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Ollscoil na hÉireann, Gaillimh (^) _GX______
National University of Ireland, Galway
Summer Examinations 2011/
Exam Code(s) 1BC2, 1BC3, 1BC4, 1BC5, 1FM Exam(s)^1 st (^) Comm. (French), 1st (^) Comm. (German), 1st (^) Comm. (Spanish), 1st^ Comm. (Italian), 1st^ B.Sc. (Fin. Maths. & Ec) Module Code(s) EC Module(s) Economics Paper No. 1 Repeat Paper External Examiner(s) Dr. Pat McGregor Professor Liam Delaney Internal Examiner(s) Professor John McHale Professor Terrence McDonough Dr. Gerard Turley Instructions: There are two Sections to be answered. SECTION A (100 marks) is Microeconomics and students are required to answer ONE question. SECTION B:Answer all questions (no negative marking). Please use the MCQ answer sheet provided, using lines 1 – 50. Please use SEPARATE answer books for each section. Duration 3 hours No. of Pages 13 Discipline Economics Course Co-ordinator(s) Gerard Turley, Terrence McDonough Requirements : MCQ Yes.^ Release^ to Library YES Handout Statistical Tables Graph Paper Log Graph Paper Other Material
Section A Microeconomics (100 marks) Answer either Question 1 or Question 2. Please answer all parts of the question. Label all diagrams carefully. Define all economic terms used. Question 1 (100 marks) (a) i. Explain how a market system, as opposed to a planned system, operates. Use the demand and supply analysis, including the demand and supply curves, in your answer. (10) ii. Consider the following equations: Qd = 31 - 3P Qs = 6 + 2P Find the market-clearing price and quantity using simultaneous equations. (5) On a diagram sketch the demand curve and the supply curve, with the equilibrium price and quantity identified. (5) Suppose P = 7. Calculate the excess. Is it a shortage or surplus? Sketch the diagram. (5) Suppose P = 2. Calculate the excess. Is it a shortage or surplus? Sketch the diagram. (5) iii. Using the demand and supply analysis, explain one of the following: the fall in the price of houses OR the fall in the price of consumer electronics In your answer identify the main change (and underlying factors) as either demand-side or supply-side. Draw a demand and supply diagram showing the relevant changes in demand and/or supply. (10) (b) i. Define ‘price elasticity of demand’. What factors influence price elasticity of demand? With respect to these factors, under what conditions is the demand for a good likely to be elastic? How is price elasticity of demand calculated? (1 0 ) ii. Suppose that the price of a flight from Dublin to Abu Dhabi is € 60 0 and the corresponding figure for quantity demanded for one year is 12,000. A year later, the price of the same flight is € 55 0; quantities demanded are numbered at 13,000. Estimate the point elasticity measure. In terms of revenue, what is the significance of this point estimate? (1 0 )
In your answer identify the main change (and underlying factors) as either demand-side or supply-side. Draw a demand and supply diagram showing the relevant changes in demand and/or supply. (10) P.T.O. (b) i. In the theory of the cost of production we distinguish between the short- run decision and the long-run decision. Explain the profit-maximising output decision in both cases. Use appropriate diagrams. (20) ii. A firm has selected the output level at which it wishes to produce. Having checked the marginal condition, the firm is now considering the average condition as it applies to the short run and the long run. Cost conditions are such that LAC is €12; SATC is €17 (made up of SAVC €11 and SAFC €6). In Table 1, tick the appropriate short run and long run decisions for the firm at each stated market price. [One is already done for you!] (10) Table 1 Short-run decision Long-run decision Price, € Produce at a profit Produce at a loss Shut down Produce at a profit Produce at a loss Exit the industry 18 5 7 13 11.50 √ (c) i. What are the main market structures? Take any two market structures and contrast them using the following characteristics: pricing strategy; number of firms; the type of product; long-run profits; and barriers to entry. Give two real world examples of each type of market structure considered. (14) ii. Using any one of the market structures from (i) above, outline its long-run equilibrium position (that is, the output decision in the long run). Use a well-labelled diagram in your answer. (16)
SECTION B
Macroeconomics Answer all questions (no negative marking). Please use the MCQ answer sheet provided, using lines 1 – 50.
- François Quesnay created the circular flow model of the economic activity inspired by: a. the night and day cycle. b. the behaviour of the French government. c. William Harvey’s famous circulation of blood diagram. d. the activity of the bakery in front of his house.
- The value of all goods and services produced domestically in the economy in a year is: a. Gross Domestic Product (GDP). b. Global Data Pool (GDP). c. the consolidated government expenditure. d. a panel cointegration econometric technique.
- How would you describe the neoclassical labour market (with wage measured on the vertical axis, and the amount of labour measured on the horizontal axis)? a. There is a vertical demand curve for labour and a downward-sloping supply curve. b. It is impossible to use standard demand and supply analysis in the neoclassical framework. c. There is a downward-sloping demand curve and a backward-bending supply curve. d. There is only one curve (the vertical supply curve of labour) that determines the equilibrium in the model.
