NAME _____________________________
Peking University
Principles of Economics
Spring 2024
Dr. Jin Qin
Final Exam Practice
Instructions:
1. Print your name on both the answer sheet and the examination.
2. This examination consists of 30 multiple-choice questions with each one worth 1 point and 4
short-answer questions for 70 points, 100 points total. Make sure you have a complete
examination.
3. Please write down all your answers on the answer sheet. Answers written on the question sheet
will NOT be graded.
4. The space provided on the answer sheet should be sufficient for your answer. If you need
additional space, attach a blank paper.
5. Please write neatly. If I cannot read an answer, you will receive no credit for it.
6. Show enough of your work so that I can tell how you arrived at the answer. You will receive credit
for sound reasoning. Partial credit will be awarded wherever I deem there is sufficient justification.
7. When drawing graphs, make sure to label everything, including the axes. It is not particularly
important to draw your graphs with perfect precision.
8. If you have difficulties with a question, skip it and move on...once you come back to the troubling
question, you may find that other questions have triggered some new thought patterns.
9. When you complete the examination, return both the answer sheet and this question sheet.
10. Now, try to relax and do your best...
Honor pledge: I have neither given nor received unauthorized aid on this examination.
Signed ____________________________________________________________________________
Peking University
Dr. Jin Qin
1. The opportunity cost of attending college for a year is measured by
A. the benefit received by the student.
B. the tuition paid for the year.
C. the maximum value of all opportunities forgone by attending college.
D. the total monetary expenditures associated with attending college.
2. The opportunity cost of attending college is likely to be the highest for a high
school graduate who
A. has access to student loans.
B. has been offered $1 million to play baseball instead of attending college.
C. is very intelligent.
D. is unskilled.
3. Fiori is visiting New York City this week and would like to go to the opera. A
ticket to the opera costs $100 and this price reflects the marginal cost of
going to see the opera. Even though he wants to see the opera, Fiori decides
not to go. It follows that
A. the marginal benefit of going to the opera for Fiori must be greater than $100,
assuming that Fiori is rational.
B. Fiori cannot possibly be rational.
C. the marginal benefit of going to the opera for Fiori must be less than $100,
assuming that Fiori is rational.
D. Fiori’s net gain from buying a ticket for the opera is positive.
4. Which of the following can cause the U.S. production possibilities frontier to
shift outward?
A. A reduction in the size of the labor force for the economy.
B. A reallocation of resources this year from the production of medical services
to the production of automobiles.
C. An improvement in manufacturing technology.
D. A reduction in investment.
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Dr. Jin Qin
5. This year the price of personal computers has fallen. Which of the following
could be the cause of the decrease in the price of personal computers?
A. A decrease in consumer income that decreases the demand for computers.
B. An improvement in technology of producing computers that increases the
supply.
C. An increase in the wages paid to workers who produce computers that
decreases the supply of computers.
D. Either A or C.
E. Either A or B.
6. Other things being equal, and assuming an upward-sloping labor supply
curve, an increase in the demand for labor in manufacturing will
A. have no effect on either the equilibrium wage or the equilibrium quantity of
labor in manufacturing.
B. increase the equilibrium wage but decrease the equilibrium quantity of labor
in manufacturing.
C. decrease the equilibrium wage and quantity of labor in manufacturing.
D. increase the equilibrium wage and quantity of labor in manufacturing.
7. Improvements in technology have increased the supply of digital cameras.
Which of the following will occur in the market for this product as a result of
the increase in supply?
A. A decrease in market equilibrium price and an increase in quantity.
B. An increase in market equilibrium price and a decrease in quantity.
C. A decrease in demand.
D. An increase in demand.
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Peking University
Dr. Jin Qin
8. Refer to the figure.
The graph above shows the demand and supply for unskilled workers. The
current minimum wage is $7.25 per hour. Legislation has been proposed to
increase the minimum wage to $12 per hour. Which of the following
statements is true?
A. At the current minimum wage of $7.25 per hour, there is a 2-million-hour
surplus of unskilled labor each week.
B. If the minimum wage is increased to $12 per hour, there will be neither a
shortage nor a surplus of unskilled labor each week.
C. If the minimum wage is increased to $12 per hour, there will be a 2-millionhour surplus of unskilled labor each week.
D. If the minimum wage is increased to $12 per hour, there will be a 2-millionhour shortage of unskilled labor each week.
