UNIVERSITAS INDONESIA

FACULTY OF ECONOMICS AND BUSINESS

MID EXAM (ODD SEMESTER 2020-2021)

S1 Regular Program / International Undergraduate Program

Course Title : Introductory Economics 1 / Introductory Microeconomics

Course Code : ECEU 600103
Date : 2 November 2020
Duration : 150 minutes (2.5 hours)

Exam Instruction:
1. Open book (online and offline sources allowed).
2. Students have to work alone. Any similarity among the students' answers, will cause the
students’ answer papers to be marked "zero" or the exam is considered as "fail."
3. Exam paper comprises both multiple choice and essay questions.
4. Please read the questions carefully. Answer all the questions and write down the answer
in hand-writing mode on either blank printing papers or writing papers.
5. Detailed instruction on the submission of the answer sheets should follow the exam
guideline that has been announced prior to the exam.

I. MULTIPLE CHOICES

Write down the letter that represents your choice in your answer sheet. 1.5 points for every
right answer.

1. Amanda gets Rp 500,000 from her brother. With that money Amanda has choices, i.e. to buy
new shoes or new clothes, which either will cost her Rp 500,000. The economic principle that
is most suitable to express Amanda's situation is:
a. scarcity
b. trade-off
c. opportunity cost
d. trading that makes everyone is better off

2. Please look at the circular flow below.

Dian works as an accountant in a public accounting firm and receives salary as a
compensation for her services. Herman owns a shop and rents it to a company. If Dian's
income is represented by the money flow from D to B, then Herman's income is represented
by the money flow …

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 a. from A to C
b. from C to A
c. from C to B
d. from D to B

3. Hendra usually buys 10 cups of instant coffee a month. Then, he receives a job offer and
plans to work in September, a month after his graduation in August. Hendra then decides to
buy only 5 cups of instant coffee while also decides to purchase coffee latte from the coffee
shop since September. In this case, instant coffee is ….
a. a substitute good
b. an inferior good
c. a normal good
d. a complementary good

4. Dewi really loves bread with peanut butter spread. Then, she watched the news on one of the
TV channels that severe drought in various countries has devastated more than 60 percent of
the world's peanut crops. Many analysts predict that the price of peanuts will double by the
end of the year. As a result,
a. Dewi's demand for peanut butter will increase, but not until the end of the year
b. Dewi's demand for peanut butter increases today
c. Dewi's demand for peanut butter decreases as she looks for a substitute good
d. Dewi will wait for the price of jelly to change before altering her demand for peanut butter

5. An excess demand for potatoes in a competitive market would lead to

a. a decrease in the supply of potatoes in the market
b. an increase in the supply of rice, one of the potatoes' substitutes
c. an increase in the price of potatoes in the market
d. an increase in the price of rice, one of the potatoes' substitutes

6. Please look at the following diagram. If the size of the rectangle D is smaller than the size of
rectangle A, then:
a. the demand curve is elastic between P1 and P2
b. total revenue increases as the price increases from P1 to P2
c. total revenue increases as the price decreases from P2 to P1
d. the percentage change of price between P1 and P2 is smaller than the percentage
change of the quantity demanded.

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7. At the beginning of 2020, Ella's income increases by 20 percent and her rice consumption
decreases from 20 kgs to 15 kgs per month. The income elasticity of Ella for rice is:
a. positive and Ella considers rice as normal and necessity goods
b. positive and Ella considers rice as inferior goods
c. negative and Ella considers rice as normal goods, but not as necessity goods
d. negative and Ella considers rice as inferior goods

8. Assuming that a cross-price elasticity of X and Y is 0.60. If there is an increase in the price of
X by 50 percent, then the consumption of Y will:
a. decrease by 30 percent, whereas X and Y are substitute goods
b. decrease by 30 percent, whereas X and Y are complementary goods
c. increase by 30 percent, whereas X and Y are substitute goods
d. increase by 30 percent, whereas X and Y are complementary goods

9. A consumer named Teddy spends his money to buy sushi, ocha tea and other goods. Teddy
only eats sushi if only if he has ocha tea as the side drink. Then...
a. His indifference curve slopes upward
b. His indifference curve are straight lines
c. Teddy prefers a lower indifference curve to the higher ones
d. For Teddy, a bundle of 3 sushi and 3 ocha tea is as good as a bundle of 3 sushi and 5
ocha tea.

10. The following figure represents a consumer's preferences named Lily. When Lily chooses her
bundle of consumption at point B, then…

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 a. MRSxy > Py/Px.
b. MRSxy = Px/Py.
c. MRSxy < Px/Py.
d. MRSxy > Px/Py.

