Sample Economics Questions and Answers

The homework covers the textbook Chapters 1~6, and 17. Please show the derivation process (if applicable) and highlight the answer for each question. Limit your answers within 6 pages in a file of either MS Word or MS Excel. No other format will be accepted. No cover sheet is required.

Chapter 1

Q1: (10%)

Assume that the following table describes the production possibilities frontier (PPF) confronting an economy.  Using that information:

Potential Output Combinations	Homeless Shelters	Hospitals
A	25	0
B	21	1
C	16	2
D	9	3
E	0	4

• What is the opportunity cost of producing a third unit of hospitals?
• What is the opportunity cost of producing a fifth unit of homeless shelters

Chapter 2

Q2: (15%)

Suppose the following data describe output in three different years for a country X:

Year	Year 1	Year 2	Year 3
CPI	100	117	123
Consumption Investment Gov’t Spending Exports Imports	10,000 4,000 2,000 1,500 1,000	10,500 4,100 2,300 1,800 1,200	12,000 4,200 2,400 1,800 1,600

(a) Compute the nominal GDP in each year.

(b) Compute the real GDPs in Year 2 and Year 3 by using Year 1 as the base year.

(c) Compute the economic growth rates of Year 2 and Year 3.

Chapter 17

Q3: (10%)

(a) If a Nintendo Switch costs 30,000 yen in Japan, how much will it cost in U.S. dollars if the exchange rate is 110 yen = $1? Please show the process.

(b) In 2010, a Big Mac was priced at $2.49 in New York, 3.36 euros in Rome and 12 yuan in Beijing. If the exchange rates were $1=0.72 euros = 6.63 yuan, in which city that Big Mac was most expensive? Please show the process.

Chapter 3

Q4: (10%)

Illustrate each of the following events with supply or demand shifts in the domestic car market: (Please also conclude the market equilibrium price and quantity changes)

(a) The U.S. economy falls into a recession.

(b) U.S. autoworkers go on strike.

(c) Imported cars become more expensive.

(d) The price of gasoline increases.

Q5: (10%)

Assume the following data describe the gasoline market:

Price per gallon	$2.00	2.25	2.50	2.75	3.00	3.25	3.50
Quantity Demanded	32	30	29	28	22	21	20
Quantity Supplied	16	20	24	28	32	36	40

• What is the equilibrium price?

(b)  If supply at every price is increased by 10 gallons, what will the new equilibrium price be?

Chapter 4

Q6:  (10%)

The following is a demand schedule for shoes:

Price (Per Pair)                        $120    $100    $80      $60      $40

Quantity Demanded                   8         15     25         28      30

                        (in pairs per year)

• As the price drops from $80 to $60 a pair, is demand elastic or inelastic?
• Based on your answer in (a), a shoes salesman should raise or cut price to increase the total revenue?

Q7:  (5%)

Suppose the following table reflects the total satisfaction (utility) derived from eating pizza:

Quantity consumed	1	2	3	4	5	6	7
Total Utility	33	82	112	135	147	140	120

(a)  What is the marginal utility of each pizza?

(b)  From which unit of pizza consumption, the law of diminishing marginal utility starts?

 

Chapter 5

Q8: (10%)

Suppose the mythical Tight Jeans Corporation leased a sewing machine, giving it the following production function:

Number of workers:	0	1	2	3	4	5	6	7	8
Quantity of Output:	0	20	46	64	72	78	81	80	77

(a) At what level of employment does the law of diminishing returns become apparent?

(b) Assume the wage per worker is $24, please compute the marginal cost of each additional pair from 78 to 81 pairs of jeans.

Q9:  (5%)

Suppose a company incurs the following costs:

Labor              $5,000

Equipment     $3,000

Materials        $1,000

It owns the building, so it doesn’t have to pay the usual $2,000 in rent.

(a) What is the total economic cost?

(b) How would accounting and economic costs change if the company sold the building and then leased it back?

Chapter 6

Q10:  (15%)

Suppose that the monthly market demand schedule for Frisbees is:

Price	$8	$7	$6	$5	$4	$3	$2	$1
Quantity Demanded	100	200	400	800	1,600	3,200	6,000	15,000

Suppose further that the marginal and average costs of Frisbee production for every competitive firm are

Rate of Output	10	20	30	40	50	60
Marginal Cost	$2.00	$3.00	$4.00	$5.00	$6.00	$7.00
Average Cost	$2.00	$2.50	$3.00	$3.50	$4.00	$4.50

Finally, assume that the equilibrium market price is $5 per Frisbee.

(a)       How many Frisbees are being sold in equilibrium?

(b)       How many (identical) firms are initially producing Frisbees?

(c)       How much profit is the typical firm making?

(d)       In view of the profits being made, more firms will want to get into Frisbee production.  In the long run, these new firms will shift the market supply curve to the right and push the price down to average total cost, thereby eliminating profits.  At what equilibrium price are all profits eliminated?  How many firms will be producing