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ECON2103L1,2and3MidtermExam
20March,2013
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Part A: Analytical Question (Total 30 points)

Please write your answers in the SPACE provided after questions.. Incomplete and
unclear handwriting that leads to misunderstanding of your answers by us would be at
your disadvantage.
Question 1: (Total 20 points)
The Hong Kong Government adopted recently certain measures to suppress the speculation
on properties in Hong Kong. Lets assume these measures effectively reduce the demand
of property for sales in Hong Kong.
Despite the reduction in the demand of property for sales, we cannot observe significant
drop in the market price of Hong Kong properties, but we can observe the transaction volume
(number of property sold/transacted) reduced sharply: (i) Can you explain the above
observations in a graph of Demand-Supply (analysis)? (10 points)



















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At the same time, we can observe the rental market in Hong Kong is getting very hot in
terms of very sharp rise in the rental level and transaction volume (number of apartments
rented out) after the Hong Kong Government introduced the anti-speculation measures.
Please use words and graphs to explain in detail: (ii) Why does rental market of Hong Kong
turn hot after the demand of property for sales in Hong Kong reduced? (8 points) And,
(iii) please comment on the elasticity of the supply of property for rent in Hong Kong (4
points)
























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(iv) Given the sharp rise of rental level in the rental market of Hong Kong properties, please
comment on the relationship between supply of property for sales and supply of property
for rent in Hong Kong currently? Please explain your reasoning in detail. (8 points)

























End of the Part A
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ECON2103L1,2and3MidtermExam
20March,2013
Part B: Multiple Choices (Total 70 points, 2 point for each question)
Choose the one alternative that best completes the statement or answers the question.

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1) Which of the following statements best represents the principle represented by the
adage, "There is no such thing as a free lunch"?
A) Teresa can attend the concert only if she takes her sister with her.
B) Wing is hungry and homeless.
C) Mike must repair the tire on his bike before he can ride it to class.
D) Tony must decide between going to Singapore or Thailand for spring break.

2) For a college student who wishes to calculate the true costs of going to college, the
costs of room and board
A) should be counted in full, regardless of the costs of eating and sleeping elsewhere.
B) should be counted only to the extent that they are more expensive at college than
elsewhere.
C) usually exceed the opportunity cost of going to college.
D) plus the cost of tuition, equals the opportunity cost of going to college.

3) Suppose after graduating from college you get a job working at a bank earning
$30,000 per year. After two years of working at the bank earning the same salary, you
have an opportunity to enroll in a one-year graduate program that would require you to
quit your job at the bank. Which of the following should not be included in a
calculation of your opportunity cost?
A) the cost of tuition and books to attend the graduate program
B) the $30,000 salary that you could have earned if you retained your job at the bank
C) the $45,000 salary that you will be able to earn after having completed your graduate
program
D) the value of insurance coverage and other employee benefits you would have received if
you retained your job at the bank

4) People are willing to pay more for a diamond than for a bottle of water because
A) the marginal cost of producing an extra diamond far exceeds the marginal cost of
producing an extra bottle of water.
B) the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle
of water.
C) producers of diamonds have a much greater ability to manipulate diamond prices than
producers of water have to manipulate water prices.
D) water prices are held artificially low by governments, since water is necessary for life.

5) Rick buys a 1966 Mustang (name of a car) for $3,000, planning to restore and sell the
car. He goes on to spend $9,000 restoring the car. At this point he can sell the car for
$10,000. As an alternative, he can spend an additional $3,000 replacing the engine. With
a new engine the car would sell for $13,000. Rick should
A) complete the repairs and sell the car for $13,000.
B) sell the car now for $10,000.
C) never try such an expensive project again.
D) be indifferent between (i) selling the car now and (ii) replacing the engine and then selling
it.





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6) Which of the following statements best characterizes a basic difference between

market economies and centrally-planned economies?
A) Society relies more upon prices to allocate resources when the economy is centrally-
planned than when it is market-based.
B) The self-interest of households is reflected more fully in the outcome of a centrally-
planned economy than in the outcome of a market economy.
C) Government plays a larger role in the economic affairs of a market economy than in the
economic affairs of a centrally-planned economy.
D) None of the above are correct.

7) A friend of yours asks you why market prices are better than government-determined
prices. Because you understand economic principles, you say that market-determined
prices are better because they generally reflect
A) the value of a good to society, but not the cost of making it.
B) the cost of making a good to society, but not its value.
C) both the value of a good to society and the cost of making it.
D) neither the value of a good to society nor the cost of making it.

8) The scientific method is
A) the use of modern technology to understand the way the world works.
B) the use of controlled laboratory experiments to understand the way the world works.
C) the dispassionate development and testing of theories about how the world works.
D) the search for evidence to support preconceived theories about how the world works.

