Sunday, May 02, 2010

Detailed Solution to Midterm Examination, Macro Principles, Spring 2010

★★★★ Detailed Solution to Midterm Examination (Int’l Business, WUCL) ★★★★
Spring 2010 Instructor: 衛忠欣 (Jong-Shin Wei)
經濟學(二) (Principles of Macroeconomics) (07)342-6031 ext.6222

3:30 pm ~ 4:50 pm, April 26, 2010
Open books/notes exam. Max: 111 points in 80 minutes; absolutely no talking nor borrowing items during exams.,可使用自己的資料、字典或翻譯機。字典或翻譯機之使用,限在前30分鐘之內。行動電話若響起,該生扣十分、以強調基本禮貌。務必工整依序作答。題目較多,目的在於測試是否有平日閱讀原文書之習慣。Watch your time and have fun!
Part One: 30 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. 依慣例,答錯不倒扣!] 75 points

1.The measure of GDP can take into account of efforts in
(A) protecting environment;
(B) creating more jobs domestically;
(C) slowing down the rate of resource depletion;
(D) fighting with the cocaine trafficking.
Ans: B. [See p.322, text]

2.It is fair to say that while measuring the aggregate output, we put more weight on
(A) services provided by the government sector;
(B) goods produced by the production sectors;
(C) black market activities;
(D) high-priced goods and services.
Ans: D. [See p.323, text]

3.Henry is a writer who married June, who stays home doing unpaid housework and child care duties. If June chooses to work at a law firm while paying someone to do the housework and child care, in the spirit of GDP computation, we shall say
(A) there will be an increase in GDP but it is over-stating;
(B) there will be an increase in GDP but it is under-stating;
(C) there will be a decrease in GDP but it is over-stating;
(D) there will be a decrease in GDP but it is under-stating.
Ans: A. [See p.324, text]

4.It is very common in Taiwan that grand parents help with child care when both parents go to work full-time. In light of this and in comparison with what happens in USA, we shall say that the GDP in Taiwan seems to
(A) be over-estimated;
(B) be under-estimated;
(C) take into consideration of the quality of child care;
(D) fall due to the low birth rate.
Ans: B. [See p.324, text]

5.Education provided by public schools
(A) is not sold in markets;
(B) is not included in GDP because that it only helps with the quality;
(C) is not included in GDP because that we cannot find the market price for it;
(D) None of the above is correct.
Ans: A. [See p.325, text]

6.(基本時事題) Choose the correct statement.
Ans: A.

7.(基本時事題) 依據行政院主計處,我國的經濟成長率,係
*Ans: A. [Test if you follow information given on internet.]

8.A paid B $900 for baby-sitting last night. Today B spent $800 to have her hairs cut. For each hair cut, the assistant got paid (by the owner of the hair salon or gallery) in the amount of $100 (for washing hairs etc.) When we compute GDP, it is meaningful to
(A) view 900 + 800 + 100 as the increase in income;
(B) view 900 + 800 as the increase in expenditure;
(C) view 900 + 100 as the increase in income;
(D) view 900 + 700 as the increase in income.
*Ans: B. [See pp.325-6, text]

(A) 100,000;
(B) 90,000;
(C) 50,000;
(D) None of the above.
*Ans: C. [張三收成的葡萄,市值為$100,000。50,000 + 40,000 = 90,000. 私酒是在黑市交易,不能計入。See p.326, text]

10.(Learn economics from watching movies.) In the movie Cast Away (浩劫重生), Tom Hanks lived in an island alone for years. During that period, if we view that island as an economy, her GDP
(A) is zero because that Tom was lazy;
(B) is zero because that there was no market;
(C) is zero because that Tom’s time had no value;
(D) is not zero because that Tom worked hard to survive.
Ans: B.

11.John paid $4,000,000 for a new apartment in 2000. He sold that apartment for $2,600,000 in 2010. The real estate agent earned $160,000 in this transaction (from the seller and the buyer, of course). Regarding John’s transaction in 2010, the contribution to GDP is
(A) 4,000,000 - 2,600,000 - 160,000;
(B) 4,000,000 - 2,600,000 + 160,000;
(C) 2,600,000 + 160,000;
(D) None of the above.
Ans: D. [It is 160,000. See p.328, text]

(A)Carter administration proposed to use gasoline tax to reduce the USA dependence on foreign oil;
(B)Increasing unit tax on cigarettes to discourage smoking;
Ans: C. [trivial; lectures]

