Solution to Midterm -- Micro Principles F2007

★★★★ Detailed Solution to Midterm Examination (International Business, WUCL) ★★★★
Fall 2007 Instructor: 衛忠欣 (Jong-Shin Wei)
個體經濟學原理(Principles of Microeconomics) (07)342-6031 ext.6222
93001@mail.wtuc.edu.tw http://www.wtuc.edu.tw/ib

November 12, 2007
Open books/notes exam. 110 points in 70 minutes; absolutely no talking nor borrowing items during exams. 可使用自己的資料、字典或翻譯機。行動電話若響起，該生扣十分、以強調基本禮貌。3:10 pm ~ 4:20 pm, Monday, November 12, 2007. Watch your time and good luck! 務必工整扼要、依序作答。Watch your time and have fun!
Part One: Multiple choice questions. [By multiple choice in an English-speaking academic environment, we mean that you must choose the most appropriate one from 4 alternatives. I did encounter some less intelligent folks who confused it with “複選題”. 依慣例，答錯不倒扣！平均每題不該超過2分鐘。] 80 points
1. A society consists of three people: Ann, Becky, and Cindy. Ann prefers apple to orange; prefers orange to banana. Becky prefers apple to banana; prefers banana to orange. Cindy has no preferences over those fruits but just wants to see Ann be happy. Suppose that Ann has one orange and nothing else; Becky has one banana and nothing else; Cindy has one apple and nothing else. We call it the initial endowment or the status quo (at autarky). Fruits can be traded among them but are indivisible (不可切割細分).
(A) The initial endowment is Pareto efficient;
(B) Ann and Becky will trade and the term of trade is one;
(C) Becky and Cindy will trade and the term of trade is one;
(D) None of the above is true.
Ans: C. [To see why (A) is false, letting Ann and Cindy trade, leading to a Pareto efficient allocation. Since Cindy is indifferent while Becky prefers apple to banana, when it comes to the bilateral trade, we know that Cindy and Becky can make the trade. Since one unit of good is exchanged for one unit of another good, the term of trade is, of course, one.]
2. [continued from question 1] Which one of the following (allocation分配) is Pareto efficient?
(A) Ann has one orange, Becky has one apple and Cindy has one banana;
(B) Ann has one apple, Becky has one orange and Cindy has one banana;
(C) Ann has one banana, Becky has one orange and Cindy has one apple;
(D) Ann has one banana, Becky has one apple and Cindy has one orange.
Ans: A. [Straightforward. 教師的題庫 (test bank) 是不會有這種靈活題目的。]
3. We can say that the society enhances efficiency at the cost of equity if
(A)重視國防、犧牲民生；
(B)不讓「對候選人不了解的選民」行使投票權；
(C)不讓油價上漲；
(D)推動公投。
Ans: B. [Obvious.]
4. We can say that the society enhances equity at the cost of efficiency if
(A)針對單身貴族課重稅、補貼低所得家庭之育嬰開支；
(B)重點補助研究型大學、淘汰區域性教學型大學；
(C)立法要求所有新車車主需有停車位證明；
(D)學校明文要求「每門課至少五分之一同學成績不及格」。
Ans: A. [Obvious.]
5. Suppose that you like to see movies and you also do not want to waste time while waiting to get into the theater. At 7 pm you arrive at the theater’s ticket counter (or window). Movie #1 will start at 7:30 pm; movie #2 will start at 7:30 pm; movie #3 will start at 8:00 pm. All movies have the same admission charge. Assume that you like movie #3 most while movie #1 is at the bottom of your priority list. If you finally decide to see movie #2, then the opportunity cost of doing so is
(A) the value of movie #3;
(B) the value of movie #3 minus (the utility derived from) the 30-minute waiting time saved;
(C) the value of movie #1 plus the value of movie #3
(D) the value of saving 30 minutes in waiting.
*Ans: B. [pp.5-6, text]
*6. Suppose that you like to see movies and you also do not want to waste time while waiting to get into the theater. At 7 pm you arrive at the theater’s ticket counter (or window). Movie #1 will start at 7:30 pm; movie #2 will start at 7:30 pm; movie #3 will start at 8:00 pm. All movies have the same admission charge. Assume that you like movie #3 most while movie #1 is at the bottom of your priority list.
(A) You will definitely choose to see movie #1;
(B) You will definitely not see movie #1;
(C) You will definitely choose to see movie #3;
(D) You will definitely choose to see movie #2.
Ans: B. [Notice that a rational consumer will reject movie #1 in light of the choice of movie #2. Can you figure out the opportunity cost of seeing movie #3?]
7. Examples of not thinking at the margin include:
(A) You saw NTD100 bill (紙鈔) on the sand beach before dark and did not pick it up;
(B) Explaining why water is much cheaper than diamond;
(C)教室若有空座位，學校要求教師不得拒絕增加學生；
(D)一家人買數種麥當勞套餐，然後各取所需。
Ans: A. [pp.6-7, text. 週六球場的20元無主硬幣，是(A)的靈感。]
8. Examples of people responding to incentives do not include:
(A) College professors should not announce the “all pass” policy;
(B) Average and above-average students tend to study more seriously for open book exams;
(C) I intentionally made you have some time pressure on this exam;
(D)認真填答文藻週的國際企業畢業專題展之問卷。
Ans: D. [Obvious.]
9. When economists study the short-run effects of some policy, they often assume that
(A) quantities are fixed;
