UTS Intro Econ - 20151016 [PDF]

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UJIAN TENGAH SEMESTER



PROGRAM S1 PRASETIYA MULYA SEMESTER 1 ANGKATAN 2015



Course



: AEKN5201 – INTRODUCTORY ECONOMICS



Day/ Date



: Thursday, 29 October 2015



Time Faculty Member



: 09.00 – 11.00 (120 minutes) : Yohanes B. Kadarusman, Ruth Elisabeth, Anika Widiana, Milkha Miranti, Erica N. Lukas, Muhammad Shauqie Azar, Isfandiary, Charles Mangun, Hanum dan Mangasi Pandjaitan : CLOSED book. Students are NOT permitted to bring mobile phone and PC tablet but are ALLOWED using calculator



Type of exam



Instructions:     



The exam is worth 100 points in total: 20 points for the multiple choice questions; 20 points for the fill in the blanks questions and 60 points for the essays. Write your answers in the answer sheet provided. For Part A and B, indicate the number of question and write your answer. Write your essays clearly with a pen. Good Luck



A. Multiple Choices (max score = 20 points) 1. Each point along the market demand curve shows a. the quantity of the good that firms would be willing and able to supply at a specific price b. how population changes affect the quantity demanded at a specific price c. the opportunity cost of supplying a given quantity of goods to the market d. the quantity of the good that consumers would be willing and able to purchase at a specific price 2.



A decrease in the price of a particular good, with all other variables constant, causes a. a shift to a different demand schedule with higher quantities demanded b. a shift to a different demand schedule with lower quantities demanded c. a movement along a given demand curve to a lower quantity demanded d. a movement along a given demand curve to a higher quantity demanded



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3. Unilever Corp. is a major soap producer. All of the following, except one, would shift its supply curve of liquid soap upward. Which is the exception? a. an increase in the price of bar soap b. an increase in the price of a key ingredient of liquid soap c. environmental regulations force Unilever Corp. to use a more costly technology to produce liquid soap d. a decrease in the price of liquid soap 4. An excess supply of rice in a competitive market would indicate that a. the problem of scarcity has been solved in that market b. buyers want to purchase more rice at the current price than the sellers want to sell c. the entire supply curve must shift to the left in order to attain equilibrium d. the current price exceeds the equilibrium price 5. “Kita” convenience store at Prasetiya Mulya School of Business and Economics orders 200 bottles of Coca Cola each week and sells them at a price of Rp. 6,000 per bottle. At the end of the first week, the store has only sold 160 bottles. What market condition is the store facing and what will have to happen to price in order for equilibrium to be attained? a. surplus; price will rise. b. surplus; price will fall. c. shortage; price will rise. d. shortage; price will fall. 6. In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive. c. how fast the price of a good responds to a shift of the supply curve or demand curve. d. how much buyers and sellers respond to changes in market conditions. 7. If the price elasticity of demand for Rinso detergent is -3.0, then a a. 12 percent drop in price leads to a 36 percent rise in the quantity demanded b. 12 percent drop in price leads to a 4 percent rise in the quantity demanded c. Rp.1,000 drop in price leads to a 3,000-unit rise in the quantity demanded d. 12 percent rise in price leads to a 36 percent rise in the quantity demanded 8. In measuring the sensitivity of demand, the a. price and income elasticities refer to movements along the demand curve; other elasticities refer to shifts of the entire demand curve b. price and cross-price elasticities analyze movements along the demand curve; other elasticities refer to shifts of the entire demand curve c. income and cross-price elasticities refer to movements along the demand curve; price elasticity refers to shifts of the entire demand curve d. price elasticity refers to movements along the demand curve; income and cross-price elasticities refer to shifts of the entire demand curve 9. A perfectly elastic demand implies that a. buyers will not respond to any change in price.



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b. any rise in price above that represented by the demand curve will result in a quantity demanded of zero. c. quantity demanded and price change by the same percent as we move along the demand curve. d. price will rise by an infinite amount when there is a change in quantity demanded. 10.



Which of the following statements about straight-line demand curves is true? a. the price elasticity of demand becomes larger in absolute value as price falls b. the price elasticity of demand becomes smaller in absolute value as price falls c. the price elasticity of demand is constant along the curve d. the price elasticity of demand and the slope of the demand curve are the same



