Thailand National Economics Olympiad Selection Competition – Round 1

Correct Answer No Answer Incorrect Answer

2 points 0 points -0.75 points

Answers
1. c
2. c
3. d
4. a
5. a
6. d
7. b
8. c
9. d
10. a
11. b
12. b
13. b
14. c
15. e
16. a
17. b
18. d
19. e
20. c
21. b
22. a
23. e
24. b
25. b
26. e
27. a
28. c
29. b
30. a

Questions with Answers Bolded

1. Ploy decides to spend 3 hours working overtime rather than watching a movie with her
friends. She earns $8 an hour. Her opportunity cost of working is…
a. the $24 she earns working.
b. the $24 minus the enjoyment she would have received from watching the movie.
c. the enjoyment she would have received if she had watched the movie.
d. nothing, since she would have received less than $24 of enjoyment from the movie.
e. nothing, since her choice to work means that she enjoyed it more than watching a
movie.
2. An example of an externality is the impact of…
a. bad weather on the incomes of farmers.
b. the personal income tax on a person’s ability to purchase goods and services.
c. pollution from a factory on the health of people living nearby the factory.
d. increases in health care costs on the health of individuals in society.
e. fuel prices on the cost of production.

3. Production possibilities frontiers are usually bowed outward. They are curved lines, not
straight lines. This is because…
a. the more resources a society uses to produce one good, the fewer resources it has
available to produce another good.
b. the opportunity cost of producing a good falls as one produces more and more of it.
c. of the effects of technological change.
d. some resources are better at producing particular goods rather than other goods.
e. they reflect a fixed marginal rate of substitution.

4. Suppose an economy produces two goods, food and machines. This economy always
operates on its production possibilities frontier. Last year, it produced 50 units of food and
30 machines. This year, it is producing 55 units of food and 33 machines. Which of the
following would not explain the increase in output?
a. a reduction in unemployment
b. an increase in the labor force
c. an improvement in harvesting technology
d. favorable weather for the year
e. an expansion of the capital stock

5. If two goods are substitutes, their cross-price elasticity will likely be…
a. positive.
b. negative.
c. zero.
d. one.
e. infinite.
6. Coffee is a normal good. What will happen to the equilibrium price and quantity of coffee if
the price of tea increases, a productive new strain of coffee is developed, consumers’
incomes rise, and new scientific studies reveal new health benefits of coffee?
a. Price will fall and the effect on quantity is ambiguous (cannot be determined)
b. Price will rise and the effect on quantity is ambiguous
c. Quantity will fall and the effect on price is ambiguous
d. Quantity will rise and the effect on price is ambiguous
e. Both quantity and price will rise

7. Suppose a producer can separate customers into two groups, one having a price inelastic
demand and the other having a price elastic demand. If the producer’s objective is to
increase total revenue, she should…
a. …increase the price charged to customers with the price elastic demand and
decrease the price charged to customers with the price inelastic demand.
b. …decrease the price charged to customers with the price elastic demand and
increase the price charged to customers with the price inelastic demand.
 c. charge the same price to both groups of customers
d. increase the price for both groups of customers
e. decrease the price for both groups of customers

8. How could we tell whether bananas are an inferior good for a consumer?
a. She decreases her consumption of bananas when the price of apples rises.
b. She increases her consumption of bananas when the price of apples rises.
c. She increases her consumption of bananas when her income falls.
d. She decreases her consumption of bananas when the price of bananas rises.
e. She decreases her consumption of bananas when the price of bananas falls.

9. At a given level of rice output, one more unit of labor would produce 10 extra kilograms of
rice, and one more unit of seed would produce 30 extra kilograms of rice. A unit of labor
costs $6, and a unit of seed costs $12. The farmer should…
a. produce less rice.
b. buy only labor.
c. buy only seed.
d. buy more seed and less labor.
e. buy less seed and more labor.

10. Cambodia can produce 10 kilograms of rice or 8 mangoes with a unit of labor. Vietnam can
produce 12 kilograms of rice or 12 mangoes with a unit of labor. Which of the following
describes their comparative capabilities?
a. Cambodia has a comparative advantage in producing rice and Vietnam has a
comparative advantage in producing mangoes.
b. Vietnam has an absolute advantage in producing mangoes and a comparative
advantage in producing rice.
c. Cambodia has a comparative advantage in producing rice and Vietnam has no
comparative advantage.
d. Vietnam has a comparative advantage in producing rice and mangoes and Cambodia
has no comparative advantage.
e. Neither Cambodia nor Vietnam has a comparative advantage.

11. What is the most effective way for a government to intervene in a natural monopoly such as
the electricity market to ensure an economically efficient outcome?
a. Break the monopoly firm up into smaller firms
b. Regulate the monopoly firm’s pricing
c. Subsidize the entry of new participants into the market
d. Tax the monopoly firm to offset the social cost of negative externalities it creates
e. Nationalize the firm and produce the socially optimal output

12. Joy is offered a job. The job has a base salary of $40,000 with a 0.5 probability (a 50%
chance) of receiving a bonus of $60,000 at the end of the year. A family friend offers to sell
Joy “bonus insurance” which will pay her $60,000 if the employer does not pay the bonus.
Joy is willing to pay up to $33,000 for the bonus insurance. Therefore, Joy is…
a. risk neutral.
b. risk averse.
c. risk seeking.
 d. risk hedging.
e. risk taking.

