University of Tirana APPROVED

Faculty of Economics Head of Department

Department of Economics Prof. Dr. Tonin Kola
FINAL EXAM
INTRODUCTION TO ECONOMICS
VARIANT A 11.03.2020

I. Multiple choice questions (40 points) K 2 2 2 2 2 2 2

Answer question 1 – 4 based on below the graphic.
S1 and D1 are the original supply and demand
curves. D2 and D3 and S2 and S3 are possible
new demand and supply curves. Starting from the
initial equilibrium (point 1)
1. Which point on the graph is most likely to be the
new equilibrium after the introduction of technological
improvements in bicycle production and successful
publicity campaigns by the government on the virtues
of bicycling to work?
A. 3 B. 4 C. 5 D. 6
2. Which point on the graph is most likely to be the
new equilibrium after an increase in wages of bicycle
workers, and a significant increase in the price of
gasoline?
A. 6 B. 3 C. 4 D. 5
3. What point on the graph is most likely to be the new
equilibrium after a sharp increase in traffic accidents
involving cyclists and the payment of subsidies to
bicycle producers?
A. 3 B. 4 C. 5 D. 6
4. Which point on the graph is most likely to be the
new equilibrium if it is expected that the price of
bicycles will increase in the future?
A. 2 B. 4 C. 5 D. 6
5. Which of the following products will have more
inelastic demand?
A. New cars. B. Fresh flowers. C. Fast food. D.
Medicines.
6. The law of diminishing marginal utility gives us a
deeper understanding of the downward-sloping
demand curve because
A. Consumers are willing to pay a higher price for a
greater quantity.
B. Consumer tastes change due to advertising.
C. When marginal utility is high, we are willing to pay
a higher price.
D. Consumers do not respond to a change in price.
The table below provide information about a firm
engaged in production of product X. Use the
following data to answer the question 7 - 12.
L 0 1 2 3 4 5 6
TP 0 6 16 24 28 28 24
7. Average Product reached is maximum for:
A. L = 2 B. L=3 C. L =2 or L= 3 D. L= 4
8. How units of labour should the firm hire to
maximize output?
A. L = 4 B. L=5
C. L =4 or L=5 D. cannot be determined
9. The firm is characterized by:
A. economies of scale B. diseconomies of scale
C. constant return to scale D. none of the above
10. If the labour cost is $200 per unit and the capital
cost is $50 per unit, then the average total cost that
firm faces for producing 16 units of output is:
A. 500 B. 6.25 C. 31.25 D. 25
11. If the firm’s product sells for $25 per unit, how
units of labour should the firm hire to maximize
profit?
A. L = 3 B. L=5 C. L=4 D. L=2
12. Products X and Y are substitutes in consumption.
If the price for Y decrease, the equilibrium price for X
will change by 5 units. This will be reflected in:
A. Labour demand decrease, and the new equilibrium
will be (L=3, w= 200)
B. Labour demand decrease, and the new equilibrium
will be (L= 2, w=200)
C. Labour demand increase, and the new equilibrium
will be (L=3, w= 200)
D. Labour demand increase and the new equilibrium
will be (L=2, w= 200)
Use the following information to answer the next
TWO questions.
Caroline is an artist. She purchases canvas, paints,
brushes, and accessories for $75. She sells one of her
original paintings to an art gallery for $1,500, which,
in turn, sells it to a collector for $4,500.
13. How much value does Caroline add?
A. $ 1,425 B. $ 1,500 C. $ 3,000 D. $ 4,425
14. From the transactions listed, what is the total
value of GDP calculated from the value-added
approach?
A. $ 6,075 B. $ 4,500 C. $ 3,000 D. $ 1,425
15. Assuming no other changes, if checkable deposits
decrease by $40 billion and balances in money market
mutual funds increase by $40 billion, the
A. M1 money supply will decline and the M2 money
supply will remain unchanged.
B. M1 and M2 money supplies will not change.
C. M1 money supply will increase and the M2 money
supply will remain unchanged.
D. M1 and M2 money supplies will both decline.
16. Suppose a commercial banking system has
$100,000 of outstanding checkable deposits and
actual reserves of $35,000. If the reserve ratio is 20
percent, the banking system can expand the supply of
money by the maximum amount of
A. $122,000 B. $175,000 18. Alex works in his own home as a homemaker and
C. $300,000 D. $75,000 full-time caretaker of his children. Officially, he is
17. Assume that there is a 25 percent reserve ratio A. unemployed. B. employed.
and that the Federal Reserve buys $300 million worth C. not in the labour force. D. in the labour force.
of government securities. If the securities are 19. Inflation initiated by increases in wages or other
purchased from the public, then this action has the resource prices is labeled
potential to increase bank lending by a maximum of A. demand-pull inflation. B. demand-push inflation.
A. $900 million, but by $1200 million if the securities C. cost-push inflation. D. cost-pull inflation.
are purchased directly from commercial banks.
20. Kara voluntarily quit her job as an insurance
B. $900 million, and also by $900 million if the
agent to return to school full time to earn an MBA
securities are purchased directly from commercial
degree. With degree in hand, she is now searching for
banks.
a position in management. Kara presently is
C. $1200 million, and also by $1200 million if the
A. cyclically unemployed. B. structurally
securities are purchased directly from commercial
unemployed. C. frictionally unemployed. D. out of
banks.
the labour force.
D. $1200 million, but only by $900 million if the
securities are purchased directly from commercial
banks.