13.The main reason for implementing the mandatory immunization laws is
(A) The situation at which all were vaccinated is Pareto efficient;
(B) It helps increase government’s revenues;
(C) Evidence (such as what happened in the Boulder County of Colorado) shows that self-insurance works better;
(D) The best outcome to me is that I remain unvaccinated while all other people were vaccinated.
Ans: D. [pp.298-9, text]

14.Recall the green vs. red experiment (also see the extra credit question at the end of this exam paper). Relating it to the HINI immunization event last year, we see that
Ans: A. [lectures; pp.298-9, text]

15.Which statement is true regarding the health care costs in USA?
(A)They account for 20 percent of national income in 1940;
(B)They account for 40 percent of national income in 2009;
(C)Main reasons for the sharp increase from 1940 to 2009 are inflation and sophisticated high-tech developments;
(D)The main reason for the sharp increase from 1940 to 2009 is the emergence of the third-party payment system.
Ans: D. [lectures; p.299, text]

16.Government-financed medical insurance
(D)是一種third-party payment system。
Ans: D. [See p.299, text]

17.Andy just had a minor surgeon. His demand for hospital stay (measured in days) is given by P + 50Q = 300. Hospital room charge is $200 per day. Without the insurance covering his hospital stay, how many days will Andy stay in the hospital?
(A) 1 day;
(B) 2 days;
(C) 3 days;
(D) None of the above.
Ans: B. [p.300, text. From P = 200 and P + 50Q = 300 we get Q = 2.]

18.[continued from question 17] If Andy’s hospital stay is fully covered by insurance, then how many days will Andy stay in the hospital?
(A) 2 days;
(B) 3 days;
(C) 6 days;
(D) None of the above.
Ans: C. [Andy is maximizing his consumer’s surplus by choosing Q = 6.]

19.[continued from question 18] Andy’s consumer surplus is
(A) 1800;
(B) 1200;
(C) 600;
(D) None of the above
Ans: D. [It is (300)(6)/2 = 900.]

20.[continued from question 18] Compare question 18 with question 17. Andy’s medical insurance causes a loss in medical care resources measured by “room charges due to extended stay minus Andy’s extra benefit”, which is
(A) 400;
(B) 300;
(C) 200;
(D) 600.
Ans: A. [It is 4(200)/2 = 400; see p.301, text]

*21.[continued from question 20] Suppose that the insurance provider offers Andy an option: He can get $x in cash, but he must pay the room charges, and the length of his hospital stay is exactly the answer to question 17. If both the insurance provider and Andy become better off when Andy agrees to that option, what would be the number x?
(A) 1300;
(B) 700;
(C) 800;
(D) 900.
Ans: D. [Andy finds it attractive due to 900 - 400 = 500 > 400. The insurance provider finds it attractive due to 900 < (200)(6). See p.301, text]

22.[continued from question 21] What happens to the hospital’s revenue?
(A) It increases by 800;
(B) It decreases by 800;
(C) It decreases by 600;
(D) None of the above.
Ans: B. [(200)(6) – (200)(2) = 800. Recall lectures]

23.Examples of in-kind transfers in Taiwan include
Ans: D. [Notice that消費券 is quite different from food stamps in USA.]

24.It is 3 pm on Monday and you are a piano tutor who is teaching kids piano at your apartment. A carpenter is doing heavy work at your next-door neighbor’s apartment. The noise he is making forces you to stop your teaching. You both understand that you earn money by tutoring while he makes a living by working as a carpenter. Suppose that you both can negotiate at no cost and you both know what Coase theorem is all about. [Lucky you both!] If both agree that everyone is entitled to the environment without noise, then
(A) you should pay him and ask him to do his job at another time and this arrangement will make both better off;
(B) he should pay you and ask you to reschedule your session and this arrangement will make both better off;
(C) he must stop working in order to avoid the law suit;
(D) whoever pays another person to reschedule will be worse off.
Ans: B. [See p.273, text]

25.[continued from question 24] If both agree that doing house remodeling work is allowed during a weekday afternoon, then
(A) you should pay him and ask him to do his job at another time and this arrangement will make both better off;
(B) he should pay you and ask you to reschedule your session and this arrangement will make both better off;
(C) the best you can do is to reschedule your session and ask for nothing;
(D) whoever pays another person to reschedule will be worse off.
Ans: A. [See p.273, text]

26. (與新聞相關的活用題)前一陣子,中國大陸某地方首長來台。該天夜晚台北101大樓突然燈火通明。有一些反對人士大罵浪費、不環保、抱大腿。被罵的一方,則找了一些有些牽強的理由來搪塞。其實,被罵的一方可以搬出經濟學原理,來進行有效的辯護,那就是
(A) We live in a world full of informational asymmetry;
(B) Turning on those lights can prevent missiles attack from China in a cost-effective way;
(C) The government can subsidize private property owners to plant trees or to turn on all those lights to generate positive externalities;
(D) Since those lights are public goods, meaning that everyone can benefit at no cost.
Ans: C. [Make sure you know why (D) is not a good choice.]

