1.

Which of the following statements is false about a binding price ceiling?

2.

Which of the following is the explicit cost?

3.

An increase in the labor force that can produce all goods would be reflected in a society’s production possibilities frontier (PPF) by an:

4.

If marginal cost is equal to average total cost at a given level of output, then we know that at that level of output

5.

Should a firm always produce the level of output where marginal cost is lowest?

6. Mac Laptops and Windows Computers are subsitutes. If the price of Mac Laptops decreases, we will see that the demand for Windows Computers will ______ because the cross price elasticity between the two goods is _____.

7. At a production level of Q=10, the average total cost for a firm is $20 with an average variable cost of $14. What is the average fixed cost for this firm?

Governments commonly uses price floors. One of the most classic examples of a price floor is a minimum wage policy in a labor market. Minimum wages laws date from 1894 in New Zealand, 1909 in the United Kingdom, and 1912 in Massachusetts. Minimum wage policies, however, often create unintended consequences. The original 1938 U.S. minimum wage law, for example, caused massive unemployment in Puerto Rico. Suppose the following demand and supply curves describe the labor market in Puerto Rico before 1938: Demand: P = 20 – Q Supply: P = 2 + 0.5Q where P is the wage per hour, and Q represents the number of workers hired, in thousands (e.g. Q = 1 means that 1,000 workers have been hired). The 1938 U.S. minimum wage laws artificially required that all workers earned at least $10 per hour in Puerto Rico. So, how many workers would be employed under the minimum wage policy? Illustrate on a graph. Calculate the equilibrium wage and the number of workers hired before the 1938 minimum wage laws. Illustrate on a graph.

1. Taxes drive a wedge between the:

• quantity bought and the price received by sellers.

• price paid by buyers and the quantity received by sellers.

• income of the buyers and the incomes received by sellers.

• price paid by buyers and the price received by sellers.

2. Which of the following explains why most people’s marginal tax rate is higher than their average tax rate?

• The average tax rate is the tax you pay on your last dollar earned, while the marginal rate is the overall proportion of income paid in taxes.

• The marginal tax rate is the tax you paid on economic activities such as stock and bond trading, while the average rate is the overall proportion of income paid in taxes.

• Marginal tax is only paid by high-income households who earn more than the national average income. Households earning less than the average pay the average tax rate.

• The marginal tax rate is the tax you pay on your last dollar earned, while the average rate is the overall proportion of income paid in taxes.

A system in which average tax rates are higher than marginal tax rates is called:

• regressive.

• progressive.

• proportional.

3. The concept of incidence is used to describe:

• the geographic area where the tax applies.

• who bears the burden of any sort of tax.

• who receives the revenue of any sort of tax.

• who administers any tax.

An unfavorable materials price variance could be resulted from:

purchases made with a discount price.

an increased wage of workers.

poor-trained workers.

an unexpected increase in the purchase prices of raw materials.

The price of a one-year zero-coupon bond is $943.396, the price of a two-year zero is $873.439, and the price of a three-year zero-coupon bond is $793.832. The bonds (each) have a face value of $1,000. Assume annual compounding.

a) Come the yield to maturity (YTM) on the one-year zero, the two-year zero, and the three-year zero.

b) Compute the implied forward rates for year 2 and for year 3.

c) Assume that the expectations hypothesis is correct. Based on your answers to parts a) and b), can you conclude that interest rates are expected to rise? Explain.

d) If the expectations hypothesis is correct, what will the pure yield curve be next year? [In other words, compute the yields on both a one-year zero and a two-year zero in one year from today.] Use the data from your answers to parts a) and b).

1. The government is currently considering setting a maximum price (price ceiling) for basic goods to ensure that people can get access to these goods at this current time. Fully explain your answer and also use a single diagram to demonstrate the likely outcomes of this policy if the maximum price is set:

1. Below the current free market price                                              

2. Above the current free market price

3. At the current free market price      

Consider an option on a dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. The present value of the dividend to be paid in 3 months is $1. (20 points) a. What is the price of the option if it is a European call? b. What is the price of the option if it is an American call? c. What is the price of the option if it is a European put?

Consider an option on a dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. The present value of the dividend to be paid in 3 months is $1. (20 points) a. What is the price of the option if it is a European call? b. What is the price of the option if it is an American call? c. What is the price of the option if it is a European put?

1. The government is currently considering setting a maximum price (price ceiling) for basic goods to ensure that people can get access to these goods at this current time. Fully explain your answer and also use a single diagram to demonstrate the likely outcomes of this policy if the maximum price is set:

1. Below the current free market price                                              

2. Above the current free market price

3. At the current free market price      

2. The Australian government has implemented a number of microeconomic reforms over the past 40 years including deregulation of banking. Do you think banking deregulation has been beneficial or not? Explain your answer. Describe what you think may be the difficulties with microeconomic reform in Australia and highlight an area that you think currently requires microeconomic reform. Justify your answer.