9. The price of aluminum has fallen by 15% this year. As a result of the price
decline, the quantity of aluminum demanded has increased by 30%. It follows
that
A. the price elasticity of demand for aluminum is −0.5.
B. the price elasticity of demand for aluminum is −2.
C. the demand for aluminum is inelastic.
D. Both A and C.
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Peking University
Dr. Jin Qin
10. Suppose you run a movie theater and want to increase the total revenue you
take in during daytime showings of movies. You can increase your revenue
by
A. lowering the price of tickets if the demand for tickets is elastic.
B. lowering the price of tickets if the demand for tickets is inelastic.
C. lowering the price of tickets if the demand for tickets is unit-elastic.
D. raising the price of tickets if the demand is inelastic.
E. Either A or D.
11. Refer to the table.
Labor
(Number of Workers per Day)
Output
(Number of Surfboards per Day)
1
5
2
11
3
15
4
17
5
19
The table above shows how the output of surfboards varies in a small factory
with the number of workers used per day. Based on these data, the marginal
product of workers in the factory
A. will be the same, no matter how many workers are employed.
B. will start to decline when a third worker is employed.
C. is at a maximum when 5 workers are employed.
D. increases steadily as more workers are employed.
12. In the short-run, a business firm can increase output by
A. increasing the amount of all inputs employed.
B. increasing the amount of variable inputs employed.
C. increasing the amount of fixed inputs employed.
D. reducing the amount of variable inputs employed.
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Peking University
Dr. Jin Qin
13. The ABC Company is currently producing 1,000 computers per month. Fixed
costs of production are $200,000 per month and variable costs are $800,000
per month. It follows that
A. average variable cost is $1,000.
B. average cost is $1,000.
C. average fixed cost is $800.
D. average cost is $800.
14. A competitive firm faces a horizontal demand curve. This implies that the firm
can
A. increase its price without losing sales.
B. sell more units of output only by decreasing its price.
C. sell as much output as it chooses at the going market price.
D. sell all of its output at any price it chooses.
15. Long-run competitive equilibrium implies that
A. all firms in an industry are earning economic profits.
B. all firms in an industry are producing output at the point at which marginal
profit equals marginal cost.
C. There is no incentive for firms to enter or leave an industry.
D. the accounting profits of all firms in a competitive industry are zero.
16. If a profit-maximizing, competitive firm is producing a quantity at which
marginal cost is between average variable cost and average total cost, it will
A. keep producing in the short-run but exit the market in the long-run.
B. shut down in the short-run but return to production in the long-run.
C. shut down in the short-run and exit the market in the long-run.
D. keep producing both in the short-run and in the long-run.
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Peking University
Dr. Jin Qin
17. Refer to the figure.
Given the demand curve and the marginal revenue curve shown in the graph,
which of the following is true?
A. If the industry were served by a profit-maximizing monopoly, the price of dry
cleaning services would be $7 per garment.
B. If the industry were perfectly competitive then the long-run equilibrium price
of dry cleaning services would be $7 per garment.
C. If the market were served by a profit-maximizing monopoly, the price of dry
cleaning services would be $5 per garment.
D. If the industry were perfectly competitive, 10 million garments would be
cleaned each year.
18. Which of the following statements is true?
A. If a market is served by a monopoly that maximizes profit, the price of the
monopoly’s product will equal the marginal cost of making it available.
B. If a market is served by a monopoly that maximizes profit, the price of the
monopoly’s product will exceed the marginal cost of making it available.
C. If a market is served by a perfectly competitive industry, then when the longrun competitive equilibrium is attained, the price of the product will equal the
minimum possible average cost and the marginal cost of making it available.
D. Both B and C.
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Peking University
Dr. Jin Qin
19. Price discrimination by a monopolist refers to charging different prices based
on
A. the consumer’s willingness to pay.
B. the consumer’s racial or ethnic group.
C. the cost of producing the good for a particular consumer.
D. whether the consumer is likely to become a repeat buyer.
20. When a monopolist switches from charging a single price to practicing
perfect price discrimination, it reduces
A. the quantity produced.
B. the firm’s profit.
C. consumer surplus.
D. total surplus.
21. Increases in the amount of human capital in the economy tend to __________
real incomes because they increase the __________ of labor.
A. increase; bargaining power
B. increase; productivity
C. decrease; bargaining power
D. decrease; productivity
22. Japan’s status as a rich nation is attributable to
A. Japan’s quantities of natural resources, but not to international trade.
B. international trade, but not to Japan’s domestic quantities of natural
resources.
C. the fact that Japanese productivity has remained nearly constant for more
than 100 years.
D. the fact that the Japanese have downplayed the role of human capital in
economic growth.
