Izmir University of Economics Department of Economics Econ 101 - Principles of Microeconomics

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Izmir University of Economics

Department of Economics

Econ 101
-

Principles of Microeconomics


1







PROBLEM SET
-

1

Multiple Choice Questions

1.

Economics is the study of choice under conditions of

a. Demand

b. Supply

c. Scarcity

d. Abundance

2.

Opportunity cost is


a.

the additional cost of buying an additional unit of a product.


b.

a cost that cannot be a
voided, regardless of what is done in the future.

c.

the additional cost of producing an additional unit of output.


d.

that which we forgo, or give up, when we make a choice or a decision.

3.

If you own a building and you decide to use that building to open a rest
aurant,

a.

there is no opportunity cost of using this building for a restaurant because you own
it.

b.

there is an opportunity cost of using this building for a restaurant because it
could have been used in other ways.

c.

there are no sunk costs involved in this de
cision.

d.

the only cost relevant to this decision is the price you paid for the building.

4.

Economists use the phrase "ceteris paribus" to express the assumption,

a.

"all else equal."

b.

"everything affects everything else."

c.

"scarcity is a fact of life."

d.

"there is n
o such thing as a free lunch."

5.

After each of the economic terms listed below, place the appropriate letter indicating
which definition applies:

Microeconomics
: ___
c
__
, Macroeconomics
: __
a
___
, Circular Flow Diagram
: ___
b
__,
Market Economy: __
d
___

a.

The s
tudy
of economy

wide phenomena

including inflation, unemployment and
economic growth

b.

A v
isual model of the economy that shows how dollars flow
from
households
through markets
to
firms.

Izmir University of Economics

Department of Economics

Econ 101
-

Principles of Microeconomics


2


c.

The study of how households and firms make decisions and how they interact
in
markets.

d.

An economy that allocates resources through the decentralized decisions of
many firms and households as they interact in markets for goods and services.

6.

Which of the following is a normative statement?

a.

Galatasaray won its 8
th

games this year af
ter the match against Trabzonspor.

b.

The Consumer Price Index rose three
-

tenths of one percent in May.

c.

In January, the average temperat
ure in Çeşme exceeds the average temperature in
Bodrum.

d.

Fenerbahçe needs a better manager even
though
they scored 6 goals in the
last match.

e.

Turkey’s trade deficit reached an all
-
time high last year.

7.

Şenay is considering attending a movie with a ticket pri
ce of $35. She estimates that
the cost of driving to the movie and parking there will
be

an additional $20. In order to
attend the movie, Şenay will have to take time off from his part
-
time job. She
estimates that she will lose 5 hours at work, at a wage o
f
$6 per hour. Şenay’s total

cost of attending the movie equals:

a.

3
5

b.

5
5

c.

8
5

d.

90

e.

105

8.

Indicate whether each of the following statements applies to microeconomics or
macroeconomics:

a.

The unemployment rate in Germany was 4.2 percent in January 2001.

Macroeconomics

b.

Vestel laid off 15 workers last month.

Microeconomics

c.

An unexpected freeze in İzmir reduced the citrus crop and caused the price of
cotton to rise.

Microeconomics

d.

Turkey’s output, adjusted for inflation, grew by 5 percent in 2003.

Macroeconomics

e.

A s
udden
shift in interest from skiing to skating increased the price of skateboards.
Microeconomics

Izmir University of Economics

Department of Economics

Econ 101
-

Principles of Microeconomics


3


f.

As a profit
-
maximizing firm, Alpha Food is producing 2000 cans of food per
month.

Microeconomics

9.

A graph showing all combinations of two goods and services a societ
y could produce
if it used all of its resources efficiently is the

a.

production possibility frontier.

b.

capital consumption frontier.

c.

Lorenz curve

d.

circular
-
flow diagram.


Refer to the in
formation provided in Figure 1

below to answer the questions that follow.



10.

According to Figure 1
, the point where only cars are produced is

a.

A


b. B


c. D


d. E

11.


According to Figure
1
, which point cannot be obtained with the current resources and
state of technology?

a.

C


b. A


c. D


d.
F


12.

Jim states that the melting of the polar icecap will cause prices in the stock market to
increase. He is committing the

a.

fallacy of inductive reasoning.

b.

post hoc, ergo propter hoc fallacy.

c.

fallacy of composition.

d.

ceteris paribus fallacy.

13.

Since Becky pla
ys basketball well, therefore the other members of her team must also
play basketball well. This statement

is an example of the

a.

inductive reasoning.

b.

ceteris paribus

c.

post hoc, ergo propter hoc.

d.

fallacy of composition.


Izmir University of Economics

Department of Economics

Econ 101
-

Principles of Microeconomics


4


Essay Questions


1)

Referring to the
tab
le

below, answer the following questions
.



Production Alternatives

Product

A

B

C

D

E

Pizza

0

2

4

6

8

Pepsi

14

12

9

5

0



a)

Illustrate the data in the

table in graphical form

b)

Suppose that

this economy is producing at point C. What will be the opportunity

cost
moving from C to D?
…from C t
o B? Explain the law of increasing opportunity cost.


From C to D: we get additional 2 pizza at a cost of 4 less pepsi

From C to B: we get additional 3 pepsi at a cost of 2 less pizza

c)

Suppose that

at a

new point F
, the ec
onomy produces

3 pizza
s

and 9 pepsi
s
. What does
F indicate?

INEFFICIENT POINT

d)

Suppose that a new point G
is
outside the production possibility curve (PPC). What
does this point indicates?

“10 pizza


7 pepsi” : NOT ATTAINABLE !!

e)

What would cause an outward shift of the PPC?

ECONOMIC GROWTH : new resources or technological change & innovation

(discovery and application of new more efficient production techniques)


2)

Answer following questions
referring to

the table below
.


Company/Pr
oduct

Corn

Wheat

A

8

10

B

4

12


a)

Determine which company has absolute advantage
for

each product

Company A has absolute advantage in CORN production, whereas Company B
has in WHEAT production.

Izmir University of Economics

Department of Economics

Econ 101
-

Principles of Microeconomics


5


b)

Determine which company has comparative advantage
for

each p
roduct


Company A: 1 C = 1.25 W

Company B: 1 C = 3 W


Since company A has a lower opportunity cost, has a comparative advantage on
CORN production, whereas with a higher opportunity cost company B has
comparative advantage on WHEAT production as well.