(B) prices are fixed;
(C) labor inputs are fixed;
(D) people have no time to respond rationally.
Ans: B. [p.21, text]
10. Which of the following is not related to the notion of production possibility frontier?
(A) efficiency;
(B) technology constraints;
(C) scarce resources;
(D) Pareto efficiency.
Ans: D. [pp.24-26, text]
11. According to the bowed shaped (or negatively-sloped concave-shaped) production possibility frontier in your text, for an economy producing good X and Y, at larger x (i.e., the amount of good X produced),
(A) the opportunity cost for the society in producing X is higher;
(B) the opportunity cost for the society in producing X is lower;
(C) the opportunity cost for the society in producing Y is higher;
(D) the opportunity costs of producing X and Y are equal.
Ans: A. [p.25, text]
12. According to the production possibility frontier presented during lectures (concerning agents Frank and Robert), for an economy producing good X and Y, at larger x (i.e., the amount of good X produced),
(A) the opportunity cost for the society in producing X is higher;
(B) the opportunity cost for the society in producing X is lower;
(C) the opportunity costs of producing X and Y are equal;
(D) None of the above is correct.
Ans: D. [The PPF is linear in this case.]
13. This question does nothing but test whether you did read the textbook. Which person of the following did not major in economics at college?
(A) Arnold Schwarzenegger (the Governor of California);
(B) Mick Jagger (singer for the Rolling Stones);
(C) Condoleezza Rice (U.S. Secretary of State);
(D) Cate Blanchett (actress).
Ans: C. [Dr. C. Rice majored in political science. See p.27, text.]
14. The proposition that relatively more economists in a survey disagreed is
(A)租金管制會降低租屋的數量與品質；
(B)制定最低工資會增加年輕人的失業；
(C)實施進口關稅會減少本國福利；
(D)政府不應在(會計)年度內要求預算平衡。
Ans: B. [See p.34, text. You will find that 93% (approval) for A; 79% for B; 93% for C; 85% for D.]
15. Mr. Robert D. McTeer, Jr., the former president of the Federal Reserve Bank of Dallas wrote an article for the Wall Street Journal in 2003. His point regarding the so-called “broken window fallacy” is similar to
(A)制定最低工資會增加就業率；
(B) 921大地震有助於振興總體需求；
(C)修讀經濟學無助於政策的制定；
(D)最聰明的學生應該就讀醫科。
Ans: B. [See p.35, text. Test your reading comprehension.]
16. Suppose that there are only two consumers, A and B, in the market whose market demand curve is given by P + 2Q = 10. Assume that A demands 2 units of that good when the price is 5; demands 3 units when the price is 4.
(A) The demand of B for that good fails to satisfy the law of demand;
(B) The market demand for that good fails to satisfy the law of demand;
(C) At price 5, B will demand nothing;
(D) At price 6, A will demand nothing.
Ans: A. [At price 5, A will demand 2 units while B will demand 0.5 [= (10 - 5)/2 - 2] unit. At price 4, A will demand 3 units while B will demand nothing. See p.67, text. Key: the reverse of horizontal aggregation or summation.]
17. Let the market supply of soy bean (黃豆) be P - Q = 10. Suppose that the price of crude oil suddenly goes up,
(A) the demand for soy bean will fall;
(B) the demand for soy bean will rise;
(C) the supply of soy bean may become P - Q = 12;
(D) the supply of soy bean may become P - Q = 8.
Ans: C. [Crude oil price increases, increasing the transportation cost, hence making the supply curve of soy bean shift upward.]
18. Let the market supply of soy bean (黃豆) be P - Q = 10. Let the market demand for soy bean be 0.5P + Q = 10. At market equilibrium,
(A) the price is 12;
(B) the quantity is 10;
(C) the price is 15;
(D) None of the above is correct.
Ans: D. [By P - 10 = 10 - 0.5P we solve for P* = 40/3, hence Q* = 10/3.]
19. [continued from question 18] Suppose that crude oil price rose suddenly and that consumers were so panic that many bought more soy beans than what they usually do and stored them at home. As a result, the government officials might observe that
(A) a fall in equilibrium price but a rise in equilibrium quantity;
(B) a fall in equilibrium price and also a fall in equilibrium quantity;
(C) a rise in equilibrium price but a fall in equilibrium quantity;
(D) the same equilibrium price but a fall in equilibrium quantity.
Ans: C. [Shifting up both the supply curve and the demand curve leads to three possible outcomes: higher P* and higher Q*; higher P* and lower Q*; higher P* but Q* being unchanged.]
20. [continued from question 18] Suppose that both the equilibrium price and the equilibrium quantity fall. What might be the reason on the demand side for it?
(A) The price of milk rises dramatically;
(B) The price of milk falls dramatically;
(C) The price of crude oil rises dramatically;
(D) A recent scientific finding proves that soy beans are good for preventing cancers.
Ans: B. [When the price of milk falls dramatically, people consume more milk and less soy bean milk, hence we can see a decrease in the demand for soy bean.]

