FOREIGN TRADE UNIVERSITY MICROECONOMICS

FACULTY OF INTERNATIONAL ECONOMICS FINAL TEST

DEPARTMENT OF MICROECONOMICS Time allowed: 60 minutes

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PART 1: THEORY
1. A rational person does not act unless
A. The action produces marginal costs that exceed marginal benefits.
B. The action produces marginal benefits that exceed marginal costs.
C. The action makes money for the person.
D. None of the above
2. Suppose that demand function of good X is QDx = -2PX + 5PY - 3I + 7 then X and Y are
A. Substitutes
B. Complements
C. Independent
D. None of the above
3. (Continue question 2) We can conclude that X is
A. Normal good
B. Luxury good
C. Inferior good
D. None of the above
4. If the supply of apples decreases, which of the following will generally occur in a market
setting?

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 A. Demand for apples will decrease.
B. The quantity demanded will increase.
C. The costs of apple producers will decrease.
D. The price of apples will increase.
5. When both demand and supply curves shift rightward, equilibrium price will
A. Definitely increase
B. Definitely decrease
C. Remain unchange
D. Lack of information to conclude
6. If wages for iPhone workers increases and Samsung Galaxy price increases as well, the
effect on iPhone market is
A. Price increases, quantity is ambiguous
B. Price decreases, quantity is ambiguous
C. Price is ambiguous, quantity increases
D. Price is ambiguous, quantity decreases
7. In the case of inferior goods
A. An increase in income will cause their demand to fall.
B. An increase in income will cause their demand to increase.
C. An increase in the price of substitutes will cause the price of substitutes to increase.
D. Will be unaffected by changes in tastes.
8. If a legal price ceiling is established on a good above the existing equilibrium price, the
effect would be to
A. Raise the price of the good and lower the quantity purchased
B. Have no effect on the price or quantity of the good
C. Lower the price of the good and lower the quantity purchased
D. Lower the price of the good and increase the quantity purchased
9. Demand is said to be inelastic if the
A. Quantity demanded changes proportionately more than the price.
B. Quantity demanded changes proportionately less than the price.
C. Price changes proportionately more than income.
D. Quantity demanded changes proportionately the same as the price.
10. Which of the following indicates that two goods are complements?
A. A demand elasticity greater than one
B. A positive income elasticity
C. A negative cross-price elasticity
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 D. A positive cross-price elasticity
11. The demand for which of the following is likely to be the most price inelastic?
A. Milk
B. Vinamilk
C. TH True Milk
D. Ba Vi Milk
12. Consumer will bear a larger part in a tax (tax per unit) imposed on producer when
demand curve is
A. More elastic than supply curve
B. Less elastic than supply curve
C. Perfectly inelastic
D. Perfectly elastic
13. If the Government levies a tax of $500 per car on sellers of cars, then the price received
by sellers of cars would
A. Decrease by less than $500
B. Decrease by exactly $500
C. Decrease by more than $500
D. Increase by an indeterminate amount
14. Which best expresses the law of diminishing marginal utility?
A. The more consumption of a product, the smaller is the total and marginal utility from
the consumption.
B. The less consumption of a product, the greater is the total and marginal utility of the
consumption.
C. The more consumption of a product, the smaller is the marginal utility from consuming
an additional unit.
D. The more consumption of a produc t, the smaller is the total and marginal utility from
the consumption.
15. When marginal utility is decreasing but positive, total utility is
A. increasing at a decreasing rate
B. increasing at an increasing rate
C. decreasing at a decreasing rate
D. decreasing at an increasing rate
16. When the slope of indifference curve equals to quantity consumed of good Y devided
by quantity consumed of good X then utility function is
A. U = aX + bY
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 B. U = min{aX;bY}
C. U = X.Y
D. U = 2X0,5Y0,5
17. A consumer is spending income in such a way that the marginal utility of product X is
40 units and Y is 16 units. The unit price of X is $5. In order to achieve the optimal
consumption combination, the price of Y is
A. $1 per unit
B. $2 per unit
C. $3 per unit
D. $4 per unit
18. If you know that the marginal utility per dollar spent on product Alpha is less than
the marginal utility per dollar spent on product Beta, consumers who spend all their
income on these two products can
A. Maximize total utility but not marginal utility
B. Maximize marginal utility but not total utility
C. Increase total utility by buying more of Beta and less of Alpha
D. Increase total utility by buying more of Alpha and less of Beta
19. Which of the following statements accurately describes the relationship between
average product (AP) and marginal product (MP) of labor?
A. APL rises when MPL is above it and falls when MPL is below it.
B. MPL intersects APL at the maximum point of MPL.
C. APL and MPL are always parallel to each other.
D. APL is always rising when MPL is falling and vice versa.
20. When marginal cost is greater than average total cost
A. Marginal cost is increasing
B. Average total cost is increasing
C. Average variable cost is increasing
D. All of the above are correct
21. Which of the following is true about the distances between average variable cost and
average total cost when graphed?
A. As output increases the difference between them gets smaller
B. Is equal to average fixed cost at all levels of output
C. Is constant at all levels of output
D. Both A and B are correct

