=========================preview======================
(ECON150)150s2006.midterm.key.pdf
Back to ECON150 Login to download
======================================================
Department of Economics, HKUST
ECON 150
Big Problems in Economics: Issues, Ideas, and Principles

Semester: Spring 2005/06
Tutor: Peter K. Tsui Office number: Room 2393 (ext.7597) Email: [email protected] Office hours: Wed 2:30p.m. C 5:00p.m.
Note: This set of solutions serves only as guidelines for grading. Giving the same answers as suggested below is no guarantee of full credits. Detailed explanation is required.
Midterm Examination
(Solutions prepared by Peter Tsui)

1. (a) False.
SGA

CGA


If Johns SGA is lower than his CGA, his CGA is still going down even though his SGA for this semesters courses is higher than for last semesters.
(b) Uncertain.
The free entry aspect of the newspaper industry is a key characteristic of
perfect competition.
Perhaps SCMP is only a special case, we need to take into account all
other newspapers in HK.
SCMPs sales are mainly through subscription.
$6 may not be an equilibrium price.

1
(c) False.
GDP is not a good measure of social welfare as it does not consider many factors that could contribute to well-being, such as leisure.
(d) Uncertain
Perhaps the poorest person is still rich enough. True by the relative definition of poverty. False by the absolute definition of poverty.
(e) True
No competition in government departments. They have no cost (from discrimination) to bear.
2. (a) Assume that we knew the cost of a minimally adequate diet. The figure was then multiplied by 3.89 ( 25.7% 1 = ) to get the poverty line.
(b) The figure was multiplied by 2.64 ( 25.7% 32.2%1. = ) instead to get the poverty line.
3. (a)


0.00% 0.00%


20.00% 20.00%


40.00% 40.00%


60.00% 60.00%


80.00% 80.00%


Gini coefficient = 0
2




P
Supply Curve (individual firm): P = 10q => q =
Market Supply Curve: Q =100q = 10P
Q

or P =
10
(b) Market Demand Curve: P = 250 . 0.5Q 250 2500
=> P == 41.67 Q == 416.7
66
(c)

2500 Q 6
250 2500 1
CS = (250 . )( )() = 43,402.8
6 62 250 2500 1
PS = ( )( )() = 8,680.6
6 62 25
(d) Each firm produces or 4.17
6 25 625
At q = , AC = 50( ) + 5( ) = 32.83 < P
6 256 Each firm earns profits in the short run.
6

5. (a) Taxis and cargo vans are substitutes.
When the supply of vans increases, the demand for taxis will drop.
As a result, the price and quantity demanded for taxis will decrease.
(b) Increase the penalty for stealing passengers and giving illegal discount.
Make clear definition of goods.
6 (a) (i) Qs )( yb Pa .+=

S S P
y
D

0 a Q
(ii) (iii) Equilibrium price increases. Quantity decreases.

P
Tax burden
S borne entirely by consumers
S


D

Q
7

(b) (i) Qs = a + bP(1. x%)
P

1S: slope=

b(1. x%) 1S : slope=
b
D Q0
(ii) Equilibrium price increases. Quantity decreases.
(iii)

Q
(c) Prices of wine have a large variance. Unit tax should be levied on commodities with s