Part Two: Analytical or short-essay questions. [注意字體工整、邏輯順暢與不要出現錯別字或注音(與火星文)！如果字跡難以辨認，視同未答。畫蛇添足、答非所問、不知所云、自曝其短，將不利得分。教師也有權公告具有特色之作答。] 30 points
21. [10 points]
Suppose that each agent has 4 hours to spend on the production of goods X and Y, whose quantities are denoted by x and y respectively. The PPF (productivity possibility frontier) of agent A is given by x/4 + y = 4; the PPF of agent B is given by x + y/4 = 4.
(a) For producing one unit of good X, how many hours does A need to spend?
Ans: By x/4 + y = 4 we see that it takes A 1/4 hour (or 15 minutes) to produce 1 unit of good X.
(b) Before the trade takes place, suppose that each agent concentrates on the
production of the good which she has the comparative advantage in producing. After production is realized, allow both agents to trade. Carefully use a diagram to illustrate what the range (範圍) of the relative price of good one is.
Ans: A has the comparative advantage in producing good X and B has the comparative advantage in producing good Y. At the full specification scenario, the production plan for A is (16, 0), the production plan for B is (0, 16). When we open up the trade, the relative (world) price of good one will be somewhere between 1/4 and 4, making both agents better off (as compared with autarky). When I grade the exam papers, I am expecting to see lines x/4 + y = 4 and x + y/4 = 4 precisely drawn on the x-y plane. Of course, (16, 0) and (0, 16) ought to be highlighted.
Note: Also see the Solution to Midterm Exam, Summer 2007.

22. [16 points]
宗輔中心的一份刊物寫道：「學生要的不是好老師，而是對他(她)好的老師。」
(i) From the point of information asymmetry, explain why this statement makes sense.
Ans: Good professors serve the university, not individual students, best. For a student, if his/her professor is nice to him/her in a conceivable way, of course, he/she might be happy to live with that. Why cannot professors strive for being kind to all students? The opportunity costs of doing so is simply too high for us to bear.