27. Being an economic naturalist might help you with your social life. Adam and Eve are dating. Suddenly they have a big fight and that makes both thirsty. “Let us drink something and we will split once we finish the drink,” agreed by both. They face two choices: (1) each has a cup (250 cc) of coke; (2) both share a cup (500 cc) of coke (of course, each has a straw).
(A) If they want to make the date last longer, they should go for (1);
(B) If they want to make the date last longer, they should go for (2);
(C) No difference between (1) and (2)
(D) The waiter might prefer (1) to (2).
Ans: B. [See p.283, text]

28. Example of avoiding or resolving the tragedy of the commons do not include
(A) 國人習於構築籬笆或矮牆,圍成私人庭院;
(B) 讓師生領養校園花木;
(C) 持續開放系辦公室空間但是嚴密喧譁、小睡或進食;
(D) 對社區網球場收取使用費。
Ans: D. [See p.281, text]

29. Examples of excludable but not rival consumptions do not include
(A) fire protection;
(B) driving on a toll road at 5 am;
(C) driving on Highway 88 at 5 am;
(D) watching movies on HBO channel.
Ans: C. [Recall lectures]

30. The office of the department of international business administration is where students can spend some time during the class break. If you, having learned economics principles and heard about the vision from some faculty members, are asked to name that place, which name will you pick most likely?
(A) Tiger’s Paradise;
(B) Toyota’s Resort;
(C) Freedom’s Corner;
(D) International Commons.
Ans: D. [Think about the common resources. No need to explain how the adjective ‘international’ is conceived.]

Part Two: Analytical 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
31. There are three industrial firms in the Dark Age Valley, A, B, and C. The initial pollution level for A is 50 units; for B is 80 units; for C is 70 units. Under the current technology, the cost of reducing pollution by one unit is $20 for A; $30 for B; $10 for C. At present, the government gives each firm 50 tradable pollution permits.
Firm A proposes to sell 10 units of permits to firm B; firm C proposes to sell 20 units of permits to B. The price of tradable permit is (agreed to be) 25. Carefully explain, with data, why all three firms will benefit from trading pollution permits in this way. Which firm benefits most? Which firm benefits least?
For A, (25)(10) - (20)(10) = 50, greater than 0. Note 50 - 0 = 50.
For C, (25)(20) - (10)(40) = 100, greater than -200. Note 100 - (-200) = 300.
For B, -(25)(30) = -750, greater than -900. Note -750 - (900) = 150.
Since (1) the total pollution level is still kept at 150 and (2) all three firms prefer participating in this trade (and the follow-up) to no-trade , we can call it Pareto-improving.
By 300 > 150 > 50, we see that C benefits most, followed by B.

32. Recall the materials I showed during lectures regarding比中指事件。How can we relate it to the teaching/learning of externalities? Be specific and organized. 偏離主題必後悔。
Ans: The intention (of the Office of Students Affairs) of using that incident to remind students of the importance of appropriate conduct and image issue is understandable, if not well received or highly appreciated. However, leaving the issue of violating traffic regulations unattended, ignoring the possibility that the woman in photos might be in the process of making some video/photo for homework assignment, failing to note that we are obliged to publicly announce that “Smile, you are on hidden camera” before we video-tape them, and publicizing those video-taped materials without properly protecting those involved might very well generate externalities. People might think: Don’t they have more important things to do? 這與最近大家詬病的所謂「網友發動網路人肉搜尋」,有何不同?如果判斷力不足的學生,被誤導去四處拍照搜證文藻教職員生的活動,豈不是又回到文化大革命時期的紅衛兵、聞香隊之行為?
Note: 至於無法得到分數的答案,如:因為學校的關注,造成老師多講了這個話題,因為他只需教授經濟學,不需多講此事件。這就是外部性。

Extra credits question: RED or GREEN? Make your pick.
Note: In case there are 28 REDs and 28 GREENs, then the relative majority (to you) is GREEN if you happen to choose RED; the relative majority (to you) is RED if you happen to choose GREEN.
33.你會選擇紅球還是綠球? 只能擇一!
41 Students chose GREEN; 14 students chose RED.

Findings: 44 students guessed correctly.


當下到處可見 grade inflation。同學是相互競爭、不是與老師較技。
所以有調分公式:(原始分數 + 10)*(1.3). Average: 61.8. Highest is 90; lowest is 33.
期中預警 13人