11. Consider the indifference curve and budget constraint for two goods, beef and potatoes.
Suppose the good measured on the horizontal axis, potatoes, is a Giffen good. Beef is
measured on the vertical axis and is a normal good. When the price of potatoes increases, the
substitution effect causes
a. an increase in the consumption of potatoes, and the income effect causes a decrease
in the consumption of potatoes. The substitution effect is less than the income effect.
b. a decrease in the consumption of potatoes, and the income effect causes an increase
in the consumption of potatoes. The substitution effect is greater than the income
effect.
c. an increase in the consumption of potatoes, and the income effect causes a decrease
in the consumption of potatoes. The substitution effect is greater than the income
effect.
d. a decrease in the consumption of potatoes, and the income effect causes an increase
in the consumption of potatoes. The substitution effect is less than the income effect.

12. Sita consumes only JKo doughnut and Nostalgia coffee. The price of a doughnut package that
she usually buys is IDR 20,000, and the price of Nostalgia coffee is IDR 40,000. Sita spends
her money to buy 5 boxes of JKo doughnuts and 10 cups of Nostalgia coffee every month to
maximize her satisfaction. If the marginal utility of the 5th doughnut is 100 units, then the
marginal utility of the 10th Nostalgia coffee is…
a. 100
b. 50
c. 200
d. 400

13. The budget constraint gives information about consumer's income and the prices of two
goods. If the prices of the two goods increase but the level of income remain the same. The
budget constraint will …
a. Rotate inward
b. Shift to the right
c. Rotate outward
d. Shift to the left

14. Consumers will have their optimal choice if they can have the best combination of two goods
(for example, X and Y) subject to their budget constraint. In the graph of consumer's choices
optimization, this condition happens when:
a. the indifference curve is at the highest position
b. the budget line is at the lowest position
c. the indifference curve is tangent to the budget line
d. all the answers are correct

15. Suppose that for a particular business, the owner can calculate both explicit and implicit
costs. Then:

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 a. accounting profit will be the same as economic profit.
b. accounting profit will be greater than economic profit.
c. accounting profit will be less than economic profit.
d. there is no direct relation between accounting profit and economic profit.

16. Based on the following information, what is the marginal product of the third labour?

Amount of Labour Output

1 42
2 67
3 87
4 102
5 112
a. 10
b. 25
c. 20
d. 30

17. Silver Key, a publishing company, recruits additional workers for the printing unit. However,
the company still encounters some budget constraints to buy new printing machines.
Consequently, some workers may be left underutilized because they have little work to do
while waiting in line to use the machine. When such condition occurs, Silver Key encounters
…
a. economies of scale
b. diseconomies of scale
c. diminishing marginal product
d. increasing marginal product

18. The average fixed cost curve declines as more output are produced because…
a. The fixed cost is divided by increasing numbers of output
b. There are differences between average total cost and average variable cost
c. The fixed cost depends on the numbers of output
d. The average fixed cost is equal to the average total cost minus the average variable
cost

19. Based on the following graph, which of the following statements is correct?

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 a. Marginal cost is rising for quantities higher than D because marginal cost is higher
than the average variable cost.
b. Marginal cost is rising for quantities higher than D because marginal cost is higher
than the average total cost.
c. Average total cost is declining for quantities less than C because marginal cost is
higher than the average total cost
d. Average total cost is declining for quantities less than C because marginal cost is
lower than the average total cost

20. Economies of scale occur when:

a. long-run average total costs rise as the quantity output increases.
b. long-run average total costs fall as the quantity of output increases.
c. long-run average fixed costs are falling.
d. long-run average fixed costs are constant.

II. ESSAY PROBLEMS

Write down your answers in concise and clear manner. Support your answers with relevant
arguments. A maximum of 10 points each.

1. Suppose that the Krypton economy produces only two goods, i.e. food and machinery.
Using all of its available resources, Krypton was able to produce a maximum of 200 units
of machinery (with no food) or 400 units of food (with no machinery) in 2019. Let us
assume that Krypton economy worked efficiently in 2019.
a. Draw the production possibility frontier (curve) of the Krypton economy in 2019,
with the increasing opportunity cost of machinery (put the quantity of machinery
at X axis). Describe various economic concepts depicted by the curve. [2 points]
b. On the same graph of point (a), put 3 points (label them as A, B, and C) that
illustrate the Krypton economy in 2019. [2 points]
c. Let say that five years ago the economy of Krypton still underutilized its
resources. How do you call such condition in the Krypton economy? On the same
graph of point (a) and (b), put a point (label it as D) that describes such condition.
Explain. [2 points]
d. How do you explain the change in the Krypton economy during the five-year
period? Explain. [2 points]
e. Suppose that in 2020 the Krypton economy is able to increase the production of
each good by 50%, what would happen to the production possibility frontier?
Explain how such thing may occur. [2 points]

2. Provide your analysis on what would happen to the equilibrium price and quantity if each
of the following events transpires. Illustrate and explain the process using the graph of
demand and supply curves.

