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E MST Past Exam S2 2021 Answer Key
analysis of change (MTH1020)
University of Melbourne
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eMST Past Exam S2 2021 Answer Key
1. An instructor offers an optional quiz on Sunday evenings with a potential grade boost to those students that do well. This is an example of:
A) an indirect positive incentive. B) a direct positive incentive. C) a direct negative incentive. D) an indirect negative incentive. E) we can’t tell without more information.
The incentive is designed to change behaviour by directly rewarding students who take the optional quiz.
2. Todd spent the entire day cleaning the house since he was hosting a party. Right before the party, he sees dirt beneath his refrigerator and contemplates whether to clean it or not. This is an example of:
A) incentives. B) opportunity cost. C) the law of increasing opportunity cost. D) marginal thinking. E) unintended consequences.
This is an example of marginal thinking. If the MB of cleaning is greater than the MC, he will clean the fridge.
3. Dima decides to spend 6 hours working overtime rather than reading a book. She earns $12 an hour. Her opportunity cost of working is:
A) the $72 she earns working. B) the $72 from working minus the enjoyment she would have received from reading the book. C) the enjoyment she would have received if she read the book. D) nothing, since she would have received less than $72 of enjoyment from the book. E) none of these answers is correct.
The opportunity cost is the highest valued alternative forgone, which is the enjoyment she would have received from reading the book.
4. If Australia decreases its savings rate, its current production possibilities frontier will:
A) remain the same. B) shift out, more than in the past. C) shift out during expansions, and in during contractions. D) shift in. E) shift in but more than in the past.
The key word here is “current”. The future PPF will be affected. On the current PPF, Australia will move along the existing curve (towards greater consumption).
5. Suppose that Dirk and Charity-Joy want to find a way to divide up household chores—dusting the rooms and cooking meals. It takes Dirk 30 minutes to dust a room and 15 minutes to cook a meal. It takes Charity-Joy 15 minutes to dust a room and 5 minutes to cook a meal. If Dirk and Charity-Joy trade, one dusting of a room should trade for more than ____ meals but fewer than ____ meals.
A) 1; 2 B) 2; 3 C) 1; 2. D) 0; 0. E) 0; 2
Work out the opportunity cost for each activity. If they work for 1 hour per day
Dirk can dust 2 rooms or cook 4 meals. Opportunity cost of dusting 1 room is 2 meals.
Charity-Joy can dust 4 rooms or cook 12 meals. Opportunity cost of dusting 1 room is 3 meals.
The terms of trade must be between 2-3 meals.
6. How many of the following items are endogenous in the supply and demand model: (1) income, (2) the price, (3) the price of related goods, (4) the health of the economy, (5) the quantity?
A) 0 B) 1 C) 2 D) 3 E) 4
In an economic model, an exogenous variable is one whose value is determined outside the model and is imposed on the model, and an exogenous change is a change in an exogenous variable. In contrast, an endogenous variable is a variable whose value is determined by the model. Price and quantity are determined through the market mechanism in arriving at equilibrium.
If they specialise, Jason would produce apples and Marilyn would produce smartphones. A trade of 2 smartphones per apple leaves both parties better off. Jason now receives 2. smartphones per apple, which is +0 apples more than his production cost.
9. Gucci purses are luxury goods. What would happen to the equilibrium price and quantity of Gucci purses if incomes decrease and the supply of Gucci purses decrease?
A) The equilibrium price will go up and the equilibrium quantity will go down. B) The equilibrium price will go up and the equilibrium quantity will go up. C) The equilibrium price will go up and the equilibrium quantity will be indeterminant. D) The equilibrium price will be indeterminant and the equilibrium quantity will go down. E) The equilibrium price will go down and the equilibrium quantity will be indeterminant.
There are 2 shifts to consider.
Incomes decrease: fall in demand for Gucci purses (luxury good). Equilibrium P and Q fall.
Supply decreases: Equilibrium P rises; equilibrium Q falls.
The overall P impact is indeterminate. The equilibrium Q will fall.
10. Assume a decline in consumer’s income along with an increase in the supply of cattle (beef). How would the aforementioned events affect the equilibrium price and quantity of beef, given beef is a normal good?
A) The equilibrium price will go up and the equilibrium quantity will go down. B) The equilibrium price will go up and the equilibrium quantity will go up. C) The equilibrium price will be indeterminate and the equilibrium quantity will go up. D) The equilibrium price will be indeterminant and the equilibrium quantity will go down. E) The equilibrium price will go down and the equilibrium quantity will be indeterminant.
There are 2 shifts to consider.
Incomes decrease: fall in demand for beef (normal good). Equilibrium P and Q fall.
Supply increases: Equilibrium P falls; equilibrium Q rises.
The overall Q impact is indeterminate. The equilibrium P will fall.
11. Powdered milk is considered an inferior good. What would happen to the equilibrium price and quantity of powdered milk if incomes decreased and at the same time more firms started producing powdered milk?