- According to neoclassical theory, in the labour market: a. Firms supply labour, householders demand labour. b. Firms demand labour, households supply labour. c. There is a fixed amount of supplied labour decided by the government. d. Firms demand labour, but there is no supply, therefore a demand and supply analysis is useless.
- In the neoclassical labour market, the intersection between the demand curve and the supply curve determines: a. the rate of involuntary unemployment. b. the equilibrium wage rate and unemployment rate in the market. c. nothing, the interesting area is determined by the points above the supply curve. d. the two curves are parallel, there is no intersection.
- According to Aggregate Demand theories of the business cycles: a. supply shocks start cycles. b. productivity changes are the main reason behind the cycles. c. animal spirits are the main reasons behind the cycles. d. demand shocks are the main reason behind the cycles (according to Keynesian, Monetarist, and Rational Expectations theories).
- International trade: Adam Smith advocated the laissez-faire policy in order to: a. allow countries to declare wars whenever they wanted to. b. increase the international flows of precious metals (gold and silver), whose accumulation he perceived to be the main objective of countries. c. increase global efficiency through specialization and free trade (he regarded self- sufficiency as inefficient). d. decrease environmental externalities.
- Which are the reasons behind trade restrictions? a. There are both non-economic reasons (strategic objectives) and economic reasons (protection of infant industries and maintenance of employment). b. There are no valid reasons. c. Voluntary restraints on exports. d. They are the first step to be taken in order to be able to declare wars.
- Are environmental externalities taken into account in standard neoclassical models? a. Yes, they are. b. No, they are not. c. Environmental externalities do not exist. d. No, they are not taken into account because lobbies (environmentalists, polluting firms-owners...) influence the way in which standard models are built.
- Internalizing externalities is a way to: a. avoid market efficiency. b. set the optimal level of pollution. c. increase pollution, but only in the long-run. d. correct inefficient market equilibriums in the presence of costly environmental externalities.
- What is the optimal level of pollution according to the neoclassical theory of environmental externalities? a. Zero. b. There is no optimal level of pollution. c. The level that the society decides to be willing to accept. d. 100mg/Km^2 of CO 2.
- Economics is the study of the social relations people enter into in the course of producing goods and services and how these social relations change over time. This is the definition of economics according to which school? a. Neoclassical b. Marxian c. Institutional d. Keynesian
- Who are the important actors and what are the important behaviours are two questions involved in a. government regulation of the economy b. business strategy c. a model of the economy d. the determination of aggregate demand
- Regulation is a behaviour associated with a. individuals. b. classes. c. institutions. d. economists.
- Which of the following is a dialectical relationship? a. between theory and facts b. between economics and politics c. between Marxism and neoclassicism d. both a and b
- Profit is to Marxian theory what ______ is to neoclassical theory. a. scarcity b. choice c. price d. opportunity cost
- In the Marxian school profits answer which question? a. What is produced? b. How are things produced? c. Who gets what? d. All of the above.
- Calculate the multiplier for this model. a. 4 b. 8 c. 7 d. 10
- Using the original equilibrium, suppose the full employment level of income is
- The government should increase government spending to a. 110 b. 120 c. 140 d. 180
- The government can lower the interest rate by a. decreasing the supply of money. b. increasing the supply of money. c. increasing the demand for money. d. none of the above.
- When the labour pool fills up a. wages rise b. wages fall c. profits go down d. layoffs increase
- Notes plus coins plus current accounts equal a. M1. b. M2. c. M3. d. M
- In the chartalist account a. money must be divisible and storable b. the first bankers were goldsmiths c. taxes drive money d. money is a unit of account
- Business cycle expansions can cause inflation because a. labour costs rise b. materials cost rise c. favourable demand conditions encourage price increases d. all of the above
- The accelerator relates a. additional investment to additional GDP b. investment to the marginal propensity to consume c. investment to government spending d. investment to the level of the money supply 3 8. Borrowing is risky because a. yield on investments is uncertain b. payments on debt are certain c. banks are subject to default d. both a and b
- According to the Marxian theory which of the following is favorable to profits during the upturn a. demand b. effort c. wages d. raw materials prices
- The speculator searches for opportunities to a. realize a large income stream. b. invest for the long term. c. buy low and sell high. d. improve business management.
- Potential contradictions within global neoliberalism included all of the following except a. insufficient aggregate demand b. rising unit labour costs c. financial and monetary fragility d. environmental crises
- Demand for Euros arises from all of these except a. European exports. b. deposits by foreigners in European banks. c. European tourism abroad. d. new foreign investment in Europe.
- Unfortunately for the environment, under capitalism growth is a. optional b. inherent c. intermittent d. uncertain
- According to dependency theory local elites tend not to invest in a. land b. speculation c. manufacturing d. money lending