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22. If average fixed costs equal $40 and average total costs equal $120 when output is 100,
then the total variable cost must be
A. $40
B. $80
C. $6.000
D. $8.000
23. As a seller, you would be considered part of a perfectly competitive market if
A. Your actions are quickly followed by competitors.
B. Your pricing has no impact on the amount you can sell.
C. Your actions essentially have no effect on the market price.
D. Increases in the price of your product have an impact on the market price.
24. In a competitive price-taker markets, firms are assumed to be producing
A. Identical products
B. Small products
C. Large products
D. Differentiated products
25. For perfectly competitive firms, advertisements are
A. Relatively necessary
B. Very necessary
C. Not necessary
D. Maybe useful for some firms
26. Farley Frozen Yogurt is a perfectly competitive firm. The market price of a frozen
yogurt cake is $6. Farley sells 200 frozen yogurt cakes. Its AVC is $9 and its AFC is $2.
Farley should
A. Continue to produce even though it is losing money.
B. Decrease production to increase profits.
C. Increase production to increase profits.
D. Shut down immediately, it is losing money.
27. Market power shows firm’s ability in
A. Occupying market share
B. Controlling quantity sold
C. Controlling market price
D. Fighting competitors
28. If a monopolist raises its prices, total revenue will
A. Increase
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 B. Decrease
C. Remain unchanged
D. Cannot conclude
29. Supply curve of a firm in monopoly market is
A. Always upward sloping
B. Marginal cost curve
C. A part of marginal cost curve
D. There is no supply curve
30. Refer to the following graph, a profit-maximizing
monopolist would have the profit equal to
A. (P2-P0) x Q3
B. (P3-P0) x Q3
C. (P3-P0) x Q2
D. (P1-P0) x Q2

PART 2: CALCULATING EXERCISES

Exercise 1: Assume that market for good A has two individual buyers with the following
demand functions: P1 = 10 – Q1 and P2 = 10 – 0,5Q2 respectively. Market supply function is Q
= 2P – 10 (P: 1000$/ton, Q: tons).
a) Calculate the market outcome.
b) At the equilibrium price, if sellers want to increase their total revenue then what should they
do with the price?
c) Government imposes a price ceiling of 6000$/ton, calculate consumer surplus in this case.
d) Government imposes an excise tax of 3000$/ton on sellers, divide the tax incidence for
sellers and buyers.
Exercise 2: A firm produces product X with the average cost of AVC = Q + 10 (P: $, Q: kg).
When the market price is $60, firm receives profit of $301.
a) Define total cost function of this firm.
b) At the break-even point, what is the quantity and price?
c) At the market price of $86, what is the profit of this firm?
d) At the shut-down point, considering firm sells at $8/unit, should firm continue running?