THE ECONOMY: THE CORE PROJECT
UNIT 1. THE CAPITALIST REVOLUTION
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Section 1.2
T1.2 Nominal and real GDP
Eden, a country, produces just two output goods: apples and snakeskin handbags. In 2014 the prices of apples and hand bags were 10 and 24, respectively. In 2015, the prices increased to 12 and 25. The quantities produced of the two goods were unchanged in both 2014 and 2015, at 100 and 20. From this information, we can conclude that:
Select all correct answers
a. The nominal GDP in 2014 is 1,480.
b. The real GDP is unchanged between 2014 and 2015.
c. The nominal GDP growth rate between 2014 and 2015 is 14.9%.
d. The economy of Eden grew between 2014 and 2015 in real terms.
Section 1.13
T1.4 Economic inequality
You are given the following graph of Gini coefficients for Britain, the
United States and the Netherlands. The information in the figure suggests that:
Select all correct answers
a. Capitalist economies tend to have similar degrees of equality.
b. The Netherlands was the most equal country over the past three centuries.
c. The US and British economies are currently at their most unequal level since the 1750s.
d. Over time, capitalist economies can become less as well as more equal.
Section 1.13
T1.5 Lorenz curves and Gini coefficient
The following diagram shows the Lorenz curves for the factor (the market) income and the disposable income of the Netherlands in 2010. The disposable income is the factor income plus any taxes and government transfers. A’
is the area between the perfect equality line and the disposable income Lorenz curve, while B’ is the area under the disposable income Lorenz curve. Based on this
information, which of the following statements are correct?
Select all correct answers
a. The Gini coefficient is the ratio A’/B’.
b. The Gini coefficient for the factor income is higher than that for the disposable income.
c. The taxes and the transfers reduce income inequality in the Netherlands.
d. After the taxes and the transfers, the poorest 50% of the population receive about 20% of the total income.
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UNIT 2. TECHNOLOGICAL CHANGE, POPULATION AND
ECONOMIC GROWTH
T2.3 Average product of labour
The following diagram depicts the production function of the farmers, where diminishing average product of labour is assumed. At A the average product of labour is 500,000/800
= 625 kg of grain per farmer. At B the average product of labour is 732,000/1,600 = 458 kg of grain per farmer. If you know that for 2,800 farmers the grain output is 894,000kg, then which of the following is/are correct?
Select all correct answers
a. The average product of labour when the labour input is 2,800 is 300.
b. The decreasing slopes of the rays from the origin to the production function along the curve indicate the
decreasing average product of labour.
c. If the production function curve is an upward-sloping straight line, then there is no diminishing average product of labour.
d. It is possible that initially there is an economy of scale:
for example, going from one farmer to two, the average output increases as they efficiently share the workload.
Section 2.5
T2.4 The Malthusian trap
The following figures show the real wage index in England from 1750 to 2000, and the explanation of how England escaped the Malthusian trap in the period up to 1900.
Based on this information, which of the following statements are correct?
Select all correct answers
a. The above shows evidence that increased productivity of labour increases wages immediately.
b. Throughout the 1800s political development led to a fall in the workers’ bargaining power, keeping the real wage low.
c. England was able to escape from the Malthusian trap after the 1830s by being able to increase the workers’
share of the rising output, due to the increase in the workers’ bargaining power.
d. The above demonstrates that the size of pie (the total output) does not determine the wage rate, but it merely sets a limit on how high the wage could possibly be.
Section 2.8
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UNIT 3. SCARCITY, WORK AND CHOICE
Section 3.0
T3.3 Average product of labour
The average product of labour is diminishing when:
Select all correct answers
a. The marginal product of labour is diminishing.
b. The production function is of a concave shape.
c. The marginal product of labour is smaller than the average product of labour.
d. The marginal product of labour is negative.
Section 3.2
T3.4 Indifference curves
Consider an individual’s indifference curves for the consumption of two goods (things you would like to have more of). In this case:
Select one answer
a. The indifference curves are downward-sloping.
b. The indifference curves can sometimes cross.
c. The indifference curves cannot have sections that are straight lines.
d. The indifference curves cannot have kinks.
Section 3.2
T3.5 Choice of goods
Consider indifference curves for consumption of milk and chocolates (you may assume that both are "goods"). The indifference curves are drawn with the number of chocolate bars on the horizontal axis and pints of milk on the vertical axis. You are given that consumer A has a flatter
indifference curve than consumer B. In this case, we can conclude that:
Select one answer
a. Consumer A likes chocolate more than consumer B.
b. The price of milk relative to the price of chocolates is higher for consumer A than for consumer B.
c. The indifference curves of the two consumers cannot cross.
d. Given the same amount of chocolates, consumer A is willing to swap one bar of chocolate with a smaller amount of milk than consumer B.
Section 3.6
T3.7 Budget constraint
A worker has two jobs that he can choose to work any number of hours in a day, up to the upper limit (if any). The first job pays £10 an hour and has an upper limit of 6 hours a day. The second job pays £6 an hour and has no upper limit. The worker will always choose the first job if he can.
Consider his budget constraint with the amount of free time on horizontal axis and his consumption expenditure (which equals his daily income) on the vertical axis. Based on this information, which of the following is correct?
Select one answer
a. The worker’s budget constraint is kinked at 6 hours of free time.
b. The worker will never choose to consume exactly 18 hours of free time.
c. The slope of the budget constraint is -6 when the hours of free time is small and -10 when the hours of free time is large.
d. For the choice of 8 hours of free time, the maximum expenditure for the day is £96.
A consumer, who has a fixed income in dollars, consumes petrol and bread. When the price of oil increases:
Select one answer
a. The substitution effect on the consumption of petrol is positive, as the consumer would have to increase his expenditure on petrol due to its higher price.
b. The income effect on the consumption of bread is negative, i.e. the consumer would consume less bread.
c. If the income effect dominates the substitution effect, then the consumer would consume more bread.
d. If the income effect dominates the substitution effect, then the consumer would consume more petrol.
Section 3.7
