Student Number_____________

Semester 2 Assessment 2014
Department of Economics
ECON10004 Introductory Microeconomics
Reading Time: 15 minutes
Writing Time: 2 hours
Open book: No
This paper has 10 pages (not including this page)

Authorised materials
Foreign/English language dictionaries are allowed into the examination room.
No other materials are allowed.

Instructions to students

This examination paper contributes 60% to the assessment in ECON10004.

There are three sections in this exam. You must answer all questions in all sections.

The Response Sheet for the multiple-choice questions should be inserted in the back of the examination script book at the end of the examination. For the multiple-choice questions, you may use the examination script books to make notes or calculations. These notes will NOT be taken into account for your assessment.

Paper to be held by Baillieu Library: Indicate whether the paper is to be held with the Baillieu Library.
 Yes X
 No

Extra Materials required (please tick & supply)

Multiple Choice form Yes


SECTION A

ANSWER ALL QUESTIONS IN THIS SECTION

This section is worth 25% of the total exam marks.
All questions in this section are worth the same number of marks.
For each question select the one BEST answer. Incorrect answers, multiple answers, or no answer, will receive zero.
Mark your answer on the Response Sheet. Fill in the small circle in the appropriate place.

Question A1
The market for corn is perfectly competitive. A decrease in the price of wheat – a substitute for corn – occurs. We should expect that

a) Demand for corn will decrease, so that at the original equilibrium price there is excess supply which will cause the price to decrease towards a new equilibrium price.
b) Demand for corn will decrease, so that at the original equilibrium price there is excess demand which will cause the price to increase towards a new equilibrium price.
c) Quantity demanded of corn will decrease, and this will cause a decrease in equilibrium price and a decrease in supply of corn.
d) Demand for corn will increase, so that at the original equilibrium price there is excess demand which will cause the price to increase towards a new equilibrium price.

Question A2
Bicycles and bike helmets can be considered to be complements. A decrease in the price of aluminium makes it cheaper to manufacture bicycles. Markets for bicycles and bike helmets can both be assumed to be perfectly competitive. Which of the following is correct?

a) The price of bicycles will increase, and the price of bike helmets will decrease.
b) The price of bicycles will decrease, and the quantity traded of bike helmets will increase.
c) The quantity traded of bicycles will increase, and the price of bike helmets will increase.
d) Both (b) and (c).
Question A3
Helen Health Minister announces that a subsidy will be paid to doctors for each consultation they have with a patient. At the same time the ageing population in Australia causes an increase in demand for services of doctors. The effect of the increase in subsidy and the change in demand will be:

a) Both consumer and supplier prices will increase.
b) The supplier price will increase, and the effect on the consumer price is ambiguous.
c) The consumer price will increase, and the effect on the supplier price is ambiguous.
d) The effect on both prices is ambiguous.

Question A4
Australia is a small country in the world market for steel. The world price of steel is initially $50 per tonne, and the equilibrium price that would exist in Australia in the absence of international trade is $40 per tonne. An increase in world demand occurs which increases the world price of steel to $55 per tonne. In Australia this means that:

a) Consumers are worse off, suppliers are better off, and total surplus decreases
b) Consumers are better off, suppliers are worse off, and total surplus increases