9) Which of the following statements about models is correct?
A) The less details a model includes, the better the model.
B) Models assume away irrelevant details.
C) Models cannot be used to explain how the economy functions.
D) Models cannot be used to make predictions.

10) If an economy is producing efficiently, then
A) there is no way to produce more of one good without producing less of another good.
B) it is possible to produce more of both goods without increasing the quantities of inputs that
are being used.
C) it is possible to produce more of one good without producing less of another good.
D) it is not possible to produce more of any good at any cost.
















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11) Which of the following events would explain the shift of the production possibilities
frontier from A to B?

A) The economys citizens developed an enhanced taste for books.
B) The economy experienced a technological advance in the production of books.
C) More capital became available in the economy.
D) More labor became available in the economy.

12) Assume for the United States that the opportunity cost of each airplane is 100 cars.
Which of these pairs of points could be on the United States' production possibilities
frontier?
A) (200 airplanes, 10000 cars) and (150 airplanes, 20000 cars)
B) (300 airplanes, 15000 cars) and (200 airplanes, 25000 cars)
C) (200 airplanes, 5000 cars) and (150 airplanes, 4000 cars)
D) (300 airplanes, 25000 cars) and (200 airplanes, 40000 cars)

13) Chris and Tony's Production Opportunities
Tomatoes Pasta Sauce
Chris 10 lbs 300 jars
Tony 14 lbs 280 jars

Refer to above table: Chris and Tony both produce tomatoes and pasta sauce. The table
shows their possible production per month if both work the same number of 8 hour days.
Given this information, Chris's opportunity cost of 1 lb. of tomatoes is
A) 2 jars of sauce and Tony's opportunity cost of 1 lb. of tomatoes is 3 jars of sauce
B) 30 jars of sauce and Tony's opportunity cost of 1 lb. of tomatoes is 20 jars of sauce
C) 3 jars of sauce and Tony's opportunity cost of 1 lb. of tomatoes is 2 jars of sauce
D) 20 jars of sauce and Tony's opportunity cost of 1 lb. of tomatoes is 30 jars of sauce

14) Refer to above table in Q13): If Chris and Tony both decide to specialize and
produce only the good in which they have a comparable advantage, then
A) Chris will produce only sauce and Tony will produce only tomatoes
B) Both Chris and Tony will produce only tomatoes
C) Chris will produce only tomatoes and Tony will produce only sauce
D) Both Chris and Tony will produce only sauce
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15) Refer to above table in Q13): Which of the following prices would result in a
mutually advantageous trade between Chris and Tony?
A) 1 lb. of tomatoes for 23 jars of sauce
B) Both A) and C) are correct
C) 1 lb. of tomatoes for 27 jars of sauce
D) 1 lb. of tomatoes for 33 jars of sauce

16) Wing spends an hour studying instead of watching TV with his friends. The
opportunity cost to him of studying is
A) the improvement in his grades from studying minus the enjoyment of watching TV
B) the enjoyment he would have received if he had watched tv with his friends
C) zero. Since Wing chose to study rather than to watch tv, the value of studying must have
been greater than the value of watching tv
D) the improvement in his grades from studying for the hour

17) Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels
of oats per year, and a worker in Oatland can grow either 20 bushels of corn or 5
bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland.
Which of the following statements is true?
A) Both countries could gain from trade with each other
B) Neither country could gain from trade with each other because Cornland has an absolute
advantage in both goods
C) Neither country could gain from trade with each other because neither one has a
comparative advantage
D) Oatland could gain from trade between the two countries, but Cornland definitively would
lose

18) In competitive markets, which of the following is not correct?
A) Firms produce identical products
B) No individual buyer can influence the market price
C) Some sellers can set prices
D) Buyers are price takers





















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19)

Suppose that the Hong Kong government is concerned about obesity in Hong Kong and
is considering to require junk food producers to include warning labels on all junk
food. If the warning labels are successful, we could illustrate the plan as producing a
movement from
A) Point A to Point B in Panel 1
B) Point B to Point A in Panel 1
C) Point A to Point C in Panel 2
D) Point C to Point A in Panel 2

20) The supply curve for milk
A) shifts when the price of milk changes because the price of milk is measured on the vertical
axis of the graph
B) shifts when the price of milk changes because the quantity supplied of milk is measured on
the horizontal axis of the graph
C) does not shift when the price of milk changes because the price of milk is measured on the
vertical axis of the graph
D) does not shift when the price of milk changes because the price of milk is measured on the
horizontal axis of the graph

21) Suppose an increase in the price of rubber coincides with an advance in the
technology of tire production. As a result of these two events, the demand for tires
A) decreases, and the supply of tires increases
B) is unaffected, and the supply of tires decreases
C) is unaffected, and the supply of tires increases
D) None of the above is necessarily correct