11. The presence of price controls in a market is usually an indication that a. an insufficient quantity of a good or service was being produced in that market to meet the public’s need. b. the usual forces of supply and demand were not able to establish an equilibrium price in that market. c. policymakers believed that the price prevailing in that market in the absence of price controls was unfair to buyers or sellers. d. policymakers correctly believed that in that market, price controls would generate no inequities of their own. 12. A minimum wage that is set below a market’s equilibrium wage will result in a. an excess demand for labor, that is, unemployment. b. an excess demand for labor, that is, a shortage of workers. c. an excess supply of labor, that is, unemployment. d. None of the above is correct. 13. A tax on bicycles that buyers of bicycles are required to pay shifts a. the demand curve downward, causing both the price received by sellers and the equilibrium quantity to fall. b. the demand curve upward, causing both the price received by sellers and the equilibrium quantity to rise. c. the supply curve downward, causing the price received by sellers to fall and the equilibrium quantity to rise. d. the supply curve upward, causing the price received by sellers to rise and the equilibrium quantity to fall. 14. The demand for yachts is quite elastic. The same is not true for the supply of yachts. Hence, one would expect that a luxury tax on yachts a. would be largely borne by the wealthy. b. increase the amount of yachts produced. c. would be largely borne by the suppliers of yachts. d. would be equally shared by the buyers and sellers of yachts.



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15. Which of the following statements is true? a. A tax levied on buyers will never be even partially paid by sellers. b. Who actually pays a tax depends on the price elasticities of supply and demand. c. Government can decide who actually pays a tax. d. A tax levied on sellers always will be passed on completely to buyers. 16. The area that represents producer surplus when there is a non-binding price floor is



a.



b.



c.



d. 17. The area that represents consumer surplus when there is a binding price ceiling is



a.



b.



c.



d. 18. In a negative externality a. the price of the affected good is set too low and quantity of output is too high because the cost to society is greater than the producer’s cost of production. b. the price of the affected good is set too low and quantity of output is too high because the benefit to society is less than the producer’s benefit. c. the price of the affected good is set too low and quantity of output is too low because the benefit to society is greater than the producer’s benefit d. none of the above 19. In a positive externality 4



a. the price of the affected good is set too low and quantity of output is too high because the cost to society is greater than the producer’s cost of production. b. the price of the affected good is set too high and quantity of output is too low because the benefit to society is greater than the producer’s benefit c. the price of the affected good is set too high and quantity of output is too low because the cost to society is less than the producer’s cost of production d. None of the above



20. Positive externalities are created when a. other consumers reduce their demand for coffee and price thereby declines. b. farmers spray pesticide in their fields and it washes into the local river after the first rainstorm. c. your neighbor plants beautiful trees and flowers in her yard. d. you purchase the "Mona Lisa" painting and lock it in a vault. Part B: Fill in the Blanks (max score = 20 points)



1. Based on the graph above, assume that the initial demand and supply curves are D1 and S1. If the income level increases thus the demand (a) increases that is reflected by a shift of D1 to (b) D3 . A shift in the supply from S1 to S2 might be caused by cost of production (c) increased . If the initial demand and supply curves are D1 and S1, then the demand D1 shifts to D2, at the price P1 thus the quantity demanded will be (d) lower than the quantity supplied and the goods in the market is (e) surplus . 2. If price of goods Y increases, demand for goods X decreases but demand for goods Z increases. In this condition, the relationship between the goods X and the goods Y is (a) complements , while the goods Z and the goods Y is (b) substitues . In other words, the cross-price elasticity of demand X to Y will be (c) negative , while the cross-price elasticity of demand Z to Y is (d) positive . 3. Please complete the table below: 5



Price Ceiling Price Floor



Binding if (a) lower than Price Equilibrium (c) higher than Price Equilibrium



Not binding if (b) higher than Price Equilibrium (d) lower than Price Equilibrium



Price ceilings are primarily targeted to help (e) consumers/buyers , while price floor generally benefit (f) producers/sellers .



4. Based on the graph above, the market equilibrium also produces (a) negative externality because the equilibrium creates not only benefit as reflected by consumer surplus of the area (b) a + b + c + d and producer surplus of the area (c) f + g + h but also social cost as shown by the area (d) c + d + e + f + h . The externality makes market inefficient due to the existence of social deadweight loss as indicated by the area (e) e .



Part C: Essays



1. In order to fulfill his programs during the campaign, the appointed governor of Jakarta, Mr. Basuki Tjahaja Purnama (“Ahok”) decides to lower the flag fall price of taxi rides (flag fall price: a fixed start fee of riding a taxi). The accompanying table shows the demand and supply schedules for taxi rides.



