Cairo University Practice Sheet

Faculty of Engineering GENN224

Credit Hour System Fall 2020

Note: This revision sheet covers all lectures until Nation’s Income. (Nation’s Income questions are
marked in yellow as they are not included in the midterm)

Question 1: Choose the correct answer for each of the following:

1- Which of the following statements about 2- In most societies, resources are allocated by
markets is most accurate?
A Markets are usually a good way to organize A A single central planner.
economic activity.
B Markets are usually inferior to central B A small number of central planners.
planning as a way to organize economic
activity.
C Markets fail and are therefore not an C Those firms that use resources to provide goods and
acceptable way to organize economic activity. services.
D Markets are a good way to organize economic D The combined actions of millions of households and
activity in developed nations, but not in less firms.
developed nations.

3- Which of the following concepts cannot be 4- Total revenue minus only implicit costs is called
illustrated by the production possibilities
frontier?
A efficiency A Accounting profit
B opportunity cost B Economic profit
C equality C Opportunity cost
D trade-offs D None of the above is correct

5- A technological advance will shift the 6- A worker in Thailand can earn $2 per day making
cotton cloth on a hand loom. A worker in the
United States can earn $80 per day making
cotton cloth with a mechanical loom. What
accounts for the difference in wages?

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A Supply curve to the right.
B Supply curve to the left.
C Demand curve to the right.
D Demand curve to the left.
7- The greater the price elasticity of demand, the
A More likely the product is a necessity.
B Smaller the responsiveness of quantity
demanded to a change in price.
C Greater the percentage change in price over
the percentage change in quantity demanded.
D Greater the responsiveness of quantity
demanded to a change in price.
9- When the price of a good is $5, the quantity
demanded is 100 units per month; when
the price is $7, the quantity demanded is
80 units per month. Using the midpoint
method, the price elasticity of demand is
about
A 0.22.
B 0.67.
C 1.33.
D 1.50.
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A U.S. textile workers belong to a union.
B There is little demand for cotton cloth in Thailand
and great demand in the U.S.
C Labor is more productive making cotton cloth with a
mechanical loom than with a hand loom.
D Thailand has a low-wage policy to make its textile
industry more competitive in world markets.
8- The value of the price elasticity of demand for a
good will be relatively large when
A There are no good substitutes available for the
good.
B The time period in question is relatively short.
C The good is a luxury as opposed to a necessity.
D All of the above are correct.
10- Which of the following is an example of an implicit
cost?
A Salaries paid to owners who work for the firm
B Interest on money borrowed to finance equipment
purchases
C Cash payments for raw materials
D Foregone rent on office space owned and used by
the firm
Table: No. of workers versus output 11- According to the data in the table. What is the
marginal product of the second worker?
No. of workers Output
0 0 A 15
1 20
2 45 B 20
3 60
C 22.5
4 70
D 25

Use the usual three steps to analyzing changes in Equilibrium of Diesel

Generators
Event: Every day electricity is cut off

12- The previous Event probably will effect

A- Supply B- Demand C- Both
13- The (supply or(and) demand due to previous event will move into
A. Right B. Left C. Remain
constant
14- The final effects and new equilibrium will appear in

A- Both (Q )and (P) B- Only( Q) will C- Both (Q) and (P)

increased increased will decreased

15. Which of the following statements is not 16. A university's football stadium is never more
correct concerning government attempts to reduce than half-full during football games. This
the flow of illegal drugs into the country? indicates

a. Drug interdiction raises prices and total
revenue in the drug market.
b. Drug interdiction can increase drug-
related crime.
c. Drug interdiction shifts the demand
curve for drugs to the left.
d. Drug interdiction shifts the supply curve
of drugs to the left.
a. the ticket price is above the equilibrium
price.
b. the ticket price is below the equilibrium
price.
c. the ticket price is at the equilibrium
price.
d. nothing about the equilibrium price.

