The correct answer is (e), by construction.

EXAM IN MICROECONOMICS

(October, 2008)

VARIANT 2

SOLUTIONS

Section 1. Multiple choice questions

You have 60 minutes to do this part of the exam.

Marking scheme: 1 point for a correct answer, -0.25 for a wrong answer, 0 if the answer has not been given.

1. Suppose that Country A can produce either 6 million tons of wheat or 3 million tons of meat per year (or any linear combination of those). Country B can produce either 2 million tons of meat or 6 million tons of wheat (or any linear combination of those). In this setup:

(a) Country A should specialize in wheat and trade with B

(b) Country B should specialize in wheat and trade with A

(c) Countries should trade, but not necessarily specialize in any good

(d) Countries should not trade

(e) Can not determine from the information given

The correct answer is (b), due to the principle of comparative advantage.

2. Which of the following statements is/are normative, rather than positive?

(a) «Firms should always maximize their profits»

(b) «Given equal prices, a utility-maximizing individual should increase the consumption of goods for which marginal utility is higher»

(c) «Considering the current economic situation, the government should back up the banking system with additional financial aid»

(d) More than one of the above

(e) None of the above

The correct answer is (d), as both (a) and (c) are normative (they express opinions rather than logical conclusions).

3. Consider the following PPF:

Which of the following does this shape of PPF NOT satisfy?

(a) Principle of scarcity

(b) Principle of increasing opportunity costs

(c) Both (a) and (b)

(d) None of the above

The correct answer is (b), since the opportunity costs are constant for a linear PPF.

4. When economic agents with linear PPF's decide to engage in trade according to the principle of comparative advantage, their aggregate PPF after trade is:

(a) A horizontal sum of the individual PPF's

(b) A vertical sum of the individual PPF's

(c) The frontier of the set representing the intersection of individual production possibility sets

(d) The frontier of the set representing the union of individual production possibility sets

(e) A line obtained by combining individual PPF's in the order of increasing (in absolute values) slopes left to right

The correct answer is (e), by construction.

5. Suppose that you prefer cinema to playing computer games and you prefer playing computer games to studying microeconomics before the exam. However, you choose to study microeconomics for some reason. Your opportunity costs in this case are:

(a) The utility of going to cinema

(b) The utility of playing computer games

(c) The utility of going to cinema minus the utility of playing computer games

(d) The utility of going to cinema minus the utility of studying microeconomics

(e) The utility of playing computer games minus the utility of studying microeconomics

Date: 2015-12-17; view: 781