INTERNATIONAL ECONOMICS
Maximum possible score in the test is 32 points.
The minimum number of points in order to pass the exam is 18.
A multiple-choice question is valued 1 point. The value in points of the single exercise can vary.
There will be 20 multiple choice questions, for a total of 20 points, and exercises for the remaining
12 points (for instance, 2 exercises of 6 points each, or 3 exercises of 4 points each...)
SAMPLE OF EXERCISES AND MULTIPLE CHOICE QUESTIONS
1) An inferior good is a good:
a) Whose quality is below average
b) Which has a very low price elasticity of demand
c) Which has a negative income elasticity of demand
d) Whose quantity demanded increases a little when the income increases
e) Whose supply is inelastic
2) If the price elasticity of demand is equal to 0.5, a price increase of 20% will cause:
a) A decrease of 5% of quantity demanded
b) A decrease of 10% of quantity demanded
c) A decrease of 20% of quantity demanded
d) An increase of 5% of quantity demanded
e) An increase of 10% of quantity demanded
3) A seller facing an elastic demand curve will suffer ------------- if he decides to increase price
a) a decrease in total revenue
a) an increase in total revenue
b) no change in total revenue
c) no change in quantity demanded
d) an increase in quantity demanded
4) (4 points) Suppose the demand for train tickets for business and holidaymakers is given by the
following table:
Price Quantity demanded Quantity demanded
(euro) (business travellers) (holidaymakers)
100 500 500
200 400 300
300 300 100
400 200 0
Calculate the price elasticity of demand for (i) business travellers and (ii) holidaymakers, when
price increases from 200 to 300.
5) Consider a firm’s variable and total costs
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Quantity Variable Costs Total Costs AVC ATC MC
0 0 60
1 20 80
2 50 110
3 90 150
4 140 200
5 200 260
1. What are the Fixed Costs of the firm? (1 point)
2. Complete the table, calculating average variable costs, average total costs and marginal costs for
each quantity (3 points)
6) The graph shows a profit-maximizing perfectly competitive firm
P, Costs
Revenues
Show on the graph:
a) Price P, Average Revenue AR, Marginal Revenue MR, Average Total Cost ATC and Average
Variable Cost AVC (2 points)
b) Equilibrium quantity Q* and equilibrium price P* (1 point)
c) The price at which the firm will decide to shut down in the short run (1 point)
d) The price at which the firm will decide to exit the market in the long run (1 point)
7) Which of the following conditions describes a profit-maximizing firm indipendently of the
market structure under which it operates?
a) P = MC
b) P = ATC
c) MR = MC
d) MR = P
e) None of the above
8) The shape of the production function
a) Reflects the decrease of fixed average costs at the increase of production
b) Reflects diminishing marginal productivity of the factor of production
c) Reflects the fact that all costs are variable in the long run
d) Reflects the fact that all factors vary in the long run
e) None of the above
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9) (2 points) Consider a monopoly producing Q=5,000, at price P=50, with a Marginal Revenue
equal to 20. If ATC for that quantity is = 10, what will be the profit?
10) A shortage will occur if:
a) A price ceiling is set above the equilibrium price
b) A price ceiling is set below the equilibrium price
c) A price floor is set above the equilibrium price
d) A price floor is set below the equilibrium price
e) A shortage will never occur
11) As shown in the diagram, a $2 per unit sales tax is placed on cd. The amount of the tax paid
by sellers is:
Price Supply after tax
Supply before tax
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7
6
5
4
Demand
3 5 Quantity
a) 0
b) 0.50
c) 1
d) 1.50
e) 5
12) Sellers pay more of the tax imposed on a good when:
a) The demand for the good is more inelastic
b) The supply of the good is more elastic
c) The supply of the good is less elastic
d) The supply and the demand for the good have the same elasticity
e) None of the above
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13) (2 points) In a perfectly competitive market each firm produces 200 units of a good, at an
Average Total Cost equal to 2. Each unit is sold at a price equal to 3. Is the market in a long-run
equilibrium? Why or why not?
14) If equilibrium price and quantity both increase, the cause is:
a) An increase in demand, no change in supply
b) An increase in demand, a decrease in supply
c) A decrease in demand, an increase in supply
d) An increase in both demand and supply
e) A decrease in both demand and supply
15) Suppose the current price of apples is 1.50 euros a kilo. The equilibrium price of apples is 1.
You would expect:
a) Shortage and an increase in the price of apples
b) Shortage and a decrease in the price of apples
c) Surplus and an increase in the price of apples
d) Surplus and a decrease in the price of apples
e) No change in the price of apples
16) (2 points) The steel market is perfectly competitive. Each firm produces 2 million bars a
year. Bars have an average total cost of 20 and are sold at a price of 30. What is the marginal
cost of a bar?
