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(ECON150)150s2006.midterm.pdf
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Department of Economics, HKUST


ECON 150
Big Problems in Economics: Issues, Ideas, and Principles


Semester: Spring 2006
Professor Leung







Midterm Examination
March 30, 2006
12:00 noon C 1:20 pm



This is a closed book examination. You have 80 minutes to complete the test. Write coherently, lucidly, and legibly. Explain your answers wherever necessary. The maximum score for this exam is 80 points. Points are marked next to the questions and may be served as a rough guide to how much time you should allocate on each question. Points will be deducted for irrelevant materials. Use mathematics and/or diagrams wherever appropriate to support your answer.


1. (20)



Indicate whether each of the following statements is TRUE, FALSE, or UNCERTAIN, and explain your answer. Use mathematics and/or diagrams to support your answer.

(a) Johns grade point average for this semester's courses is higher than his grade point average for last semester's courses, therefore his cumulative grade point average must go up from last semester to this semester.



(b) The market for the retail sales of newspapers in Hong Kong is not perfectly competitive because the price of newspapers sold by convenience stores (e.g., Seven Eleven, OK) is lower than that by street vendors. For instance, the price of SCMP is $6 at Seven Eleven and $7 at street stalls.



(c) GDP is a measure of social welfare (well-being).



(d) The higher the income inequality, the more serious is the poverty problem.



(e) Discrimination against employees (because of their gender, race, etc.) is more likely to occur in government departments than in commercial business companies.

2. (10)





(a) Suppose the Hong Kong government considers following the US methodology in defining the poverty line. According to the 1999/2000 Household Expenditure Survey, Hong Kong people spend 25.7% of their income on food. Using this information and making appropriate assumptions, determine the poverty line. Clearly show your steps.




(b) Unlike the US, a large proportion of people in Hong Kong live in public housing. Therefore, the poverty line should be adjusted for the housing subsidy the poor have already received from the government. According to the 1999/2000 Household Expenditure Survey, Hong Kong people spend 32.2% of their income on housing. How should the poverty line in (a) be modified? Explain.






3. (10)



Suppose there are 10 people in a country. For each of the following cases, plot the Lorenz curve and show clearly how you calculate the coordinates. In terms of the Gini coefficient, which of the following cases is the largest? You do not need to calculate the exact value of the Gini coefficients.

(a) Every one earns $10.



(b) Nine people earn $10 and one person earns $100.



(c) Five people earn $10 and