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11.09.2008 Student id-number: Name: Last Name: Student group: Final Exam Microeconomics II "C" ATTENTION: This final exam consists of 14 multiple-choice questions. Exactly one of these choices is correct. Mark your choice on the answer sheet provided for this test. Make sure that you mark your answer on the answer sheet in the correct place. Only the answers clearly marked on your answer sheet will be graded. Please, answer all questions. You are not allowed to use a pocket calculator. ANSWER SHEET Answer Question Number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 a b c d e QUESTIONS 1) Amanda and Mikołaj consume only two goods x and y. They trade only with each other and there is no production. The total endowment of Good x equals the total endowment of Good y. Amanda's utility function is U=min{x, y} and Mikołaj's utility function is U=max{x, y}. In an Edgeworth box for Amanda and Mikolaj, the set of Pareto optimal allocations is: a) Both diagonals b) The main diagonal. c) The whole Edgeworth box d) The edges of the box and the diagonals. e) The edges of the box. 2) In the economy which operates under perfect competition the government considers two ways of increasing the employment level (the number of workers hired): setting a minimum wage rate at 6PLN or substitute each labour hour at 1PLN rate. The supply of labour is given by L=10w, where w is the wage rate. The demand for labour is given by L=100-10w. a) Setting the minimum wage rate results in higher employment level than the substitution of each labour hour. b) Setting the minimum wage rate results in smaller employment level than the substitution of each labour hour. c) Each instrument results in the same employment level. d) The employment level after implementing the instruments is unknown. e) None of the above. 3) Two stores are located side by side and attract customers to each other (positive externalities) and to themselves by advertising. Where x1 and x 2 are the advertising expenditures of stores 1 and 2, the profits of the firms are 1 (30 x 2 ) x1 2 x12 for store 1 and 2 (120 x1 ) x 2 2 x2 for store 2. If each store sets its advertising 2 expenditures independently (as in Nash equilibrium), how much would store 1 spend on advertising? a) 16 b) 18 c) 13 d) 21 e) None of the above. 4) The goal of the Pigouvian tax is to: a) Collect the amount of money that allows for paying the compensation of the costs generated by the external effect. b) Achieve Pareto efficient allocation. c) Eliminate the production of a firm which generates external costs. d) Limit the monopoly power. e) None of the above. 5) If supply does not depend on prices and the demand is linear with a negative slope the quantity tax: a) Does not change the price paid by the consumers. b) Increases the price paid by the consumers. c) Increases the supply. d) Decreases the supply e) None of the above. 6) A quiet town has 6400 people, Each person, i, in town has utility U (X , Y)= X -81/Y, i i i where Y is the amount of public good and X is the amount of private good consumed by i person i. If the marginal cost of public good is constant and equal to 4, then the efficient amount of public good in that town is: a) 360 b) 480 c) 240 d) 725 e) None of the above. 7) Marginal Revenue Product of Factor ( MRPx ) is given by: a) MRPx p MC x , where p is the price of the final product b) MRPx MR y MPx , where y is a final product. c) MRPx p MR y , where y is a final product. d) MRPx MC y MR y , where y is a final product. e) None of the above. 8) A firm with monopsony power in factor market (x) and with monopoly power in final product market (y) chooses the level of input (x) at which: a) MRPx MC x b) MRPx MC y c) MVPx MC x d) MRPx w , where w is the unit cost of input. e) None of the above. 9) As it applies to fire insurance, the moral hazard problem is the tendency for: a) Those most likely to collect on insurance, i.e. those most likely to start a fire, to buy it. b) Those who buy insurance to take less precaution in avoiding a fire. c) Those most likely to start a fire to pay higher price for the insurance. d) Calculating the price of the insurance analyzing the probability of fire in the region in which the insurance is being sold. e) None of the above 10) From the Coase theorem it can be concluded that: a) The individuals always reveal truthfully their private valuations of a public good. b) Accident causer will be liable to compensate the damage. c) The total payments for providing the public good must be equal the costs. d) Too little resource is allocated to an activity which causes a positive externality. e) None of the above. 11) Groves-Clarke tax: a) Is paid by each person who declares wrong net value of the public good. b) Is paid by each pivotal person, who changes the supply decision. c) Is paid by each person who declares the highest net value of the public good. d) Allows for buying the public good at the lowest price. e) None of the above. 12) Setting a minimal wage rate at the labour market with monopsony power: a) Always increases the employment level. b) Always decreases the employment level. c) Increases the employment level if the minimum wage rate does not exceed the competitive market wage rate level. d) Decreases the employment level if the minimum wage rate does not exceed the competitive market wage rate level. e) None of the above. 13) Which of the following is true? a) Pareto optimal amount of a public goods can be determined by majority vote. b) "Free Riding" is a consequence of cooperation. c) Because of high production costs public good can be produced only by a public firm. d) Because of the "adverse selection" the Pareto optimal amount of a public goods is difficult to define. e) None of the above. 14) Marcin and Adam both consume the same goods in a pure exchange economy. Marcin is originally endowed with 18 units of good x and 14 units of good y. Adam is originally endowed with 16 units of good x and 3 units of good y. They both have the utility function U ( x, y ) x1 / 3 y 2 / 3 . If the price of good x is 1 per unit, then what will be the equilibrium price of good y? a) 2 b) 8 c) 1 d) 4 e) None of the above. *************GOOD LUCK!!!!*************