17) A perfectly competitive firm is producing a quantity at which MR=2 and MC=4. In order to
maximize profit the firm should:
a) Increase production
b) Decrease production
c) Decrease price in order to increase total revenue
d) Increase price in order to increase total revenue
e) Continue to produce the same quantity
18) For a perfectly competitive firm:
a) P>MR=MC
b) P<MR=MC
c) P=MR=MC
d) P=MR<MC
e) P=MR>MC
19) Suppose the price of Good A increases. The quantity of Good B decreases.
a) Good A and Good B are substitutes
b) Good A and Good B are complements
c) Good A is an inferior good
d) Good A is a normal good
e) Good B has a more elastic demand than Good A
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20) Suppose you own a nice old guitar you want to sell. To you it is valued 300. A friend of
yours likes it and is willing to pay 900 euros in order to have it. How much is the total surplus if
you sell it to your friend at 500 euros?
a) 300
b) 500
c) 900
d) 600
e) 0
21) Which of the following would shift the demand for a good to the left?
a) A decrease in the cost of production
b) An increase in the cost of production
c) An increase in the price of the good
d) A decrease in the income of buyers
e) A decrease in the price of the good
22) Consider an economy producing only pens and books:
Year P pens Q pens P books Q books
2016 (base year) 3 100 10 50
2017 3 120 12 70
2018 4 120 14 70
Calculate:
a) Nominal and real GDP for each year (3 points)
b) GDP deflator for each year (3 points)
23) Consider the following economy where people consume only 3 goods. The basket is
composed by the quantities consumed in the base year (2016)
Year P Good A Q Good A P Good B Q Good B P Good C Q Good C
2016 (base year) 50 10 1 100 5 100
2017 50 12 1 200 10 50
2018 60 12 1.50 250 20 20
Calculate:
a) CPI in the three years (3 points)
b) Inflation rate in 2017 and 2018 (3 points)
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24) In 1960 a cinema ticket cost the equivalent of 1 euro. The CPI was 30. Today the CPI is 171
and a ticket costs 7 euros. Was a ticket cheaper in 1960? (2 points)
25) If demand decreases, we can correctly conclude that:
I. Equilibrium price will decrease
II. Equilibrium price is indeterminate
III. Equilibrium quantity will decrease
IV. Equilibrium quantity is indeterminate
a) I only
b) I and III only
c) II and IV only
d) II and III only
e) I and IV only
26) A positive externality in production leads to:
a) Overproduction relative to the socially optimal level
b) Underproduction relative to the socially optimal level
c) An imbalance between quantity demanded and quantity supplied
d) A demand curve that is not at the socially optimal level
e) A supply curve that fails to include all the costs to society
27) A common resource is:
a) Excludable and rival in consumption
b) Not excludable and rival in consumption
c) Excludable and not rival in consumption
d) Not excludable and not rival in consumption
e) None of the above
28) The curve of social cost is:
a) The supply curve
b) The supply curve plus the external cost
c) The demand curve plus the external benefit
d) The supply curve minus the external cost
e) None of the above
29) If an economic activity generates an external benefit, the efficient quantity will be at the
intersection of:
a) The demand curve and the social cost curve
b) The demand curve and the average total cost curve
c) The social value curve and the supply curve
d) The demand curve and the supply curve
e) None of the above
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30) If an economic activity generates an external cost, the efficient quantity will be at the
intersection of:
a) The demand curve and the social cost curve
b) The demand curve and the average total cost curve
c) The social value curve and the supply curve
d) The demand curve and the supply curve
e) None of the above
31) According to the Coase theorem:
a) The optimal quantity of pollution is zero
b) The externality problem can be solved only by government intervention
c) There exists a private solution, as long as the external costs are not so high
d) There exists a private solution, as long as there are no transaction costs
e) The externality problem has no solution
32) Susan consumes books and CDs. If her income doubles and books and CDs cost the same
(prices invariant), then:
a) Her budget constraint shifts to the right
b) Her budget constraint shifts to the left
c) Her budget constraint pivot inwards
d) Her budget constraint pivots outwards
d) Nothing happens to her budget constraint
33) Which of the following statements is correct?
a) The more elastic is demand, the smaller the portion of the tax passed on to the consumer
b) The more elastic is demand, the larger the portion of the tax passed on to the consumer
c) Elasticity of demand does not matter. The tax is always passed on to the consumer no matter
how elastic demand is.
d) Elasticity of demand does not make any difference. The tax is always split evenly between
buyers and sellers
e) None of the above
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34) The firm in the figure will make a positive economic profit at a price of:
Costs, Price
P1
P2
P3
P4
Q
a) P4
b) It can never make positive profits
c) P3
d) P2
e) P1
35) Which of the following is correct?