22) New oak tables are normal goods. What would happen to the equilibrium price and
quantity in the market for oak tables if the price of maple tables rises, the price of oak
wood rises, more buyers enter the market for oak tables, and the price of the glue used
in the production of the new oak tables increased?
A) Price will fall, and the effect on quantity is ambiguous
B) Price will rise, and the effect on quantity is ambiguous
C) Quantity will fall, and the effect on price is ambiguous
D) Quantity will rise, and the effect on price is ambiguous
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23) How does the concept of elasticity allow us to improve upon our understanding of
supply and demand?
A) Elasticity allows us to analyze supply and demand with greater precision than would be
the case in the absence of the elasticity concept
B) Elasticity provides us with a better rationale for statements such as an increase in x will
lead to a decrease in y than we would have in the absence of the elasticity concept
C) Without elasticity, we would not be able to address the direction in which price is likely to
move in response to a surplus or a shortage
D) Without elasticity, it is very difficult to assess the degree of competition within a market

24)
Good Price Elasticity of Demand
A 1.3
B 2.1

Which of the following is (the most) consistent with the elasticities given in the table?
A) A is grapes, and B is fruit
B) A is T-shirts, and B is socks
C) A is train tickets before cars were invented, and B is train tickets after cars were invented
D) A is diamond necklaces, and B is beds

25) For a particular good, a 10 percent increase in price causes a 15 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to this
good?
A) There are no close substitutes for this good B) The good is a necessity
C) The market for the good is broadly defined D) The relevant time horizon is long

26) Pierre says that he will spend exactly 75 cents a day on candy bars, regardless of the
price of candy bars. Pierres demand for candy bars is
A) perfectly elastic B) unit elastic
C) perfectly inelastic D) None of the above answers is correct

27) If the cross-price elasticity of demand for two goods is 1.25, then
A) the two goods are luxuries
B) the two goods are substitutes
C) one of the goods is normal and the other good is inferior
D) the demand for one of the goods conforms to the law of demand, but the demand for the
other good violates the law of demand

28) Some firms eventually experience problems with their capacity to produce output as
their output levels increase. For these firms
A) market power is substantial
B) supply is perfectly inelastic
C) supply is more elastic at low levels of output and less elastic at high levels of output
D) supply is less elastic at low levels of output and more elastic at high levels of output

29) A decrease in supply will cause the smallest increase in price when
A) both supply and demand are inelastic
B) demand is elastic and supply is inelastic
C) both supply and demand are elastic
D) demand is inelastic and supply is elastic
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30) Good news for farming can be bad news for farmers because the
A) supply curve for an individual farmer is usually perfectly elastic
B) supply curve for an individual farmer is usually perfectly inelastic
C) demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to
the right decrease total revenues to sellers
D) demand for basic foodstuffs is usually elastic, meaning that factors that shift supply to the
right increase total revenues to sellers

31) The Hong Kong government is concerned about obesity in Hong Kong. Congress is
considering two plans. One will ban the production and sale of junk food. The other
will increase nutrition-education programs and include substantial advertising
campaigns to encourage healthy eating habits. The junk-food ban program
A) and the education program will reduce the quantity of junk food sold and raise the price
B) and the education program will reduce the quantity of junk food sold and lower the price
C) will reduce the quantity of junk food sold and raise the price. The education program will
reduce the quantity of junk food sold and lower the price
D) will reduce the quantity of junk food sold and lower the price. The education program will
reduce the quantity of junk food sold and raise the price

32) You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at
Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on
the same night, and his concert is your next-best alternative activity. Tickets to see
Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see
and hear Willie Nelson perform. Assume there are no other costs of seeing either event.
Based on this information, at a minimum, how much would you have to value seeing the
Cubs play the White Sox to accept the ticket and go to the game?
A) $0 B) $10 C) $40 D) $50

33) Francis' values a stainless steel dishwasher for his new house at $500, but he
succeeds in buying one for $425. Francis' willingness to pay for the dishwasher is
A) $150 B) $425 C) $500 D) $850

34) If the cost of producing sofas decreases, then consumer surplus in the sofa market
will
A) increase
B) decrease
C) remain constant
D) increase for some buyers and decrease for other buyers

35) Motor oil and gasoline are complements. If the price of motor oil increases,
consumer surplus in the gasoline market
A) decreases B) is unchanged
C) increases D) may increase, decrease, or remain unchanged

End of the Part B
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1)D
2)B
3)C
4)B
5)D
6)D
7)C
8)C
9)B
10)A
11)B
12)B
13)B
14)A
15)B
16)B
17)C
18)C
19)A
20)C
21)D
22)B
23)A
24)C
25)D
26)B
27)B
28)C
29)C
30)C
31)C
32)B
33)C
34)A
35)C