Microeconomics,,

B. New machines, new buildings and other capital goods that add to the existing stocks of capital. C. Both D. None of the above. 2. Net investment is equal to- A. Gross investment plus replacement or depreciation; B. Gross investment less replacement or depreciation; C. Gross investment multiply by replacement or depreciation; D. None of the above. 3. Which is/are the determinants of private investment- A. Prospective income from the capital asset; B. Supply price of the capital asset; C. The rate of interest: D. All of the above. 4. Expected revenues from the use of the capital asset minus variable cost is called- A. Prospective income B. Supply price C. Prospective yield D. None of the above. 5. The future return on the asset is called- A. Prospective income B. Supply price C. Prospective yield D. None of the above. 6. After : years, at a rate of interest of / per cent, the present value will be- A. A= P (1+r) A B. P= (1+ry C. P= - (1-r) D. P= S (1+r) A 7. What will be the future value of SR 100 at 5 % rate of interest after 2 years? A. SR 110.00: 111 | Page B. SR 110.25; C. SR 90.00; D. None of the above. 8. What is the present value of SR 100 at 5 % rate of interest in two year? A. SR 110.00; B. SR 110.25; C. SR 90,70: D. SR 90.00. 9. The rate of discount (r) which equalizes the present value of the prospective yield of an asset with its supply price is known as- A. Prospective income B. Supply price C. Prospective yield D. Marginal Efficiency of Capital (MEC). 10. With increase in investment, MEC- A. Increases; B. Decreases; C. Constant; D. All of the above 11. The change in income due to change in investment is known as- A. Consumption; B. Multiplier; C. Accelerator; D. IS curve 12. Higher the value of MPC, A. Lower will be the value of multiplier; B. Higher will be the value of multiplier; C. No effect will be on multiplier;1. With what kinds of topics does macroeconomics concern itself? a. Economic activities of individual firms, households, and other organizations b. Forces of supply and demand in a particular market c. Consumer behavior and firms output decisions d. The labor market, wages, and hiring decisions e. Aggregate economic phenomena like the rate of unemployment and inflation 2. Which of the following is an example of a normative question? a. What is the nation's rate of economic growth? b. What is the nation's rate of inflation? c. What is the nation's rate of unemployment? d. What is the nation's level of GDP? e. Is the goal of sustainability of greater importance than the goal of economic growth as we move into the 21" century? 3. Which of the following is one of the three macroeconomic goals discussed in the text? a. Growth in the size of corporations b. Living standards growth c. Growth in trade and globalization d. Technological innovation e. None of the above 4. Which of the following is not an example of one of the three macroeconomic goals discussed in the text? a. Preventing the economy from experiencing too much unemployment. b. Preventing the economy from experiencing too much inflation. c. Keeping living standards high enough for people to live decent, meaningful lives. d. Making sure the economy is sustainable into the future. c. Providing the best environment for corporations. Chapter 1 - Economic Activity in Context 5. What explains the fact that the value of global production grew by a factor of 6.7 between 1960 and 2015, while the value of global production per capita has grown by a factor of 2.8? a. Global population also grew, though not as fast as total production. b. The increase in global production has occurred simultaneously with a decline in global population. The increase in global production has occurred simultaneously with growth in the global workforce. The increase in global production has occurred simultaneously with decline in the global workforce. e. The growth in the global population has been greater than the growth in global production. 6. How is labor productivity defined? a. The level of output produced per capita. b. The level of output produced per worker (or worker-hour). c. The level of output produced as a share of GDP. d. The level of human capital in the workforce. e. The level of output produced per capital input. 7. What problems are we most likely to see at which stage of the business cycle? a. High inflation during recessions. b. High unemployment during booms. c. Low inflation during booms. d. High unemployment during recessions. e. Both high unemployment and high inflation during booms.9. Which of the following does not describe the economic events of the Great Depression? a. Stock markets plummeted in the 1929 stock market crash. b. A lack of confidence in banks led to runs on the banks and bank failures. c. Production dropped by about 30% between 1929 and 1933. d. The unemployment rate peaked to 25% at the height of the depression. e. The economic crises was short lived and markets quickly adjusted back to equilibrium. 