BUSINESS 115
SEMESTER TWO, 2024
Q1 [10 MARKS]
Economics is best defined as the study of
a. How people make choices under conditions of scarcity and the results of their choices.
b. Prices and quantities.
c. Wages and incomes.
d. Graph drawing.
e. Inflation and interest rates.
Q2 [10 MARKS]
Joe wants to start his own business. The business he wants to start requires that he purchase a factory that costs $400,000. Joe currently has $500,000 in the bank earning 3% interest per year. He chooses to use $200,000 of his own money and $200,000 borrowed from a bank to purchase the factory. The interest payment on the bank loan is 6% per year.
1. Joe’s annual implicit cost of purchasing the factory is .
a. $6,000 b. $400,000 c. $12,000 d. $18,000 e. $200,000
2. Joe’s annual opportunity cost of purchasing the factory is .
a. $12,000 b. $18,000 c. $200,000 d. $400,000 e. $6,000
Q3[10 MARKS]
When a production possibilities frontier shifts outward, it is demonstrating the concept of a. Trade-offs. b. Economic growth. c. Efficiency. d. Opportunity cost e. Increasing input prices.
Q4 [10 MARKS]
Consumption of some goods generates benefit for the consumer, as shown by the demand curve in the diagram below, and external benefits for the rest of society. An example is education.
1. What is the equilibrium price in this market?a. Between, but not
including, $8 and $10 b. $10 c. Greater than $10 d. There are two
equilibria in this market, one with a price of $8 and one with a price of $10 e. $8
2. What is the socially-optimal quantity of the good consumed in this
market?a. Greater than 10 units b. Between, but not including, 8 and 10 units c. There are two socially optimal quantities in this market, 8 units and 10 units d. 8 units e. 10 units
3. If the government wanted to subsidize this market to achieve the
socially-optimal quantity of the good consumed, how large would the
subsidy need to be?a. Greater than $4 per unit b. More than $2 but less than $4 per unit c. $4 per unit d. $2 per unite. Less than $2 per unit
Q5 [10 MARKS]
1. The equilibrium market price and quantity traded are, respectively a. $4; 3 units traded. b. $6; 5 units traded. c. $0; 5 units traded. d. $10; 0 units traded. e. $1; 0 units traded.
2. If a $6 tax per unit were imposed by the government, what price would
buyers pay for the good (per unit) in equilibrium?a. $4 b. $2 c. $6 d. $10 e. $8
3. How much revenue would be raised by a $6 tax (per unit) for the
government?a. $120 b. $60 c. $6 d. $800 e. $10
4. Using the demand curve provided, what is the price elasticity of
demand for a price increase from $2 to $6?a. 1 b. 4 c. 1/2 d. 1/4 e. 2
Q6 [10 MARKS]
In a closed economy, national saving is a. Usually greater than investment. b. Sometimes greater and sometimes less than investment, depending on the GDP. c. Always less than investment. d. Equal to investment. e. Usually less than investment because of the leakage of taxes
Q7 [10 MARKS]
The misperceptions theory of the short-run aggregate supply curve says that, if the price level increases more than people expect, firms believe that the relative price of what they produce has: a. Decreased, so they increase production. b. Decreased, so they stop production. c. Increased, so they increase production. d. Increased, so they stop production. e. Increased, so they decrease production.
Q8 [10 MARKS]
Welfare payments are often indexed for inflation using the CPI. Some people claim that welfare recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?
a. Such claims are correct if the prices of the goods consumed by welfare recipients increase faster than the prices of the goods in the basket used to compute the CPI.
b. Such claims are correct under all circumstances.
c. Such claims are correct if the basket of goods consumed by welfare recipients is the same as the basket used to compute the CPI.
d. Such claims are correct if the prices of the goods consumed by welfare recipients increase more slowly than the prices of the goods in the basket used to compute the CPI.
e. Such claims are incorrect under all circumstances.
Q9 [10 MARKS]
If the RBNZ wanted to increase the money supply, it could make
a. Open market purchases and lower the official cash rate.
b. Open market purchases and raise the official cash rate.
c. Open market sales and lower the official cash rate.
d. Open market sales and raise the official cash rate.
e. None of the above