A) Equilibrium price and equilibrium quantity would both go up. B) Equilibrium price would go up and equilibrium quantity would go down. C) Equilibrium price would go up and equilibrium quantity would be indeterminate. D) Equilibrium price would go down and equilibrium quantity would be indeterminate. E) Equilibrium price would be indeterminate and equilibrium quantity would go up.
There are 2 shifts to consider.
Incomes decrease: rise in demand for powdered milk (inferior good). Equilibrium P and Q rise.
Supply increases: Equilibrium P falls; equilibrium Q rises.
The overall P impact is indeterminate. The equilibrium Q will rise.
12. Suppose that the equilibrium price of cheddar cheese is $4 per kg. Now a controversial new study comes out, claiming the fat in cheddar cheese is good for the heart. Holding all other factors constant, which of the following scenarios could happen?
A) The price of cheddar cheese increases to $5 because of a demand shift. B) The price of cheddar cheese increases to $5 because of a supply shift. C) The price of cheddar cheese decreases to $4 because of a demand shift. D) The price of cheddar cheese decreases to $4 because of a supply shift. E) The price of cheddar cheese increases to $5 because of a demand and a supply shift.
The medical study leads to an increase in demand (change in tastes and preferences).
13. As a result of the simultaneous increase in the price of tea and of the drop in the cost of production of coffee (a substitute for tea), which direction would you expect the price and quantity of coffee to move?
A) The equilibrium price will go up and the equilibrium quantity will go down. B) The equilibrium price will go up and the equilibrium quantity will go up. C) The equilibrium price will be indeterminate and the equilibrium quantity will go up. D) The equilibrium price will be indeterminant and the equilibrium quantity will go down. E) The equilibrium price will go down and the equilibrium quantity will be indeterminant.
There are 2 shifts to consider.
Increase in the price of tea (substitute): increase in demand for coffee. Equilibrium P and Q rise.
(90 – 70) / (70 + 90) / 2
(7 – 15) / (15 + 7) /
20/
-8/
= 1/4 x -11/8 = -11/32 = -0.
17. Consider two labour markets with similar demands for labour. In the first, the elasticity of supply of labour is relatively elastic, whereas it is relatively inelastic in the latter. Raising the minimum wage in each market would result in:
A) creating the same level of unemployment in both markets. B) create no unemployment in either market. C) creating more unemployment in the first market, where supply is more elastic. D) creating more unemployment in the second market, where supply is more inelastic. E) create unemployment in the first market but not the second.
In the market which is relatively elastic, there would be a greater response to the rise in minimum wage (higher production costs), so you would expect more unemployment in this market than in the relatively inelastic market, which is less responsive to the change in wages.
18. When Georgiou’s Gyros prices its Greek gyros wraps at $6, it sells 75 per day. Georgiou’s lowers the price to $5 and sells 100 per day. Georgiou’s total revenue ________ because the price elasticity of demand for gyros is ________.
A) rose; inelastic B) rose; elastic C) fell; inelastic D) fell; elastic E) stayed the same; unitary
75 x $6 = $450. 100 x $5 = $550. So Georgiou makes more money when he lowers the price. Using the midpoint method.
(100 – 75) / (75 + 100) / (5 – 6) / (6 + 5)/
25/87. -0/5.
0/-0.
-3. Highly elastic demand.
19. Orange juice and Apple Juice are substitutes. The supply of apples is reduced due to a bad harvest. Which of the following would be true?
Assume the supply and demand curves in both markets are neither perfectly elastic nor perfectly inelastic.
A) A decrease in the producer surplus in the market for orange juice while not affecting consumer surplus in the market for orange juice. B) An increase in both consumer and producer surplus in the markets for orange juice and apple juice. C) A decrease in the consumer surplus in the market for apple juice but an increase in producer surplus in the market for orange juice. D) A decrease in consumer surplus in the market for orange juice but an increase in producer surplus in the market for apple juice. E) We do not have enough information to decide.
There will be a decrease in PS and CS in the market for apple juice (fewer apples traded). Given that orange juice is a substitute for apple juice, demand for orange juice will rise, leading to an increase in PS and CS in the orange juice market.
20. Suppose that the demand and supply for wheat are represented by the following equation, where P is the price of wheat and Q is the number of units of wheat sold.
P = 92 – 2Q (demand)
P = 12 + 6Q (supply)
If the market is in equilibrium, what is the amount of total surplus?
A) $ B) $ C) $ D) $ E) $
We need to work out the y-intercept values, then solve for equilibrium price and quantity.
Y-intercept (set Q = 0). Demand: P = 92 – (2 x 0), P = 92 Supply: P = 12 + (6 x 0), P = 12.
Set D = S 92 – 2Q = 12 + 6Q 8Q = 80 Q = 10 Insert Q = 10 into D or S equation P = 92 – (2 x 10) = 72 P = 12 + (6 x 10) = 72
E MST Past Exam S2 2021 Answer Key
Course: analysis of change (MTH1020)
University: University of Melbourne
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