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Practice Test 2 - Midterm - M4B PDF

This document provides a sample midterm test with 5 questions covering various microeconomics and finance topics. Question 1 involves calculating supply and demand functions and equilibrium price/quantity with and without a per-unit tax. Question 2 deals with calculating real government expenditures and inflation rates. Question 3 covers compound interest calculations for savings accounts and loan repayments. Question 4 involves profit maximization by finding the profit function and break-even and maximum profit output levels. Question 5 calculates price, cross-price, and income elasticities of demand using a given demand function.

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Nguyễn Quốc Hưng
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94 views2 pages

Practice Test 2 - Midterm - M4B PDF

This document provides a sample midterm test with 5 questions covering various microeconomics and finance topics. Question 1 involves calculating supply and demand functions and equilibrium price/quantity with and without a per-unit tax. Question 2 deals with calculating real government expenditures and inflation rates. Question 3 covers compound interest calculations for savings accounts and loan repayments. Question 4 involves profit maximization by finding the profit function and break-even and maximum profit output levels. Question 5 calculates price, cross-price, and income elasticities of demand using a given demand function.

Uploaded by

Nguyễn Quốc Hưng
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Review midterm M4B

SAMPLE MIDTERM TEST


Duration: 90 minutes

Question 1:
Given that the supply graph passing through (0;8) and (10;18) while the demand
graph passing through (20;20) and (10;50).
a) Find the supply and demand function.
b) Roughly sketch the graphs of both the demand function and the
supply function on the same xy-plane on A4 paper. What are the
equilibrium price and quantity without tax?
c) The government decides to impose a tax t per unit. What are the
new equilibrium price and quantity?
d) Find the value of t which maximises the government’s total tax revenue on the
assumption that equilibrium conditions prevail in the market.

Question 2:
The table below shows government expenditure (in billions of dollars) on education
for four consecutive years, together with the rate of inflation for each year.
2004 2005 2006 2007
Spending 236 240 267 276
Inflation rate 4.7 4.2 3.4

a) Find the values of expenditure at constant 2004 prices and hence calculate the
index numbers of real government expenditure.
b) If the index number of the real data in 2003 is 95.6 and the nominal spending is
$225, find the rate of inflation for 2004. Give your answer correct to 1 decimal
place.
Question 3
3.1. A person invests $5000 at the beginning of a year in a savings account that
offers a return of 9% compounded semi-annually. At the beginning of every

1
Review midterm M4B

subsequent six-month period, an additional $1000 is invested in the account. How


much will there be in the account at the end of ten years?
3.2. Determine the monthly repayments needed to repay a $100 000 loan which is
paid back over 25 years when the interest rate is 8% compounded annually.
Question 4:
Find an expression for the profit function given the demand function
2𝑄 + 𝑃 = 25
and the average cost function
32
𝐴𝐶 = +5
𝑄
a) Show an expression for the profit in term of Q
b) Find the values of Q for which the firm
i. breaks even
ii. maximizes profit. What is the value of maximum profit?
Question 5:
Given the demand function
𝑄 = 1000 − 5𝑃 − 2𝑃𝐴2 + 0.005𝑌 3
where P = 15, PA = 20 and Y = 100, find
(a) the price elasticity of demand
(b) the cross-price elasticity of demand. Is the alternative good substitutable or
complementary?
(c) the income elasticity of demand.
Give your answer correct to 2 decimal places.

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