Multiple Choice Circle the letter of the best answer. (40%)

1. "The price of a good can rise at the same time as demand increases." This statement is--
1. false, because it contradicts the law of demand.
2. false, because a change in price will alter demand.
3. true, because some goods are inferior goods.
4. true, because a shift in demand will alter price.
5. None of the above are true.
2. In the long run, a per-unit tax is least likely to effect the quantity demanded of a good--
1. when demand is price inelastic
2. in a competitive industry
3. if it is a luxury good
4. if the good has many good subtitutes
5. None of the above
3. A good for which quantity demanded increases when income falls is a(n)
1. normal good
2. giffen good
3. inferior good
4. luxury good
5. none of the above
4. "After some point, successive increases in a variable factor of production, such as labor, added to fixed factors of production, will result in progressively smaller increases in output." This definition best describes--
1. economy of scale
2. diminishing (marginal) returns
3. diseconomy of scale
4. the law of decreasing elasticity of demand
5. None of the above
5. A natural monopoly can be expected to exist when--
1. fixed costs are relatively high
2. average cost falls with increases in production
3. a single firm experiences economy of scale
4. all of the above
5. none of the above
6. The Principle of Comparative Advantage suggests that—
1. perhaps always, countries can find mutual benefit through specialization and trade
2. absolute advantage is not enough to allow for gains from trade
3. the opportunity cost of specialization outweighs the marginal benefit of trade
4. all of the above
5. none of the above

 

 

 

 

7. The advantages of a lower exchange rate (lower currency value) include—
1. Less expensive Russian vodka
2. Higher demand for exported goods
3. Higher real wage rates
4. All of the above
5. None of the above
8. Given that interest rates are raised in Kazakhstan, we would expect—
1. The value of the dollar would rise against the Tenge
2. The demand for tenge would increase
3. The supply of tenge would increase
4. All of the above
5. None of the above
9. Given that Kazakhstan wants to maintain the value of the tenge at less than 150 tenge to the dollar, if the exchange rate increased to 152, the central bank might—
1. Purchase tenge in international currency markets
2. Purchase dollars in international currency markets
3. Purchase securities through open market operations
4. All of the above
5. None of the above
10. The advantages of a lower exchange rate (lower currency value) include—
1. Less expensive Russian vodka
2. Higher demand for exported goods
3. Higher real wage rates
4. All of the above
5. None of the above
11. Economic Profit is—
1. Always smaller than accounting profit because implicit costs are considered
2. Usually greater than accounting profit because of opportunity costs
3. Usually smaller than accounting profit because of competition
4. Always greater than accounting profit when there is kinked demand
5. None of the above
12. The primary difference between Pure and Monopolistic Competition is—
1. There are many firms instead of only one
2. There is an overriding concern for market share
3. Substitute products might have slightly different prices because the products are not the same
4. All of the above
5. None of the above

Problems. Show your work. (30%)

1. A firm’s demand curve includes the following points:

P1 = 20 P2 = 16

Q1 = 4500 Q2 = 5000

1. Find the price elasticity of demand
2. Will revenues be greater at higher or lower production levels? Show.
3. Assume a straight-line demand curve. What production level would maximize revenues?

2. The Kudabaeva Firm experiences profit related in the following way to its output:

Pr = -80 + 30Q – 4Q², where Pr is profit and Q is output.

1. What is the firm’s marginal profit, if Q = 5?
2. Describe the relationship of Marginal Profit to output.
3. What output will maximize profit?

3. The Abai Monopoly Electric Company experiences the following demand and total cost relationships:

TC = 50 + 0.25 Q, where TC is total cost.

1. If the company is not regulated, what Q and P would maximize profits?

Assume President Nazarbaev dictates a maximum price of 480 tenge.

2. How would profits be effected?
3. How is consumer surplus affected?

Essay question. (30 %)

Write an outline of your own Economics for Managers course. Explain and justify what topics you believe are most important. Describe the basic lessons of the single most important topic.