Part 1: Multiple choice questions: (1.

6 points each)

1. Economics deals primarily with the concept of

a. money
b. prosperity.
c. scarcity.
d. poverty.
2. The opportunity cost of an item is
a. the number of hours needed to earn money to buy it
b. what you give up to get the item
c. usually less than the dollar value of the item
d. the dollar value of the item

3. When buyers in a competitive market take the selling price as given, they are said to be
a. market entrants
b. monopolists
c. free riders
d. price takers
4. For a good that is a necessity,
a. quantity demanded tends to respond substantially to a change in price
b. demand tends to be inelastic
c. the law of demand does not apply
d. all of the above are correct.
5. Macroeconomics is the study of
a. How money affects the economy
b. How individual households and firms make decisions
c. How government affects the economy.
d. How the economy as a whole works.
6. What do you need to know to calculate the GDP deflator?
a. Nominal GDP only
b. Nominal GDP and real GDP
c. Real GDP only
d. Neither nominal GDP nor real GDP
7. The increase in total cost when one more unit is produced is known as
a. Marginal cost
b. Opportunity cost
c. Limited cost
d. Average cost
8. Profits are maximized when
 a. Costs are minimized
b. Revenue is maximized
c. Average cost is less than average revenue
d. Marginal cost equals marginal revenue
9. When we know the quantity of a product that buyers wish to purchase at each possible
price, we know
a. Demand
b. Supply
c. Excess demand
d. Excess supply
10. When college students leave town for the summer, the demand for meals at the local
restaurants decline. This results in:
a. A decrease in equilibrium price and an increase in quantity.
b. An increase in equilibrium price and quantity
c. A decrease in equilibrium price and quantity
d. An increase in equilibrium price, and a decrease in quantity
11. What happens in the market for airline travel when the price of traveling by rail
decreases?
a. The demand curve shifts left
b. The demand curve shifts right
c. The supply curve shifts left
d. The supply curve shifts right
12. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A
government policy aimed at reducing smoking changed the price of a pack of cigarettes
from $1 to $5. According to the midpoint method, the government policy should have
reduced smoking by
a. 30%.
b. 53%.
c. 80%.
d. 250%.
13. Marginal revenue is the ___________ when output is ______________
a. Change in average revenue, increased
b. change in total revenue, increased by one unit
c. change in average revenue, increased by one unit
d. change in total revenue, increased
14. If the price of good A decreases, the demand for good B decreases. Which statement
is true?
a. A and B are substitute goods
b. A and B are complimentary goods
c. There is no relation between A and B
d. There is not enough to give answer
 15. When we know the quantity of a product that sellers wish to sell at each possible
price, we know
a. Demand
b. Supply
c. Excess demand
d. Excess supply
16. If a 5% increase in price for a good results in a 3% increase in quantity supplied, the
price elasticity of supply is
a. 2
b. 1.66
c. 0.6
d. -2
17. If income elasticity of demand for a good is negative. How do you conclude about
this good?
a. This good is always a complimentary good when combining with other goods
b. This good is always substitute good when combining with other goods
c. This good is a normal good
d. This good is an inferior good
18. What is a marginal product?
a. Change in total product due to one more worker
b. Change in total cost due to one more unit of product
c. Total product divided by total labor
d. None of the above is correct
19. When profit-maximizing firms in competitive markets are earning profits,
a. market demand must exceed market supply at the market equilibrium price.
b. market supply must exceed market demand at the market equilibrium price.
c. new firms will enter the market.
d. the most inefficient firms will be encouraged to leave the market.
20. Real GDP is the yearly production of final goods and services valued at
a. constant prices.
b. current prices
c. expected future prices.
d. the ratio of current prices to constant prices.
21. The term economists use to describe a situation in which the economy’s overall price
level is rising is
a. growth.
b. inflation.
c. recession.
d. expansion.
22. GDP is not a perfect measure of economic performance because
a. GDP does not take into account for services
 b. GDP accounts for a fixed basket of goods and services
c. GDP does not take into account for goods and services made at home without for sale
d. GDP accounts for the value of clean environment
23. Cross price elasticity of demand for good A is 0.2. (Good A and good B). Which of the
following is true?
a. A and B are normal
b. A and B are inferior
c. A and B are compliments
d. A and B are substitutes
24. Year 2019, a domestic automobile company produces $600 million worth of cars. Consumers
buy $500 million of them. How much does the GDP 2019 increase in this case?
a. $ 500 million
b. $ 600 million
c. $ 1,100 million
d. None of the above are correct
25. For elastic demand curve
a. total revenue rises as price rises
b. total revenue falls as price rises
c. total revenue does not change as price rises
d. total revenue automatically changes even price unchanged

Part 2: True or False? Briefly explain. (2.5 points/question)

1. A final good produced in 2018 but sold in 2019 is counted in GDP of the year 2019.
2. Firms in a perfectly competitive market are price-takers.
3. A change in consumer tastes lead to a movement along the demand curve.
4. A change in price can cause a shift of a demand curve.

Part 3: Problems (35 points)

Problem 1 (20 points)

In the market for rice, the quantity demanded is: Qd = 200 – 2P, where Q is the number of tones
of rice and P is the price of rice in dollars per tone. The quantity supplied is: Qs = -40 + P.
a. What are equilibrium price and quantity of the rice market?
b. Illustrate the equilibrium using a supply-demand diagram.
Problem 2 (15 points)

Suppose a simple economy produces only 2 goods. Below is the quantities and prices during
2017-2019.

Year Price A Quantity A Price B Quantity B

(VND/Unit) (Units) (VND/Unit) (Units)

2017 100 200 350 500

2018 150 300 400 600

2019 200 350 450 800

The base year is 2017. Use the given information to answer the following questions:

a. What are nominal and real GDP of 2017, 2018, 2019?

b. What is the GDP growth rate of 2018?

c. What is the GDP deflator of 2019?

Part 4: Short answers (15 points)

a. Explain the saying “Good news for farming can be bad news for farmers” using your
knowledge of basic economics.
b. U.S. real GDP is substantially higher today than it was 60 years ago. What does this tell
us, and what does it not tell us, about the well-being of U.S. residents?