a) When marginal cost is greater than average cost, average cost is falling
b) When marginal cost is less than average cost, average cost is increasing
c) When marginal cost is equal to average cost, average cost is at its maximum
d) When marginal cost is equal to average cost, average cost is at its minimum
e) Average and marginal cost are never equal
36) When governments impose a tax on a good and the quantity exchanged decreases:
a) The value buyers place on the goods lost is less than the cost sellers would incur if the goods
were produced
b) The value buyers place on the goods lost is equal to the cost sellers would incur if the goods
were produced
c) The value buyers place on the goods lost is greater than the cost sellers would incur if the
goods were produced
d) Buyers place no value on the goods lost
e) Sellers produce the good at no cost
37) If a price floor is established on a good below the equilibrium price:
a) A surplus will occur
b) A shortage will occur
c) There would be no effect
d) The quantity demanded of the good will decrease
e) The quantity demanded of the good will increase
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38) Consider the monopoly in the diagram below. The area represents:
a) The deadweight loss generated by the monopoly
b) The monopoly profit
c) The monopoly total costs
d) The monopoly total revenues
e) None of the above
39) If we are currently at quantity Q0 in the figure:
a) The quantity should be decreased for the total surplus to be maximized
b) The quantity should be increased for the total surplus to be maximized
c) The value to the marginal buyer is less than the cost to the marginal seller
d) Total surplus is at a maximum
e) Total surplus does not depend on quantity
40)
Suppose the resident of a country spend all of their income on cauliflowers, broccolis and carrots. In
2017 they buy 100 cauliflowers for 200 euros, 50 broccolis for 75 euros and 500 carrots for 50
euros. In 2018 they buy 75 cauliflowers, for 225 euros, 80 broccolis for 120 euros and 500 carrots
for 100 euros. If the base year is 2017, what is the CPI in both years? What is the inflation rate in
2018?
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41)
LABEL THE FOLLOWING GRAPH (question similar to the one about the perfectly competitive
firm) (4 points)
42) The following diagram represents:
a) The Laffer curve
b) The Coase theorem
c) How the deadweight loss changes with the tax rate
d) How the deadweight loss changes with the elasticity of the demand curve
e) How the deadweight loss changes with the elasticity of the supply curve
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43) According to the following diagram, if government imposes a tax on the buyers of cigarettes,
the deadweight loss of the tax will be:
• Greater if demand is represented by D2
• Greater if demand is represented by D1
• Less if demand is represented by D2
• The same regardless of whether demand is represented by D1 or D2
• It is not possible to say from the diagram
44) If you had been willing to pay $3.05 for the litre of milk purchased at the supermarket but you
were required to pay only $2.05, you have:
• A refund of $1 from the seller
• A consumer surplus amounting to $1
• A profit of $1
• An excess marginal utility of $3.05
• A producer surplus amounting to $1
45) According to the Labour Market Statistics, there were 31.42 million employed people and 1.69
million unemployed people in UK in 2017. The adult population was 41.3 million. The Labour
Force was:
• 33.11 million
• 29.73 million
• 31.42 million
• 80.17%
• 76%
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46)
A common resource has which of the following in common with a private good?
• Rival consumption
• Excludability
• Efficient provision by the market
• Nonrival consumption
• None of the options is correct
47) Which of the following correctly describes a perfectly competitive firm’s short-run supply
curve?
• Marginal cost curve
• Rising portion of the marginal cost curve
• Rising portion of the marginal cost curve above average variable cost
• Rising portion of the marginal cost curve above average total cost
• None of the options is correct
48) Suppose there is an advance in technology that allows the automobile industry to manufacture
more cheaply. You would expect:
• No change in the equilibrium price and quantity
• A decrease in both the equilibrium price and the equilibrium quantity of automobiles
• A decrease in the equilibrium price and an increase in the equilibrium quantity of
automobiles
An increase in the equilibrium price and a decrease in the equilibrium quantity of
automobiles
• An increase in both the equilibrium price and the equilibrium quantity of automobiles
49) If coffee and tea are substitute goods, then an increase in the price of coffee would:
• Decrease the demand for tea
• Increase the demand for coffee
• Increase the demand for tea
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• None of the options is correct
• Have no effect on the demand for tea
50)If the price elasticity of demand is equal to 1, a price increase of 20% will cause:
a) A decrease of 10% of quantity demanded
b) A decrease of 20% of quantity demanded
c) A decrease of 30% of quantity demanded
d) An increase of 5% of quantity demanded
e) An increase of 10% of quantity demanded
51) In the long run, the entry of new firms into a perfectly competitive industry has the effect of:
• Driving up equilibrium price
• Reducing equilibrium quantity
• Increasing individual firm's demand
• Eliminating economic profits
• It has no effect
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