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THE UNIVERSITY OF HONG KONG School of Economics & Finance 2006-2007 1st Semester Examination Economics: ECON1001 A to H Introduction to Economics 1 A to H Drs S Démurger, K F Wong & P Yip December 16, 2006 2:30-4:30p.m.

Candidates may use any self-contained, silent, battery-operated and pocket-sized calculator. The calculator should have numeral-display facilities only and should be used only for the purposes of calculation. It is the candidate’s responsibility to ensure that his calculator operates satisfactorily. Candidates must record the name and type of their calculators on the front page of their examination scripts.

The exam paper consists of two sections: multiple choices in Section A, and essay questions in Section B. Please answer all questions in both sections. You are advised to allocate your time according to the marks allocated to each section or question.

Section A: Multiple choices (50 questions, one point each, total 50 points) 1. Forest is a mountain man living in complete isolation in Montana. He is completely self- sufficient through hunting, fishing, and farming. He has not been in the city to buy anything in five years. One can infer a. the scarcity principle does not apply to Forest. b. Forest is not required to make choices. c. the scarcity principle still applies because more hunting means less fishing and farming. d. Forest is very satisfied. e. Forest is not rational. 2. The cost-benefit principle indicates that an action should be taken a. if the total benefits exceed the total costs. b. based on flipping a coin or speaking with a psychic. c. if the average benefits exceed the average costs. d. if the net benefit (benefit minus cost) is zero. e. if the extra benefit is greater than or equal to the extra costs. 3. With ATMs it is possible to retrieve cash from the bank at any time. One hundred years ago, one could only get cash from the bank during business hours, say, 9 am to 3 pm. The difference is because a. flexibility was not valued 100 years ago. b. it was impossible to provide 24 hour a day service 100 years ago. c. the cost of providing 24 hour a day service is much lower today. d. government forced banks to become more convenient. e. cash is a more popular means of making payments today. 4. Having a comparative advantage in a particular task means that a. you are better at it than other people. b. you give up more to accomplish that task than do others. c. you give up less to accomplish that task than do others d. you prefer that task over other tasks. 5. Which of the following statements is always true? a. Comparative advantage implies absolute advantage. b. Absolute advantage implies comparative advantage. c. Comparative advantage does not require absolute advantage. d. Absolute advantage requires comparative advantage. e. Comparative advantage requires absolute advantage.


6. Large developed countries can produce more of practically everything than can a small less developed country. Therefore, a. the large country has no incentive to trade with the smaller country. b. it would be impossible for the smaller country to have a comparative advantage in making any products that the larger country wants to buy. c. trade between the countries is more likely to benefit the large country and harm the smaller country. d. trade between the countries is more likely to benefit the small country and harm the larger country. e. trade will benefit both countries if each country has a comparative advantage in a traded product. 7. Shelly purchases a leather purse for $400. One can infer that a. she paid too much. b. her reservation price was at least $400. c. her reservation price was exactly $400. d. her reservation price was less than $400. e. she paid too little. 8. Which of following is not true of an equilibrium price? a. Consumers who are willing to pay the equilibrium price can acquire the good. b. It measures the value of the last unit sold to consumers. c. It is always a...
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