Instructions:
There are TWO sections to the class test: Section A is a multiple choice section, and Section B is an open question section. You are required to answer ALL questions in Section A, and ONE question in Section B.
Section A (Multiple Choice)
- There are 10 questions and you must answer ALL of them.
- Some questions have more than one correct answer. These will be clearly marked.
- Each correctly answered question is worth 3 points, regardless of how many correct options there are in a question.
- If you choose an option which is incorrect, it is worth minus 1.5 points.
- If you do not choose an option which is correct, it is worth minus 1.5 points.
- The lowest mark for each incorrectly answered question is 0 points.
- The maximum total for Section A is 30 points.
Section B (Open Question)
- There are 2 questions and you must answer ONE of them.
- Any sub-questions will have an allocation of points clearly stated.
- The maximum total for Section B is 20 points.
The maximum total for Class Test 1 is 50 points.
You must NOT collaborate or work together during any part of the test. You must also NOT engage in plagiarism in the open question, which includes the use of any work which is not your own in the open question. Any of these will be considered academic misconduct, and severe penalties will apply accordingly.
Section A – 30 points
Answer all questions in this section. Choose the statements that correctly answer the question. Some questions may have more than one question, in which case your answer should include all the statements that correctly answer the question. Regardless of how many correct answers a question has, each correctly-answered question is worth 3 points.
- Which of the following are examples of private property?
Select all the correct answers
- Computers belonging to your university.
- A farmer’s land in the Soviet Union (under Communist Party rule).
- Shares in a company.
- A worker’s skills and knowledge.
- The following table shows the nominal GDP (in 2015 US dollars) and the population of Japan in 2013 and 2014 (source: The World Bank). Based on this information, which of the following statements regarding GDP per capita are correct?
Select one correct answer
- The GDP per capita in 2013 was $36,194.41.
- The GDP per capita fell by 6.74% between 2013 and 2014.
- The fall in the population was enough to offset the fall in the GDP for an overall growth in GDP per capita between 2013 and 2014.
- The GDP per capita fell by 6.31% between 2013 and 2014.
- You own a DVD of the film ‘A Beautiful Mind’, which focuses on the life of John Nash (the inventor of Game Theory). Assuming that you watch the DVD, the opportunity cost of watching the DVD the second time is:
Select one correct answer
- Zero, as you already own the DVD.
- One-half of the cost of the DVD, since this is the second time you have watched it.
- The value of the next best alternative use of the time you spend watching the DVD on this occasion.
- The amount of money you could get from selling the DVD after watching it the first time.
- Which of the following statements regarding strategic interactions are correct?
Select one correct answer
- A social interaction is the same as a strategic interaction.
- A dominant strategy is the strategy that gives the player the highest payoff, irrespective of the strategies selected by other players.
- A strategy is an action that a person may take when that person is completely unaware of the effect of their action on others.
- A best response is the strategy that always results in the socially optimal outcome.
Select all the correct answers
- Anna’s dominant strategy is to watch the film.
- Brian’s dominant strategy is to watch snooker.
- There is no dominant strategy equilibrium.
- There is a dominant strategy equilibrium with both Anna and Brian watching snooker.
- Which of the following statements are correct regarding hours of work and income?
Select all the correct answers
- The ‘price’ (in economics terms) of an hour of free time is the hourly wage rate.
- An increase in the wage rate may encourage you to work more as the opportunity cost of leisure time becomes higher.
- An increase in the wage rate may encourage you to work less as your income from working a given number of hours is now higher than before.
- The substitution effect can never fully offset the income effect of a rise in the wage rate.
- The following diagram shows a farmer’s choice between free time and grain before and after the introduction of a new technological advancement that makes grain production easier for every number of hours spent working. Based on this information, which of the following statements are correct?
Select all the correct answers
- If the MRS of the indifference curve at B is larger than the MRS of the indifference curve at A, then the farmer will have an incentive to take more free time after the introduction of the new technology.
- The MRT of the new feasible frontier at B is larger than the MRT of the old feasible frontier at A. This gives the farmer an incentive to take more free time after the introduction of the new technology.
- The farmer may choose a point to the left of B after the introduction of the new technology.
- The farmer may choose a point to the right of B after the introduction of the new technology.
- Which of the following statements are correct regarding the separation of ownership and control within a firm?
Select one correct answer
- When the ownership and control of a firm is separated, the managers become the residual claimants of any profit.
- Managers in a firm will always work to maximise the firm’s profit.
- One way to address the problem associated with the separation of ownership and control is to pay the managers a salary that depends on the performance of the firm’s share price.
- It is effective for shareholders of a firm to monitor the performance of the management, especially when there are a large number of shareholders that own the firm.
- The figure below depicts the effect of an increase in the unemployment benefit on the workers’ best response curve, when the unemployment rate is 12%. Which of the following statements is correct following a rise in the unemployment benefit?
Select one correct answer
- The firm’s profit level falls.
- The workers’ reservation wage falls.
- The efficiency wage at any given level of unemployment falls.
- The firm sets a lower efficiency wage.
- Which of the following events would contribute to diseconomies of scale?
Select one correct answer
- The firm needing to double the capacity of a pipe hat transports its fuel when the production level is doubled.
- Fixed costs such as lobbying or the rent on a (rarely used) factory warehouse.
- The difficulty of monitoring workers’ effort as the number of employees increases to increase the amount of output produced by the firm.
- The positive network effects of the good or service it produces.
Section B – 20 points
Answer any ONE question from the two* questions in this section. Each question is worth 20 points. You are not required to draw any diagrams in submitting your test, but it may be helpful to draw diagrams for your own use to help you answer the question.
*(Paul: I know there are four questions here, not two, but this is to give you extra practice. Your real test will have only two questions in this section.)
| Juanita | |||
| Wash | Leave | ||
| Abby | Wash | 6, 6 | 0, 8 |
| Leave | 8, 0 | 2, 2 |
- The following figure shows the market for a French language course, where students enrol (register) for classes that are delivered in person.
- How would the diagram change (if at all) in response to a new rival company setting up business nearby with a lower price for language classes? (7 points)
- How would the diagram change (if at all) in response to an increase in the cost of hiring tutors (an input to the language school)? (7 points)
- How would the diagram change (if at all) in response to a successful advertising campaign for its language classes that didn’t cost the language school any time, effort or money? (6 points)