10. Which of the following are the three dimensions of sustainability as discussed in the text? a. Ecological. financial, and social sustainability b. Ecological, financial, and political sustainability c. Ecological, financial, and cultural sustainability d. Ecological, technological, and human sustainability e. Ecological, technological, and social sustainability 11. Which of the following is not an issue concerning social sustainability? a. The disparities between the "haves" and the "have-nots." b. The ability of the next generation to contribute to a healthy economy and society c. The need for steady growth in production d. The creation of social disruption and political strife e. The ability of the next generation to experience social and political participation and inclusion. 12. Which of the following best describes the precautionary principle? a. Clear cause and effect relationships must be established before taking action. b. We should err on the side of caution when dealing with natural systems or human health. C. The benefits of economic production and growth outweigh the risks of damage to natural systems or human health. d. Business should not have to prove a product to be safe before being released on the market; rather a product must be proven unsafe before it is banned and pulled from the market. e. We should take precautions before engaging in risky business investment. Chapter 1 - Economic Activity in Context 6 13. Which of the following best describes the notion of conscious consumption? a making consumption choices based on advertisements b. making consumption choices based on price of goods c. making consumption choices considering the environmental and social consequences of the choices made d making consumption choices based on cultural influences e. making consumption choices based on income levels 14. Which of the following is not one of the ideas associated with the school of classical economics? a. Specialization and the division of labor b. Laissez-faire and the functioning of markets free of government intervention c. The pursuit of individual self-interest leads to positive economic outcomes. d. Supply creates its own demand e. Markets sometimes fail, necessitating government intervention. 15. Which of the following is not one of the ideas of Keynesian economics? a. An economy can experience insufficient demand b. Governments can step in to help boost aggregate demand C. Changes in government spending and taxation can help keep employment rates up d. Governments should focus on keeping the money supply steady e. Lowering interest rates alone may be insufficient if investors lack the confidence to engage in spending.Problem 3. (Competitive Equilibrium) Consider an economy with apples and oranges. Dustin's endowment of two commodities is given by w = (20. 10) and Kate's endowment is wh = (10, 20). The utility functions of Dustin and Kate are the same and given by where i = D. K. 4) Plot the Edgeworth box and mark the point corresponding to the initial endowments. b) Give a general definition of Pareto efficient allocation z (one sentence) and state its equivalent con- dition in terms of MRS (one sentence, you do not need to prove the equivalence). c) Using the "MRS" condition verify that the initial endowments are not Pareto efficient. d) Find a competitive equilibrium (six numbers). Provide an example of a competitive equilibrium with some other prices ( six numbers). e) Using MRS condition verify that the competitive allocation is Pareto efficient. () Hard: Find prices pi, p2 in a competitive equilibrium for identical preferences of two agents ( (21, 22) = 271 +322 (two numbers, no calculations). Explain why any two prices that give rise to a relative price higher than p1/p2 cannot be equilibrium prices (which condition of equilibrium fails?) "If you do not know the answer to b), to get partial credit in points cl-e) your can assume ( (21:22) = 2122. Problem 4. (Short Questions) a) Uncertainty: Find the certainty equivalent of a lottery which, in two equally likely states, pays (16, 0). Bernoulli utility function is u(c) = ve (one number). Is the certainty equivalent smaller or bigger than the expected value of a lottery 8. Why? (one sentence) b) Market for lemons: In a market for racing horses one can find two types of animals. champions (Plums) and ordinary recreational horses (Lemons). Buyers can distinguish between the two types only long after they buy a horse. The values of the two types of horses for buyers and sellers are summarized in the table Lemon Plum Seller Buyer 2 8 Are champions ( Plums) going to be traded if probability of Lemons is s. (yes-no). Why? (a one sentence argument that involves the expected value of a horse to a buyer) c) Signaling: The productivity of high ability workers (and hence the competitive wage rate) is 1000 while productivity of low ability workers is only 400. To determine the type, employer