Answer ALL questions.
1. Which of the following about Economics is correct?
A. Normative Economics is not a science because it does not tell us what to
do.
B. Normative Economics is not a science because it involves predictions.
C. Positive Economics is a science because it tells what ought to be.
D. Positive Economics is a science because it studies what is.
2. Scarcity
A. is the result of having more than one man in an economy.
B.
C.
D.
can be solved if competitive criteria are discriminatory.
leads to discrimination.
deals with resources allocation.
3. Choices that have no market price or pecuniary value, such as friendships or
prestige,
A. must be explained by utility maximization.
B. cannot be explained by wealth maximization.
C. can be explained by wealth maximization with the postulate of
substitution.
D.
cannot be explained by utility maximization or wealth maximization.
4. A testable implication requires
A. the support of an unrealistic theory.
B.
at least one observable variable.
C.
at least two observable variables.
D.
no observable variables because observations are always subjective in
nature.
5. The income effect of a change in the price of a good in indifference curve analysis
A. renders such analysis useless if and when we cannot predict how quantity
demanded changes when price changes.
B.
would refute the law of demand because the demand curve so derived may
not be downward sloping.
C.
is useless because we do not have inferior goods in the real world.
D.
would not affect the empirical usefulness of such analysis because we
always hold real income constant when deriving the demand curve.
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6. Indifference curves are convex to the origin
A.
B.
C.
D.
because goods are assumed to be substitutable.
such that people are assumed to be willing to give up more to obtain
something when he has more of it.
so that the law of diminishing use value holds.
because the rate of substitution diminishes on the margin.
7. Two individuals engage in trade
A.
if they specialize in production according to their comparative advantages.
B.
even if their comparative advantages are identical.
C.
if they have different initial endowment of goods.
D.
must bring consumer surplus to both parties.
8. If cross elasticity of demand of two goods is larger than one,
A.
B.
C.
D.
two goods are substitutes.
two goods are compliments.
one of it is an inferior good and the other is a normal good.
none of the above.
9. Which of the following pairs of observations is inconsistent with the law of
demand?
A.
B.
C.
D.
an increase in unemployment benefits and an increase in the number of
unemployed people.
a sharp rise in the prices of dinners during Christmas Eve and a decrease
in the number of people eating at home.
an increase in the rental of parking spaces and a decrease in the average
quality of vehicles.
None of the above.
10. Consumer surplus is necessarily extracted when
A.
B.
C.
D.
the same price is charged to all customers.
an entrance fee is required before buying.
customers bargain at the same shop.
different customers are charged different prices.
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11. In the long run competitive equilibrium where not all firms are identical, none of
the firms in an industry will be earning anything above cost. This is because
A.
some firms are earning rents, and rent is a part of cost.
B.
some intermarginal firms are making profits.
C.
the supply curve of the industry is horizontal.
D.
All of the above.
12. The following diagram shows a fall in demand from D1 to D2 in a
price-searcher’s market.
Price
D2
D1
Quantity
If the price-searcher produces only to maximize total revenue,
A.
B.
C.
D.
the price will rise.
the price will fall.
the price may rise or fall.
the price will remain unchanged.
13. The law of diminishing returns does not hold,
A.
rent is zero.
B.
rent is not determined.
C.
output will be maximized.
D.
none of the above.
14. Wealth maximization and income maximization are the same
A.
if there is no profit.
B.
if the market rate of interest is zero.
C.
if we are referring to annuity income.
D.
in the absence of a market rate of interest.
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15. In production, resource allocation is said to be efficient when
A.
B.
C.
D.
the marginal cost of production equals to market interest rate if borrowing
and lending is possible.
the marginal use value equals the product price.
the marginal cost of production equals the marginal use value.
the marginal cost of production equals the average cost of production.
16. In a government-regulated school, a teacher with 10 years’ experience is paid a
salary double that of a teacher with only 5 years’ experience. The marginal
revenue product of the more experienced teacher is higher than that of the less
experienced teacher by an amount that is __________ the marginal revenue
product of the less experienced teacher.
A.
equal to
B.
greater than
C.
D.
smaller than
There is insufficient information to tell.
17. Basketball star Yao Ming is expected to earn a higher income than any other
active professional basketball player because
A.
his basketball skills are so good that his salary income will be the highest
among all professional basketball players.