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17. Economists sometimes give conflicting
advice because
a. graduate students in economics are
encouraged to argue with each other.
b. economists have different values and
scientific judgment.
c. economists acting as scientists do not
like to agree with economists acting as
policy advisers.
d. economics is more of a belief system
than a science.
19. For which of the following individuals would
the opportunity cost of going to college be
highest?
a. a promising young mathematician who
will command a high salary once she
earns her college degree
b. a student with average grades who has
never held a job
c. a famous, highly-paid actor who wants
to take time away from show business to
finish college and earn a degree
d. a student who is the best player on his
college basketball team, but who lacks
the skills necessary to play professional
basketball
21. Comparing marginal revenue to marginal cost
(i) reveals the contribution of the last
unit of production to total profit.
(ii) is helpful in making profit-
maximizing production decisions.
(iii) tells a firm whether its fixed costs are
too high.
a. (i) only
b. (i) and (ii) only
c. (ii) and (iii) only
d. (i) and (iii) only
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18. The bowed shape of the production
possibilities frontier can be explained by the fact
that
a. all resources are scarce.
b. economic growth is always occurring.
c. the opportunity cost of one good in
terms of the other depends on how much
of each good the economy is producing.
d. the only way to get more of one good is
to get less of the other.
20. People are likely to respond to a policy change
a. only if they think the policy is a good
one.
b. only if the policy change changes the
costs of their behavior.
c. only if the policy change changes the
benefits of their behavior.
d. if the policy changes either the costs or
benefits of their behavior.
22. If a competitive firm is (i) selling 1,000 units of its
product at a price of $9 per unit and (ii) earning a
positive profit, then
a. its total cost is less than $9,000.
b. its marginal revenue is less than $9.
c. its average revenue is greater than $9.
d. the firm cannot be a competitive firm
since competitive firms can only earn
zero profit.
 23. Which of the following statements about GDP 24. If an economy’s GDP falls, then it must be the
is correct? case that the economy’s

a. GDP measures two things at once: the a. income falls and saving rises.
total income of everyone in the economy b. income and saving both fall.
and the unemployment rate of the c. income falls and expenditure rises.
economy’s labor force. d. income and expenditure both fall.
b. Money continuously flows from
households to government and then back
to households, and GDP measures this
flow of money.
c. GDP is to a nation’s economy as
household income is to a household.
d. All of the above are correct.

25. Which of the following is not included in GDP?

a. carrots grown in your garden and eaten by your family
b. carrots purchased at a farmer’s market and eaten by your family
c. carrots purchased at a grocery store and eaten by your family
d. More than one of the above is not included in GDP.

Answers
1. A 2. D 3. C 4. D 5. A 6. C 7. D 8. C 9. B 10. D 11. D 12. B 13. A 14. A

15. C 16. A 17. B 18. C 19. C 20. D

21. B 22. A 23. C 24. D 25. A

Quesion2: Complete each of the following:

1. Quantity demanded stays the same whenever price changes in case of …………………..
demand.

2. Increasing the price of a certain product led to decreasing its total revenue, this means
that the demand of this product is ……………. .
3 …………….is defined as a situation in which the market on its own fails to allocate
resources efficiently
4 …………….costs do not require an outlay of money by the firm.

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 5 …………….is the study of economy-wide phenomena, including inflation,
unemployment, and economic growth.
6. As policy advisors, economists make ..................... statements which attempt to prescribe
how the world should be.
7. Factors like labor union, & competition from abroad have .............. Impact on living
standards of people than productivity

8. Society faces a ............. run tradeoff between inflation and unemployment

9. A competitive market has many buyers and sellers each of whom has .................. Effect
on the price
10. Price elasticity is.................. for narrowly defined goods than broadly defined ones.

