Problem 1

• The facility was purchased at 120,000 (USD).

• A term of use is 5 years.
• The annual rate of depreciation is 20%.

Estimate the annual amount of depreciation deductions

Problem 1 - Solution

120000 (USD) х 20 : 100 = 24000 (USD)

Problem 2
Suppose a state-operated pizza parlor set the price and quantity of pizza produced in
an economy.

Which of the following might result?

I. Price may not reflect the true cost of production.
II. The manager of the pizza parlor may not be motivated to seek better ways to
produce.
III. An inefficient amount of pizza may be produced.

(A) I only
(B) II only
(C) I and II only
(D) II and III only
(E) I, II, and III
Solution Problem 2

ANS: E

It is given in the question that the pizza parlour is government regulated. The price set for
each pizza may be low such that producers of pizza are not able to cover their
manufacturing cost. It may also happen that the price are set high, such that the
manufacturers are already at profit and hence, less inclined to improve manufacturing
process. Lastly, low prices may not be creating efficiency due to the above mentioned
reasons.
 A B C D

which of the graphs demonstrates economic growth?

i. A only
ii. B only
iii. C only
iv. B and D only
v. A and B only
Problem 3
Solution to Problem 3

ANS:- (B) Economic growth is the ability to produce more goods and services. Economic
growth is illustrated in a production possibilities frontier (PPF) by an outward shift. In the
PPF shown in I, there is only a reallocation of production, rather than an ability to make
more of both goods. In the PPF shown in IV, there is actually a decrease in the ability to
produce both goods. Only II shows an outward shift.
 Problem 4
Price

d
a
b f

Quantity

Which movement between points is consistent with the law of demand?

(A) a to b
(B) b to a
(C) b to c
(D) c to d
(E) d to b
Solution to Problem 4
• ANS:- (D)
The law of demand says that all else equal, when the price of a good increases, the quantity of that good
demanded will decrease. The movement from point c to point d tells us that the price increased, quantity
demand decreased along the fixed demand curve. All other choices reflect shifts in the demand. If the choice
of “d to e” had been available, this would also have described the law of demand, because the law of demand
also implies that when the price of a good decreases, the quantity demanded of a good will increase.
TASK 1. The table describes the population of Costa Erica in 2011. The labor force participation rate (LFPR)
is equal
to
(A) 75%
(B) 84%
(C) 80%
(D) 67%
(E) 70%
1. ANS : (B) The LFPR is the percentage of the working−age population that is in the labor force: either employed or
unemployed and looking for a job. In Costa Erica, the labor force is the 200 million employed workers and the 10
million unemployed but seeking work. When we divide the labor force by the working−age population, we get
LFPR = (200 + 10)/250 = 84%.
TASK 2. The table describes the population of Costa Erica in 2011. The unemployment rate (UR) is equal to
(A) 25%
(B) 16%
(C) 10%
(D) 4.8%
(E) 20%
2. The table describes the population of Costa Erica in 2011. The unemployment rate (UR) is equal to
(A) 25%
(B) 16%
(C) 10%
(D) 4.8%
(E) 20%

ANS: (D) The unemployment rate is the percentage of the labor force that is unemployed but looking for a job. We
know that there are 10 million people in Costa Erica who fall into this category, so they are the unemployed. The
labor force is the sum of the 10 million unemployed plus the 200 million employed persons. The unemployment
rate is therefore: UR = 10/(10 + 210) = 4.8%.
TASK 3. The table describes the population of Costa Erica in 2011. Suppose that the nation’s 2012 economy
improves and 10 million citizens, who were not looking for work in 2011, begin to look for jobs in 2012. If
we hold employment levels constant, how will this affect the labor force participation rate (LFPR) and
unemployment rate (UR) in 2012?
(A) LFPR stays constant and UR decreases
(B) Both stay constant.
(C) Both increase.
(D) LFPR increases and UR stays constant.
(E) Both decrease
TASK 3. The table describes the population of Costa Erica in 2011. Suppose that the nation’s 2012 economy
improves and 10 million citizens, who were not looking for work in 2011, begin to look for jobs in 2012. If
we hold employment levels constant, how will this affect the labor force participation rate (LFPR) and
unemployment rate (UR) in 2012?
(A) LFPR stays constant and UR decreases
(B) Both stay constant.
(C) Both increase.
(D) LFPR increases and UR stays constant.
(E) Both decrease

ANS : (C) As nation’s economy improves, some people who were previously out of the labor force may begin
to look for jobs. When 10 million of Costa Erica’s citizens enter the labor force, this increases the ranks of the
unemployed and the labor force. Clearly the labor force participation rate is going to rise. Since all of these
people are unemployed, the unemployment rate is going to rise. In fact, we can show this by recomputing
the unemployment rate as UR = 20/(20 + 200) = 9.1% and the labor force participation rate as LFPR = (200
+ 20)/250 = 88%.