Flag fall price Rp. 7,500 Rp. 7,000 Rp. 6,500 Rp. 6,000 Rp. 5,500



QD (in million per year) 9 10 11 12 13



QS (in million per year) 13 12 11 10 9 6



Rp. 5,000 Rp. 4,500



14 15



8 7



Questions (max score = 20 points) a. Assume that there are no restrictions on the number of taxi rides that can be supplied. Find the equilibrium price and quantity. Qe when QD = QS = 11 million and Pe = Rp. 6,500 b. Suppose that the governor sets a ceiling flag fall price at Rp. 5,500. What happens on taxi rides? QD > QS thus market shortage. How large is the market disequilibrium? 13 – 9 = 4 million Illustrate with a diagram/graph. Who loses and who benefits from this policy? Producer losses due to lower producer surplus, consumer may benefit due to higher surplus but noted that there are consumer cannot get taxi rides. c. How much is deadweight loss (DWL) due to the ceiling flag fall price set by the governor? (Rp. 7,500 – 5,500) * (11 – 9 million) = Rp. 2,000 * 3 million = Rp. 6,000 million d. Suppose that the Indonesia Stock Exchange (BEI) crashes and, as a result, people in Jakarta city are poorer. This reduces the quantity of taxi rides demanded by 6 million rides per year at any given price. Where will the demand curve shift? Downward What effect will the governor’s ceiling flag fall price policy have now? non binding due to new equilibrium price = Rp. 5,000 Illustrate with a diagram/graph. 2. Suppose “Kita” convenience store at Prasetiya Mulya School of Business and Economics sell 2 bottled water “Aqua” and “Prima” brands. In order to fulfill the course of Introductory Economics, students are assigned to conduct a survey on “Aqua” and “Prima”. Based on the survey data, the students then make a demand schedule for “Prima” and “Aqua” as follow: Price of Aqua (Rp) 1,000 3,000 5,000 7,000 9,000



QD Aqua (at income level of Rp. 200 thousand) 30 25 20 15 10



QD Aqua (at income level of Rp. 300 thousand) 40 35 20 15 8



QD Prima



16 18 20 22 24



Questions (max score = 25 points): a. Please calculate the price elasticity of demand for “Aqua” when its price increases from Rp. 1,000 to Rp 3,000; at the income level of i) Rp 200,000 EPd = – 0.18 and ii) Rp 300,000 EPd = - 0.133 as well. What the impact of a 100% price increase on demand of “Aqua”? D decreases by 18% and 13.3% respectively. With those values of elasticity, what happens with total revenue of “Aqua” when its producer increases its price level? TR increases due to inelastic demand b. Please calculate the income elasticity of demand for “Aqua” when the income level increases from Rp 200,000 to Rp 300,000 at the price level of Rp 3,000. EId = 0.83 Based on that value of elasticity, what kind of good is “Aqua”? Normal goods due to positive sign 7



c. Please calculate the cross-price elasticity of demand for “Prima” when the price of “Aqua” increases from Rp 5,000 to Rp 7,000. ECd = 0.28 What is the meaning of that value of elasticity if the price of “Aqua” increases by 10%? Demand for Prima increases by 2.8%. Based on that value of elasticity, what kind of good is “Prima” in relation to “Aqua”? Substitues due to positive sign Notes: Calculation of elasticity is using the midpoint method



3. The City of Tangerang Selatan obtains information that 3 shoes manufacturing firms located in its geographic area produce not only shoes but also waste that pollutes the Cisadane river. Producer of brand “Tom” generates 150 tonnes of waste per year, while both producer of brand “Adas” and brand “Niki” generates 200 tonnes of waste per annum. In order to clean the waste pollution from the Cisadane river, each shoes producer has different cost structure that is Rp. 500 thousand/ton for “Tom”, Rp. 600 thousand/ton for “Adas” and Rp. 800 thousand/ton for “Niki”. The City of Tangerang Selatan has a goal to get “Adipura” award for the cleanest and greenest city in Indonesia thus they put an effort to limit waste pollution by giving permits of 100 tonnes per producer. Questions (max score = 15 points): a. Suppose the City of Tangerang Selatan asks to the producers not to trade their pollution permits each other. Please calculate the total cost spent by the 3 shoes producers to clean their waste pollution from the Cisadane river? Rp. 165 million b. If the City of Tangerang Selatan allows the producers to trade their pollution permits each other; Who wants to sell (Tom) and to purchase pollution permits? (Adas and/or Niki).Why that happens? Total cost Tom the lowest while Adas and Niki high. What minimum price of permit asked by seller (above Rp. 500,000) and what maximum price of permit offered by buyer? (Adas: below Rp. 600,000 and Niki: below Rp. 800,000). How much the total cost is spent by the 3 shoes producers to clean the pollution? Assume agreed price of permit = Rp 700,000 thus 100 permits of Tom are purchased by Niki costs Rp. 70 million, Tom has to spend Rp. 5 million to clean its pollution and while Adas is still Rp. 60 million; Total Cost = Rp. 135 million. c. Based on scenario (b) what is benefit gained by the City of Tangerang Selatan (achieves max pollution of 300 tonnes per year and Adipura Award) and the shoes producers? (lower cost to reduce pollution Rp. 135 million instead of Rp. 165 million)



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