23. In the long-run, the unemployment rate equals
A. the sum of the structural and natural rate of unemployment.
B. the difference between frictional and structural unemployment.
C. the economic rate of unemployment.
D. the natural rate of unemployment.
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Dr. Jin Qin
24. Fiori is taking a three month leave from work to travel across Europe. Fiori is
counted as
A. unemployed and in the labor force.
B. employed and in the labor force.
C. a discouraged worker.
D. None of the above.
25. Suppose that some country had an adult population of about 59 million, a
labor-force participation rate of 72.9 percent, and an unemployment rate of
2.3 percent. How many people were employed?
A. 1 million.
B. 42 million.
C. 59 million.
D. 137.2 million.
26. If an unemployed person quits looking for work, then, eventually the
unemployment rate
A. decreases, and the labor-force participation rate is unaffected.
B. and the labor-force participation rate both decrease.
C. is unaffected, and the labor-force participation rate decreases.
D. and the labor-force participation rate are both unaffected.
27. Fiori has graduated from college and is devoting his time to searching for a
job. He has seen plenty of openings but has not yet been offered one that
best suits his tastes and skills. Fiori is
A. structurally unemployed. Structural unemployment exists even in the longrun.
B. structurally unemployed. There is no structural unemployment in the longrun.
C. frictionally unemployed. Frictional unemployment can exist even in the longrun.
D. frictionally unemployed. There is no frictional unemployment in the long-run.
28. When a union bargains successfully with employers, in that industry,
A. both wages and unemployment increase.
B. wages increase and unemployment decreases.
C. wages decrease and unemployment increases.
D. both wages and unemployment decrease.
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Dr. Jin Qin
29. Which of the following is an example of an efficiency wage?
A. A wage below the minimum wage but supplemented by customer tips.
B. An above-equilibrium wage offered by a firm to attract a more talented pool of
job applicants.
C. A high wage paid to a college graduate for a high-skill job such as electrical
engineering.
D. A high wage paid to compensate for dangerous work such as coal mining.
30. When the economy goes into a recession, real GDP _______________ and
unemployment ________________.
A. rises; rises.
B. rises; falls.
C. falls; rises.
D. falls; falls.
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Peking University
Dr. Jin Qin
31. (20 Points)
1) What is the law of diminishing marginal returns? Why does it apply only in
the short-run?
2) Graph a figure to show how the output changes with one input in the
short-run, label all the curves and critical points, and explain the patterns
of the figure in detail.
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Peking University
Dr. Jin Qin
32. (20 Points) Myran operates a firm that produces brownies in a perfectly
competitive market. In the short-run, his minimum average cost of production
is $15 at an output level of 130 tons of brownies, while his minimum average
variable cost is $5 at an output level of 100 tons.
1) Graph a figure to show how the short-run supply curve is determined by
the cost of production. Label all the critical points.
2) Is this supply curve equivalent to the entire marginal cost curve? Explain
in detail.
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Peking University
Dr. Jin Qin
33. (15 Points) The production of Fiori is monopolized by Mr. Brown, and the
product must be sold at a fixed price set by the government. Suppose that
the only cost incurred to produce Fiori is the wages paid to workers, and that
all workers who would like to produce Fiori could only be employed by
Mr. Brown. In addition, Mr. Brown can decide the wages paid to workers
based on the principle that each worker should be paid the same wage.
1) Please graph one figure to show the following curves, with labor on the
horizontal axis and price on the vertical axis.
a) The supply in the labor market.
b) The marginal cost of Mr. Brown for hiring workers.
c) The marginal revenue of Mr. Brown for hiring workers.
d) The average revenue of Mr. Brown for hiring workers.
2) Assume that Mr. Brown maximizes profits. In the figure, label the profit of
Mr. Brown and the deadweight loss in the labor market.
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Peking University
Dr. Jin Qin
34. (15 Points) Suppose that you are the mayor of the Principle City, and that you
are collecting information about the externalities of brownies. Thompson,
who owns the largest brownie factory in the city, puts forward a proposal that
they deserve a subsidy since the city is now famous for brownies, while Fiori,
a well-known big-name scientist working for the Healthfood Company,
suggests that brownies could result in a higher risk of diabetes and thus, a
tax should be levied on the production of brownies. You do not know who is
honest and would like to minimize the sum of the total deadweight losses for
the two situations. Assume that the suggested per unit tax and subsidy are
equal in magnitude. Graph a figure to show the demand, supply, and social
cost curves for the two viewpoints. Do you favor any of the policies? Which
policy do you advocate? Explain in detail.
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