II. The following table presents some data (in millions $) for a hypothetical economy which is producing in full
employment. (16 points)
Price level (%) GDPr GDPr Unemplyment
Demanded Supplied Rate (%)
11 3000 9000 2
10 4000 8000 4
9 5000 7000 6
8 6000 6000 8
7 7000 5000 10
6 8000 4000 12

a. Graph and analyze the macroeconomic equilibrium. Graph SRPC and LRPC based on macroeconomic
equilibrium.
b. To cover part of the budget deficit, the state increases personal taxes. For each given price level, GDPr changed
by 2000 units. Determine the new macroeconomic equilibrium. How this situation is reflected in the SRPC and
LRPC curves?
c. Expected inflation rises to 9%. For each given price level, GDPr changed by 1000 units. Determine the new
macroeconomic equilibrium. How this situation is reflected in the SRPC and LRPC curves?
d. OPEC countries significantly increased oil production, resulting in lower energy costs. For each given price level,
GDPr changed by 2000 units. Determine the new macroeconomic equilibrium. How this situation is reflected in
the SRPC and LRPC curves?
e. As a result of the financial crisis, the country's economy experiences a downturn. For each given price level,
GDPr changed by 1000 units. Determine the new macroeconomic equilibrium. How this situation is reflected in
the SRPC and LRPC curves?

III. “Alfa” is engaged in wheat production and represents one of the 100 companies operating in the market. The
graphs below show the behavior of firms and consumers in the market, as well as the costs of the "Alfa"

P S P ATC
60 60 MC
55
50 50
40 AVC
40
35
30 30
20 20
10 D 10

Q Q
2000 3000 4000 5000 6000 7000 20 30 40 50 60 70
a. Determine analytically and graphically the price and quantity for which “Alfa” is maximizing its profit.(3 points)
b. Calculate profit by using two approches. Describe the economic situation in which the firm is operated and make
recommendations? ( 5 points)
c. When does the law of diminishing return begin to operate? Why? (3 points)
d. Due to losses, 40 firms abandon wheat production and for each given price level the quantity offered changed by
2000 units. Analyze the price and quantity for which the firm is maximizing its profit. At what period is the firm
operating? (5 points)
e. Based on the initial data (question a., government imposes a tax $10 / unit. What happens to the market price
after the tax is levied? Who pays the tax and why? How will the tax affect the maximizing profit quantity and
profit of Alpha? (4 points)

IV. Supose that we have this information (data in millions $) for a private closed economy:
I, S
S
180

140 I

Y/ GDPr
500

-20

a. Is the economy in equilibrium for the level of income 500? Calculate the value of unplanned investment and make
recommendations. (3 points)
b. Derive the function for consumption (related to dispsable income). Is there any change between MPCy and MPCyd?
(3 points)
c. What is the equilibrium level of income? (2 points)
Suppose that country moves from a private closed economy to an expanded closed economy and now we
have that T = 0.2Y and G= 100
d. How will this change affect the consumption function? (3 points)
e. What is the new equilibrium level of income? (3 points)
f. Suppose that the government decide to increase salaries in public sector. This will change government
expenditures by ΔG= 30. What is the new equilibrium level of income? (4 points)
g. If GDPp = 850, how should be the change in taxes in order to reach it? (3 points)
h. If the budget was initially balanced. How will the above two changes (f/g) affect the budget? (2 points)

Time: 2 Hours
Results: 21.02.2020 Time:15.00