B.
C.
D.
television broadcasts and advertisements of sports are public goods and
there are more than 1.3 billion Chinese on earth.
Chinese are particularly fond of watching professional basketball matches,
and no matter where Yao Ming plays, it is always full house because many
Chinese go to watch him play.
None of the above.
18. In Hong Kong, many Chinese dim-sum restaurants adopt the following practice
during lunch hour. When a customer asks a waitress for the invoice after meal, the
waitress returns with two folders: one containing the invoice, the other containing
the exact change – just in case the customer does not pay the exact amount. This
practice saves serving cost because (Deleted)
A.
restaurant customers in Hong Kong usually pay
B.
labour costs in Hong Kong are high.
C.
customers in Hong Kong use credit cards.
D.
none of the above.
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19. The introduction of a new airport near a city as a rule creates noise and pollution
that affect the market value of the property nearby. Also as a rule, the market
value of the nearby property rises because of a substantial increase in business
activities. Which of the following is correct?
A.
There is a divergence between private and social costs, and taxes imposed
on airplane take-offs and landings will reduce this divergence.
B.
There is divergence between private and social costs, and subsidies
awarded to airplane take-offs and landings will reduce this divergence.
C.
So long as the market value of nearby property continues to rise with more
airplanes using the airport, hence more noise and pollution, the divergence
between private and social costs declines.
D.
There is no divergence between private and social costs so long as the
market value of nearby property rises.
20. Which of the following constitutes price discrimination?
A.
People who rent a car for seven days are offered a lower rate than people
who rent a car for one day.
B.
Hong Kong citizens pay a lower medical fee in public hospital than
non-Hong Kong citizens.
C.
Students in different schools pay different school fees.
D.
None of the above.
21. Firms emerge because
A.
production decisions are not made by the market.
B.
information about production is costly.
C.
it is costly to measure each employee’s contributions to a production.
D.
supervision is required as employees tend to shirk.
22. All-or-nothing pricing may be regarded as a form of perfect price discrimination
if
A.
B.
C.
D.
the average costs for all customers are equal.
the marginal cost of all customers are equal.
different all-or-nothing prices are charged by a seller to different
customers.
the marginal receipts from each and all customers are equal.
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23. If a piece of privately-owned land is made available for common exploitation,
A.
B.
C.
D.
the price of land may be positive.
the price of land will be zero.
land use will be unaffected.
zero rent will be earned by all users.
24. Both elephants and cows are animals which have commercial value. However,
elephants face the threat of extinction while cows do not. This is because
A.
the price of elephant tusks, compounded by international prohibition of
the trade, is not high enough.
B.
elephants are usually wild animals while cows are raised by people.
C.
D.
being large in size, elephants are easy targets for hunters.
All of the above.
25. Which of the following does not lead to rent dissipation?
A.
Teachers in schools now engage in activities promoting the schools to the
public.
B.
Children travel 4 hours per day from Shenzhen to study in Hong Kong.
C.
Students pay the tuition school for tuition in order to have study tips.
D.
None of the above.
26. There must be no inefficiency
A.
in a one-man economy.
B.
when a producer’s marginal cost equals the marginal revenue.
C.
if no resources allocation is observed.
D.
All of the above.
27. The law of diminishing marginal rate of substitution differs from the law of
diminishing use value in that
A.
the former applies in utility analysis only while the latter can apply in
B.
C.
D.
either one.
the former suggests the law of demand and the latter suggests the law of
supply.
the former does not imply the existence of consumer surplus when price
changes while the latter does.
None of the above.
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28. The government merged the Mass Transit Railway (MTRC) with the
Kowloon-Canton Railway because
A.
the institutional cost of operating one company must be lower than that of
two companies.
B.
the expertise of the former can raise the efficiency of the latter.
C.
people in Hong Kong can be benefited by reducing the number of
transactions made in traveling around Hong Kong.
D.
All of the above.
29. Price discrimination exists if
A.
the elasticities of demand of goods are different.
B.
C.
D.
information cost is substantial.
buyers have different costs of transaction.
sellers have different costs of production.
30. Demonstration items are usually sold at lower prices because
A.
people do not like to buy them as they are cheaper.
B.
they are always defective.
C.
not all three rights under private property rights are sold.
D.
the life span of the items are generally shorter.
End of Paper
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