regular survey of about 60000 households
C. from payroll data received for tax purposes
D. None of the above is correct
19. Who is price taker in a competitive market
A. buyers only
B. sellers only
C. both buyers and sellers
D. Neither buyers nor sellers
The demand and supply schedules for wheat in a free market are as follow:
Price per tonne (
120
160
200
240
$)
Tonnes
725
700
675
650
demanded per
week
Tonnes
225
300
400
500
demanded per
week
20. Refer to this table. What is the equilibrium price?

280

320

360

400

600

550

500

425

600

750

1000

1300

A. 280
B.160
C. 200
D. 400
21. Refer to the table above. Suppose the government fixes a maximum price of 200 per tonne.
What will be the effect?
A. Surplus
B. Shortage
C. Nothing happen
D. Neither surplus nor shortage
22. When the Fed increases the discount rate, banks will borrow
A. less, banks will lend more, and the money supply will decrease.
B. less, banks will lend less, and the money supply will decrease.
C. more, banks will lend more, and the money supply will increase.
D. more, banks will lend less, and the money supply will decrease.
23. Which of the following is an example of U.S Foreign direct investment?
A. A Swedish car manufacturer opens a plant in Tennessee
B. A Dutch citizen buys shares of stock in a U.S company
C. A U.S based restaurant chain opens new restaurants in China
D. A U.S citizen buys stock in companies located in Japan.
24. Which of the following is an example of U.S foreign portfolio investment?
A. Toni, a U.S citizen, buy bonds issued by a Swedish corporation
B. Randall, a U.S citizen, opens the cheesecake factory in Italy
C. Both A and B are examples of U.S portfolio investment
D. Neither A nor B are examples of U.S portfolio investment

25. If the exchange rate is 125 yen = $1, a bottle of rice wine that costs 2500 yen costs
A. $ 20
B. $ 25
C. $ 22
D. None of the above is correct.
26. The basket of goods in the consumer price index changes
A. occasionally, while the basket of goods in the GDP deflator changes each time it is computed.
B. each time it is computed, while the basket of goods in the GDP deflator changes occasionally
C. occasionally, as does the basket of goods in the GDP deflator.
D. each time it is computed, as does the basket of goods in the GDP deflator.
27. Babe Ruth's1931 salary was $80000. The price index for 1931 is 15.2 and the price index for
1999 is 166. Ruth's salary was equivalent to a 1999 salary of about
A. $8700
B. $87000
C. $870000
D. $8700000
28. A COLA automatically raises the wage rate when
A. real GDP increases
B. the labor force increases
C. taxes increase
D. The consumer price index increases
29. Which of the following people is counted as employed according to official statistics?
A. Nancy, who is on temporary layoff
B. Gary, who has retired and is not looking for work
C. Brian, a full- time student who is not looking for work

D. All of the above are correct

30. Suppose a stock market crash makes people feel poorer. This decrease in wealth would cause
people to
A. decrease consumption, which shifts aggregate supply left.
B. decrease consumption, which shifts aggregate demand left.
C. increase consumption, which shifts aggregate supply right.
D. increase consumption, which shifts aggregate demand right.
31. For a monopoly firm, which of the following equalities is always true?
A. Price=Marginal revenue
B. Price=Average revenue
C. Price= Total revenue
D. Marginal revenue= marginal cost
32. Transfer payments are
A. inclued in GDP because they represent income to individuals
B. not included in GDP unless they represent unemployment compensation
C. included in GDP because the income will be spent for consumption
D. not included in GDP because they do not represent payments for currently produced goods or
services.
33. When the consumer price index rises, a typical family
A. can spend fewer dollars to maintain the same standard of living
B. finds that its standard of living is not affected
C. has to spend more dollars to maintain the same standard of living
D. none of the above answers is necessarily correct.

Gallo Cork Factory

Number of
Workers

Number of
Machines

1
2
3
4
5
6
7
Table 13-4

2
2
2
2
2
2
2

Output(Cork
s produced
per hour)
5
10
20
35
55
70
80

Marginal
Product of
Labor
5
10
15
20
15
10

Cost of
workers

Cost of
machines

Total Cost

12$
24$
36$
48$
50$
72$
84$

40$
40$
40$
40$
40$
40$
40$

52$
64$
76$
88$
90$
112$
124$

Refer to Table 13-4. Each worker at Gallo's factory costs 12 per hour. The cost of each machine
is $20 per day regardless of the number of corks produced
34. If Gallo's produces at a rate of 70 corks per hours and operates 8 hours per day, what is
Gallo's total cost per day?
A. $72
B. $112
C. $576
D. $616
35. If Gallo's produces at a rate of 78 corks per hour, what is the total machine cost per day?
A. $20
B. $40
C. $240
D. We are unable to determine total machine costs from the information given
36. If Gallo's produces at a rate of 35 corks per hour, what is the total labor cost per hour?
A. $40
B. $48
C. $384

D. $424
37. Assume Gallo's currently employs 5 workers. What is the marginal product of labor when
Gallo's adds a 6 worker?
A.5 corks/hour
B.15 corks/hour
C.25 corks/hour
D.70 corks/hour
38. Suppose we are analyzing the market for hot chocolate. How the equilibrium price and
equilibrium quantity would change if the price of tea, a substitute for hot chocolate, falls.
A. Price fall, quantity falls
B. Price rise, quantity raises
C. Prices fall, quantity raises
D. Price rise, quantity fall.
III.
Karaoke Machines
Quantity Price

CDs
Quantity Price

2011

10

$40

30

$10

2012

12

60

50

12

39. Using a method similar to the consumer price index, compute the percentage change in the
overall price level. Use 2011 as the base year, and fix the basket at 1 karaoke machine and 3
CDs.
Percentage change in overall price level : (CPI 2012 CPI2011)/CPI2011 * 100% = 31,7%
40. Using a method similar to the GDP deflator, compute the percentage change of the overall
price level. Also use 2011 as the base year.
No GDP 2011 = 700$, Real GDP 2011 = 700$
No GDP 2012= 1320$, Real GDP 2012= 980$
Deflator 2011= 100

 Deflator 2012= 134,7

Price of lv change = 34,7 %