(ii)就經濟學的觀點，學校該如何確定學生認真填答教學評量？如何找出真正的好老師，而不是「對學生好的老師」？
*Ans: Generally speaking, students have little incentive to seriously answer those questionnaires. Cannot blame them as they barely have any idea about what this task is for, let alone getting access to those evaluation results. [現在學校辦的大小活動，還有一堆炒冷飯的碩、博士生，也喜歡一窩蜂的要求滿意度問卷，既無填答誘因，也無法保證彙整過程的公信力。我自己也常逆向操作或亂填，測試主事者的智慧。] 教務主管直接了解每位教師是否認真授課，成本確實太高。依賴學生來評量，其重要性不可否認。因為「教師音量大小」、「教師是否上課遲到」、「教師是否親自監考」，這一類的正確資訊，教務單位很容易取得。只要在問卷上，分散置入此類問題，再對照真實資訊，系統即可篩選掉「情緒性、報復性的填答者」。當然，有作為的資教或電算中心，還可以藉由系統設計，追蹤每位學生在每門課的期中考成績、給教師的評量、期末考成績。分析學生在不同年級(time series)、不同課程(cross section)、系列課程之學習情況與主觀感受。學生如果知道有此機制，應該會較認真填答。耳朵靈光的資深教師，不難有以下的經驗：一位同學每學期都會向不同老師私下表示，這是我遇到最難的課！This is the toughest course I have ever had! 如何找出真正的好老師？除非落實教學實況的透明化、學校能夠區分用功的學生的回饋與打混的學生之意見，由教師的研究績效(假外界專家之手，即同儕評鑑)來評比，也算是次佳解之一吧。
Note: Here is another example of screening: 利用 questions 13 thru 15，我可以找出那些同學，能夠有效地閱讀英文版教科書。

(iii)學校為何不直接公告每位專、兼任教師的教學評量，來幫助學生辨識真正的好老師？
Ans: 頭腦清楚的學校主事者，應該知道無法確保學生認真填答，所以不能單以教學評量，來排序教師的教學表現、甚至開鍘。但是，為了應付(或配合)家長的要求、立委的指責、輿論的關愛，不得不行禮如儀，還要依此辦理優良教師選拔等活動。更諷刺的是，主事者以尊重隱私為由，讓學生完全不知評量結果，當然缺乏認真填寫的誘因。主管教務者，與教師們正處於一種「策略性模糊」的均衡狀態。如果直接公告每位專、兼任教師的教學評量，勢必將喚醒不少獅虎，擴大教師對「評量教學績效」之檢討呼聲。當然，教師以easy grade『換取』較佳的評量分數、爭取選課人數，此類問題，勢必會擴散、加深。
[Any resolution? 如果大多數教師，直接把自己的教學評量，大剌剌地張貼於網頁，會有何衝擊效應呢？]

(iv)行政院院長為何不依據媒體或國會所製的施政滿意度，針對各部會首長，實施「退場機制」呢？
Ans: Recall the trade-off between efficiency and equity in text. 正如學校不可能以教學評量分數的高低，發給教師薪資。各部會的職掌不同，放在一面放大鏡下檢視，確實不公平。[否則，教育部長早就換人啦。啟示：不要老是把「退場機制」掛在嘴邊！]
[Hint: Think like an economist.]

23. [4 points]
假設我遇到一位不太熟的朋友，請她順道幫我繳電話費900元。轉念之間，我該如何迅速地確保她會真的如期代繳呢？
Ans: Just take out a 1,000 dollar paper bill and tear it into two pieces. [Recall lectures.] Give her one piece and tell her that when I see the receipt she will have the other piece. Hence, if she keeps her words, she will earn 100 dollars as a token showing my appreciation. [But what if she does not come back (and obviously she won’t go to the cashier)? Well, in that case, I will lose 1,000 dollars (plus getting the late payment penalty) while she just misses the chance of earning 100 dollars. If I want to feel safe, I might ask her to leave me with some money now.]

(放棄智慧財產權；歡迎全貌下載流傳。)