Answers
1.Perfectly 2. Elastic 3. Market failure 4. Implicit 5.
inelastic Macroeconomics

6. 7. far less 8. short 9. little/no 10. Higher

Normative

Question3: Mention which of the following is true (T) and which is false (F)
1. One way that governments can improve market outcomes is to ensure that individuals are
able to own and exercise control over their scarce resources.
2. Inflation is the primary determinant of a country's living standards.
3. The trade-off between the production of one good and the production of another good can
change over time because of technological advances.
4. While the scientific method is applicable to studying natural sciences, it is not applicable
to studying a nation’s economy.
5. When quantity demanded exceeds quantity supplied at the current market price, the
market has a shortage and market price will likely rise in the future to eliminate the
shortage.
6. Individual supply curves are summed yielding the market supply curve maintaining the
same value of the positive slope
7. If the cross-price elasticity of demand for two goods is negative, then the two goods are
complements.

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8. Whenever a determinant of supply other than price changes, the supply curve shifts.
9. Economic profit is higher than accounting profit
10. Utilities (Ex. Electricity) are considered as fixed costs per year.
11. Measures of elasticity enhance our ability to study the magnitudes of changes.
12. Suppose that when the price rises by 20% for a particular good, the quantity demanded of
that good falls by 10%. The price elasticity of demand for this good is equal to 2.0.
13. If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price
elasticity of supply approaches infinity.
14. The typical total-cost curve is U-shaped.

15. The average fixed cost curve is constant

16. Marginal costs are costs that do not vary with the quantity of output produced.

17. The average total cost curve reflects the shape of both the average fixed cost and average
variable cost curves
18. Profit equals marginal revenue minus marginal cost.
19. Accountants keep track of the money that flows into and out of firms.
20. Diminishing marginal product exists when the production function becomes flatter as
inputs increase.
21. A marginal change is a small incremental adjustment to an existing plan of action.
22. Trade allows each person to specialize in the activities he or she does best, thus
increasing each individual's productivity
23. Equality refers to how the pie is divided, and efficiency refers to the size of the economic
pie.
24. In the circular-flow diagram, one loop represents the flow of goods and services, and the
other loop represents the flow of factors of production.
25. All scientific models, including economic models, simplify reality in order to improve
our understanding of it.
26. Monopolists are price takers
27. The market demand curve shows how the total quantity demanded of a good varies as the
income of buyers varies, while all the other factors that affect how much consumers want
to buy are held constant.
28. If something happens to alter the quantity demanded at any given price, then the demand
curve shifts

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 29. A decrease in income will shift the demand curve for an inferior good to the right
30. When a seller expects the price of its product to decrease in the future, the seller's supply
curve shifts left now
31. Firms in a competitive market are said to be price takers because there are many sellers in
the market and the goods offered by the firms are very similar if not identical.
32. A firm's incentive to compare marginal revenue and marginal cost is an application of the
principle that rational people think at the margin.
33. The supply curve of a firm in a competitive market is the average variable cost curve
above the minimum of marginal cost.
34. In making a short-run profit-maximizing production decision, the firm must consider both
fixed and variable cost.
35. For a firm operating in a perfectly competitive industry, total revenue, marginal revenue,
and average revenue are all equal.
36. GDP is the most closely watched economic statistic because it is thought to be the best
single measure of a society’s economic well-being.
37. GDP adds together many different kinds of products into a single measure of the value of
economic activity by using market prices
38. U.S. GDP includes estimates of the value of items that are produced and consumed at
home, such as housework and car maintenance
39. Changes in inventory are included in the investment component of GDP.

40. Real GDP evaluates current production using prices that are fixed at past levels and
therefore shows how the economy’s overall production of goods and services changes
over time.

