Intro Micro
Introductory Microeconomics
2008 Exam
Solutions
Section A
1. C
|Hours of tutoring per week|Total Opportunity cost |Marginal Cost |Wage Payment (Marginal |
| | | |Benefit) |
|0 |0 | | |
|1 |$20 |$20 |$50 |
|2 |$30 |$10 |$60 |
|3 |$40 |$10 |$70 |
|4 |$80 |$40 |$70 |
|5 |$160 |$80 |$70 |
MB is greater than MC for each of the first 4 hours, but for the 5th hour MB is less than MC. Hence the optimal choice of hours of tutoring is 4.
2. D
The opportunity cost to Leo of going to the CSS Ball is equal to the sum of (i) what he gives up by not using his time to attend the talk by Tim Undercover; and (ii) the cost of the ticket to the CSS Ball. With regard to (i), the net gain to Leo from attending Tim’s talk is $80, the value he places on attending the talk (and since he has already bought the ticket to Tim’s talk, this does not enter into his calculations of the net gain from attending the talk). With regard to (ii), Leo has been given a ticket to the CSS Ball, so this money cost is zero. Hence the opportunity cost is $80.
3. C
Imposing a maximum price below the equilibrium price means that the quantity traded will be determined by the amount that suppliers are willing to supply. Since supply is price-elastic there will be a relatively large decrease in the quantity traded.
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4. B
2008 Exam
Solutions
Section A
1. C
|Hours of tutoring per week|Total Opportunity cost |Marginal Cost |Wage Payment (Marginal |
| | | |Benefit) |
|0 |0 | | |
|1 |$20 |$20 |$50 |
|2 |$30 |$10 |$60 |
|3 |$40 |$10 |$70 |
|4 |$80 |$40 |$70 |
|5 |$160 |$80 |$70 |
MB is greater than MC for each of the first 4 hours, but for the 5th hour MB is less than MC. Hence the optimal choice of hours of tutoring is 4.
2. D
The opportunity cost to Leo of going to the CSS Ball is equal to the sum of (i) what he gives up by not using his time to attend the talk by Tim Undercover; and (ii) the cost of the ticket to the CSS Ball. With regard to (i), the net gain to Leo from attending Tim’s talk is $80, the value he places on attending the talk (and since he has already bought the ticket to Tim’s talk, this does not enter into his calculations of the net gain from attending the talk). With regard to (ii), Leo has been given a ticket to the CSS Ball, so this money cost is zero. Hence the opportunity cost is $80.
3. C
Imposing a maximum price below the equilibrium price means that the quantity traded will be determined by the amount that suppliers are willing to supply. Since supply is price-elastic there will be a relatively large decrease in the quantity traded.
[pic]
4. B