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 a) Mangosteen production in Java has been increasing quite rapidly in recent years. It is,
however, quite surprising that mangosteen is difficult to find in the market in the last
6 months. Some analysts say that rumors of its effectiveness in preventing cancer
have contributed significantly to the sharp increase of mangosteen leaves and skin
demand. [3 points]
b) Due to rapid economic growth in the last few years, most office spaces were in very
high demand, and rents were rising in South Tangerang. The relative ease of getting
vast land clearance due to idle utilization before, coupled with the anticipation of
continuous rigorous economic growth, has made developers see it as an invaluable
opportunity to keep on constructing various modern SOHO buildings. However, in
March 2020 the outbreak of the COVID 19 pandemic has hit hard the country,
including the city. The fear of pandemic has made most firms apply Work-From-
Home and work-shift scenarios. Nobody is able to predict how long the pandemic
will last. Many developers are forced to postpone new construction projects. [4
points]
c) Before economic reforms were implemented in the countries of Eastern Europe,
regulation held the price of bread substantially below equilibrium, which curbed
bread production despite the high demand for bread. When reforms were
implemented, prices were deregulated and the market mechanism was used. [3
points]

3. A Research team of IPB University of Bogor has recently launched a superior rice
variety. One leading feature of the new variety is its ability to increase the production
yield by 50 percents per each hectare of the cultivated land. Explain how the innovation
of the food sector would affect the farmers’ total revenue. Also, explain the impact of
various innovations of the food sector on the welfare of farmers and consumers. [10
points]

4. Lola is a student at the FEB UI. Her parents give a monthly allowance of Rp. 400,000 per
week. Lola only allocated her money to buy cheese macaroni and Thai tea. The price for
cheese macaroni is IDR 80,000 and the price for Thai tea is IDR 40,000.
The following is a table that represents Lola’s level of satisfaction.
Cheese Macaroni Thai Tea
Quantity Total utility Marginal utility Quantity Total utility Marginal utility
0 0 0 0
1 50 1 75
2 90 2 123
3 122 3 159
4 150 4 183
5 176 5 205
6 200 6 225

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 a. Draw a budget line for Lola and make a table for Lola's possible bundle of
consumption given her money! [4 points]
b. Determine the marginal utility for the two goods consumed by Lola. As Lola
consumes more cheese macaroni and Thai tea, what happen to her level of utility?
Why? Explain! [4 points]
c. What is the utility-maximization rule for Lola to maximize her satisfaction? From
point (a), determine the best bundle allocation for Lola that will maximize her utility
given her money! [2 points]

5. Using the information given in the previous question (number 4). What happens to Lola
consumption if:
a. Lola's monthly allowance remains Rp. 400,000, -, but her favorite restaurant
offers a 50% discount for every purchase of cheese macaroni. Draw new
equilibrium conditions for Lola! Determine the substitution effect and income
effect from point. [5 points]
b. Lola's monthly allowance remains IDR 800,000 and the price of cheese macaroni
decreases. Lola reduces her consumption of thai tea so she could buy more
cheese macaroni. Draw this equilibrium for Lola and derive Lola's demand curve
for cheese macaroni! [5 points]

6. The following table shows the production and costs of the coffee shop of "Kopi Nyonya":

Number Number Marginal

Labour Cost of Total Marginal
of of Output Product
Cost Machines Cost Cost
Labour Machines of Labour
1 2 5 -- 20 200 220 --

2 2 10 40 200
3 2 20 60 200
4 2 35 80 200
5 2 55 100 200
6 2 70 120 200
7 2 80 140 200

a. Please complete the table if the wage per labour is 20, and the cost per machine is
100. [8 points].
b. When does "Kopi Nyonya” experience a diminishing marginal product? [2 points]

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7. Below is the table of the production of sofa bed by Vitoty Modern Living (VML).

Labour (workers per week) Output (sofa bed per week)

1 30
2 70
3 120
4 160
5 190
6 210
7 220

a. Calculate the average product of labour (APL) and the marginal product of labour
(MPL). Explain the relationship between APL and MPL. [4 points]
b. Suppose that VML rents a factory building. The rental cost of the building is
USD 1,000 a week. VML pays each of its workers at USD 500 a week. Calculate
the total cost (TC), total fixed cost (TFC), total variable cost (TVC), marginal
cost (MC), average cost (AC), and average variable cost (AVC). [4 points]
c. Is there any specific relationship or pattern that you find among them? If yes,
explain what and why. [2 points]

***Please enjoy working alone ***