Answers
1. T 2. F 3. T 4. F 5. T 6. F 7. T 8. T 9. F 10. F

11. T 12. F 13. T 14. F 15. F 16. F 17. T 18. F 19. T 20. T

21. T 22. T 23. T 24. F 25. T 26. F 27. F 28. T 29. T 30. F

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 31. T 32. T 33. F 34. F 35. F 36. T 37. T 38. F 39. T 40. T

Question 4: solve the following problems:

4.1 The New York Times reported (Feb.17, 1996) that subway ridership declined after a fare
increase: “ There were nearly four million fewer riders in December 1995, the first full month
after the price of the token increased 25 cents to $1.50, than in previous December, a 4.3 percent
declines”
1- Calculate the price elasticity of demand for subway riders

2- According to your estimates, what happens to the transit Authority’s revenue when the
fare rises?
3- Is your estimates of elasticity reliable or not? And why?

Answer
1. % change is Q = 4.3%, % change in P = [(1.5-1.25)/1.25]* 100 = 20%
E = 4.3/20 = 0.215

2. According to the results, the price elasticity of demand is < 1 which indicates that the
demand on subway is inelastic, so increasing the fare would increase the revenue.

3. No, my estimates are unreliable because the measurements were made just one month
after the token price increased (short run) but on the long run, demand tends to be more
elastic

Notes

1. Here, we didn’t use the mid-point method as we were studying a certain known case
of increasing the prices, also the 4.3% decline means reduction based on original
value not the mid value.

2. The 4 million reduction that happened in December 1995 (one year after the token
increased) is relatively a large number based on the overall population of New York
citizens, that’s why the previously mentioned elasticity was unreliable.

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4.2 Two Drivers – Tom and Jerry – each drive up to a gas station. Before looking at the price,
each places an order. Tom says, “I’d like 10 gallons of gas.” “Jerry says, I’d like $10 worth of a
gas.”
What is each driver’s price elasticity of demand (value)?

Answer
Tom always orders the same amount disregarding the price, so %change in Q = 0 at any %
change in price, so his price elasticity of demand for gas is 0 (perfectly inelastic)
Jerry always pays the same amount of money, so the % change in gas price = % reduction in
amount purchased, so his price elasticity of demand for gas is 1 (unit elasticity)

4.3 Fill in all empty cells in the table below with one of the following four options:
(A) Increases (B) Decreases (C) Doesn’t Change (D) Ambiguous
Note: D: Demand, S: Supply, E.P: Equilibrium Price, E.Q: Equilibrium Quantity

Market situation (events) D S E.P E.Q

1- A gadget company develops a hot new accessory for the iPod,

making the iPod More desirable. (Market is for iPods.)

2-Freezing weather in Florida knocks out a large Amount of the

orange crop. Meanwhile the surgeon general issues a new study
saying everyone should drink 4 more glasses of orange juice
every day. (Market is for oranges.)

3-Growing concern over global warming causes SUVs to become

much less popular vehicles for consumers. At the same time the
cost to the car companies of SUV components increases, making
production more expensive. (Market is for SUVs.)

Answers
1. A C A A

2. A B A D

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 3. B B D B

4.4 The table below contains data for the country of Dachsland, which produces only pretzels
and books. The base year is 2005.

Year Price Quantity Price Quantity

of of of
of
Pretzels Books
Pretzels Books

2005 $4.00 90 $1.50 150

2006 $4.00 100 $2.00 180

2007 $5.00 120 $2.50 200

2008 $6.00 150 $3.50 200

A) Mention which of the following is TRUE (T) or FALSE (F).

1. In 2005, nominal GDP was $ 685.

2. In 2005, nominal GDP was equal to real GDP, and GDP deflator was equal to 1.
3. In 2006, nominal GDP was $ 760, real GDP was $ 670, and GDP deflator was 113.4

B) State which two consecutive years experienced the highest percentage increase in the GDP
deflator.

Answer
A)
1. F 2. F 3. T
$ 585 GDP deflator = 100 not 1 Same values calculated

B) 1 mark for each answer

Years 2005-2006 2006-2007 2007-2008 The highest among them
% increase in the GDP deflator 13.4% 24.34% 26.1% 2007-2008

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