can, first offer an internship program with the length of z months, during which a worker has to demonstrate her high productivity. A low ability worker by putting extra effort can mimic high ability performance, which costs him c(2) = 200z. Find the minimal length z for which the internship becomes a credible signal of high ability. (one number) d) PV of Perpetuity: You can rent an apartment paying 1010 per month (starting next month, till the "end of the world") or you can buy the apartment for 30.000. Which option are you going to chose if monthly interest rate is r = 2%? (find the PV of rent and compare two numbers) Problem 5. (Market Power) Consider a monopoly facing the inverse demand p (y) = 10 - y, and with total cost TO (y) = 20y. a) Find the marginal revenue of a monopoly, MR (y) and depict it in a graph together with the demand (formula +graph). Which is bigger: price or marginal revenue? Why? (one sentence) b) Find the optimal level of production and price (two numbers). Illustrate the optimal choice in a graph, depicting Consumer and Producer Surplus, and DWL (three numbers + graph). c) Find equilibrium markup (one number). d) First Degree Price Discrimination: Find Total Surplus, Consumer, Producer Surplus and DWL if monopoly can perfectly discriminate among buyers and quantities. (four numbers +graph) e) Hard: find the individual level of production and price in a Cournot-Nash equilibrium with N identical firms with cost TO(y) = 5y, both as a function of N (two formulas). Argue that the equilibrium price converges to the marginal cost as N goes to infinity. Problem 6. (Public good: Music downloads) Freddy and Miriam share the same collection of songs downloaded from i-tunes (they have one PC). Each song costs 1. If Freddy downloads 2" and Miriam 2", their collection contains a + 2" and utility of Freddy (net of the cost) is given by aF (2 ) =200 In(27 + 2" ) -2. while Miriam's utility (net of the cost) is all (2 ) = 100 In(2 +2") -2". (Observe that Freddy is more into music than Miriam.) a) Find optimal number of downloads by Freddy a (his best response) for any choice of Miriam 2'l (formula of = R (2")). Plot the best response in the coordinate system (rf, 2"). (Hint: You do not need prices. Utility functions are net cost and hence you just have to take the derivative with respect to z" and equalize it to zero). b) Find the optimal number of downloads by Miriam ", (her best response) for any choice of Freddy z' and plot it in the coordinate system from point a). c) Find the number of downloads in the Nash equilibrium (two numbers). Do we observe the free riding problem? (yes-no + one sentence) d) Hard: Find Pareto efficient number of downloads 2 = 2" + 2 (one number). Compare the Pareto efficient level of z with the equilibrium one. Which is bigger and why?Problem 5. (Market Power) Consider a monopoly facing the inverse demand p (y) = 25 - y, and with total cost TO(y) = 5g. a) Find the marginal revenue of a monopoly, MR (y) and depict it in a graph together with the demand (formula +graph). Which is bigger: price or marginal revenue? Why? (one sentence) bj Find the optimal level of production and price (two numbers). Illustrate the optimal choice in a graph, depicting Consumer and Producer Surplus, and DWL (three numbers +graph). c) Find equilibrium markup (one number). d) First Degree Price Discrimination: Find Total Surplus, Consumer, Producer Surplus and DWL if monopoly can perfectly discriminate among buyers and quantities. (four numbers + graph) ej Hard: find the individual level of production and price in a Cournot-Nash equilibrium with N identical firms with cost TO(y) = 5y, both as a function of N (two formulas). Argue that the equilibrium price converges to the marginal cost as NV goes to infinity. Problem 6. (Public good: Music downloads) Freddy and Miriam share the same collection of songs downloaded from i-tunes (they have one PC). Each song costs 1. If Freddy downloads 2 and Miriam 2", their collection contains a + 2" and utility of Freddy (net of the cost) is given by a (2 ) = 200 10(2 +2") -2" while Miriam's utility (net of the cost) is (Observe that Freddy is more into music than Miriam.) a) Find optimal number of downloads by Freddy " (his best response) for any choice of Miriam ' (formula of = R(x")). Plot the best response in the coordinate system (z , 2"). (Hint: You do not need prices. Utility functions are net cost and hence you just have to take the derivative with respect to r" and equalize it to zero). b) Find the optimal number of downloads by Miriam a", (her best response) for any choice of Freddy and plot it in the coordinate system from point a). c) Find the number of downloads in the Nash equilibrium (two numbers). Do we observe the free riding problem? (yes-no + one sentence) d) Hard: Find Pareto efficient number of downloads = = 2" + 2 (one number). Compare the Pareto efficient level of z with the equilibrium one. Which is bigger and why