13. A situation in which prices are rising while unemployment is rising is known as…
a. a recession
b. stagflation
c. short-run disequilibrium
d. Ricardo’s tradeoff
e. inflation

14. Which of the following transactions would be counted as GDP?

a. A babysitter is paid in cash and does not report the income
b. A farmer sells tomatoes to a grocery store.
c. A factory sells guns to the government.
d. Imported jewelry is sold to consumers.
e. A car dealer sells a second-hand car to a consumer.

15. Which of the following countries is closest to having a true command economy?
a. China
b. Vietnam
c. France
d. Russia
e. Cuba

16. The argument that national governments should protect local industries rather than
allowing multinational firms to enter the market is related to…
a. …Dependency Theory
b. …Marxist Theory
c. …Neoliberal Theory
d. …Laissez Faire Economic Theory
e. …Keynesian Theory

17. Hyperinflation is typically caused by…

a. …high tax rates that discourage work effort
b. …continuous expansion of the money supply to finance government budget
deficits
c. …strong protectionist policies that raise the price of imports
d. …bad harvests that lead to widespread shortages
e. …a large increase in the price of fuel

18. Which of the following will lead to a decrease in a nation’s money supply?
a. an increase in income tax rates
b. a decrease in the discount rate
c. an open market purchase of government securities by the central bank
d. an increase in reserve requirements
e. an increase in government expenditures on goods and services

19. Consider the table below.

 Total Output Total Cost
0 $100
2 196
4 212
6 310
8 430
10 570

If the average variable cost is $60 for an output of 11 units, …

a. the total variable cost is $630.
b. the total cost of 11 units of output will be $652.
c. the total cost of 11 units of output will be $660
d. the marginal cost of the eleventh unit is $102.
e. the marginal cost of the eleventh unit is $190.
20. The diagram below shows the marginal cost, average total cost, and average variable cost of
an individual firm in a competitive market.

What is the fixed cost of this firm?

a. $4
b. $8
c. $16
d. $25
e. $36

21. A commercial bank’s ability to create money depends on which of the following?
a. the permission of a central bank
b. a fractional reserve banking system
c. gold or silver reserves backing up the currency
d. all of the above
e. none of the above

22. The figure below shows the market for computers in the U.S. The domestic price line
inclusive of the tariff lies above the international price line. Dd and Sd are the domestic
demand and supply curves of computers respectively.

If the government sets the tariff specified in the graph, how much tax revenue will the
government generate?
a. $28,000,000
b. $40,000,000
c. $76,000,000
d. $140,000,000
e. $200,000,000
23. Under a flexible exchange-rate system with free capital flows, the Indian rupee will
appreciate against the Japanese yen when…
a. …India’s inflation rate exceeds Japan’s.
b. …India has a trade deficit with Japan.
c. …Japan’s economy enters a recession, but India’s does not.
d. …Japan’s money supply decreases while India’s money supply increases.
e. …real interest rates in India increase relative to those in Japan.

24. If economic actors perfectly anticipate policy changes and if all prices, including wages, are
completely flexible, which of the following will be true in the long run?
a. The price level will be constant.
b. There will be no trade-off between inflation and unemployment.
c. The unemployment rate will be less than the natural rate of unemployment.
d. The unemployment rate will be greater than the natural rate of unemployment.
e. Changes in the money supply will not lead to changes in the price level.

25. The crowding-out effect from government borrowing is best described as…
a. …the rightward shift in aggregate demand in response to the decreasing interest
rates from contractionary fiscal policy.
b. …the leftward shift in aggregate demand in response to the rising interest rates
from expansionary fiscal policy.
c. …the effect of the increase in money supply, which decreases real interest rates and
increases aggregate demand.
d. …the decrease in investment due to expectations of inflation within the private
sector.
e. …the decrease in exports due to an appreciating national currency

26. If consumers begin to hold more of their money in cash, rather than depositing it in checking
accounts, what would be the impact on the money supply?
a. …M1 money supply would increase while M2 money supply would decrease
b. …M1 money supply would decrease while M2 money supply would increase
c. …M1 and M2 money supply would both increase
d. …M1 and M2 money supply would both decrease
e. …M1 and M2 money supply would both stay the same

27. If a nation’s central bank wanted to decrease inflationary pressure in the economy, it could…
a. …sell government bonds in the open market
b. …lower the discount rate
c. …lower the required reserve ratio for commercial banks
d. …decrease government spending on social programs
e. …increase the income tax rate
28. If commercial banks must maintain a reserve requirement of 20% of deposits, then a deposit
of $1000 could result in an expansion of the money supply by at most how much?
a. $1200
b. $2000
c. $5000
d. $8000
e. $12000

29. What is the difference between a firm in monopolistic competition and a firm in an
oligopoly?
a. A firm in monopolistic competition is a price taker, but a firm in oligopoly can set its
own prices.
b. In monopolistic competition, the individual firm does not consider the behavior of
other firms when setting its price. In oligopoly, the firm does.
c. A firm in monopolistic competition has an incentive to innovate, but a firm in
oligopoly does not.
d. In monopolistic competition, firms do not collude to set prices. In oligopoly, they do.
e. A firm in monopolistic competition produces a differentiated good, while firms in
oligopoly produce commodity products.

30. What is the Nash equilibrium of the game below?

Player 2
X Y
A (10, 10) (15, 5)
Player 1
B (5, 15) (12, 12)

a. A, X
b. B, X
c. A, Y
d. B, Y
e. No equilibrium exists