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Instructions Answer the following questions and then press 'Submit' to get your score. Question 1 Which of the following decisions would a carpet maker not analyse using marginal product analysis? () a) Whether to buy a new loom during the next three months. () b) How much labour to hire over the next three months. c) How much wool to buy over the next three months. O d) Whether to hire an extra warehouse for the next three months. Question 2 Which of the following statements about people who rent out land for animals to graze on is true? ( a) The whole income of these people is economic rent because land as a whole is in perfectly inelastic supply. b) The whole income of these people is transfer earnings, because if the rent was any lower they would not bother to rent out their land. c) The income of these people is divided between economic rent and transfer earnings and some people have higher transfer earnings and lower economic rent than others O d) The income of these people is divided between economic rent and transfer earnings and the proportion of this income which is economic rent is the same for all of them. Question 3 Suppose the discount rate is 10% per year. Which of the following statements is true? () a) The future value of $1,000 in three years' time is $1,300. O b) The present value of (1,300 in three years' time is $1,000. O e) The future value of f1,331 in three years' time is $1,000. () d) The present value of $1,331 in three years' time is $1,000. Question 4 Suppose a firm is considering the purchase of a machine. The machine costs $10,000 and has an expected stream of future returns which, at the current risk-free interest rate, have present value of $10,500. Which of the following statements is false? O a) The future returns are the extra revenue the firm will get from owning the machine. () b) The net present value of the machine is $500. () c) The firm might not buy the machine now simply because of the risk involved. O d) If the firm does not buy the machine now, but redoes the calculations in three months, it might find the net present value has increased. Question 5 Which of the following statements about investment appraisal is false? ( a) If prices rise at a rate faster than the nominal interest rate, then real interest is negative. ()b) If the risk-free interest rate rises, the projects whose net present values are most affected are those with short lives. (O c) The internal rate of return on a project is the discount rate which would make its net present value zero. d) The internal rate of return on a project is a percentage measure of its expected returns. Question 6 Suppose someone owns a mineral resource and suppose the interest rate is currently 5% Under which of the following circumstances would the owner definitely prefer to extract it now rather than in one year's time? O a) If the expected price next year exceeds the extraction cost by any amount. ( b) If the expected price next year exceeds the extraction cost but by less than 5%. O c) If the expected price next year exceeds the extraction cost but by exactly 5%. O d) If the expected price next year exceeds the extraction cost but by more than 5%.Question 7 Suppose the interest rate is 5%. Which of the following statements would explain why the owners of a mineral resource will extract some this year but not all? (a) They expect the price next year, minus the extraction cost, to equal the figure for this year. : b) They expect the price next year, minus the extraction cost, to exceed the figure for this year by less than 5%. ( c) They expect the price next year, minus the extraction cost, to exceed the figure for this year by exactly 5%. 1 / d) They expect the price next year, minus the extraction cost, to exceed the figure for this year by more than 5%. Question 8 Which of the following statements about the future price of a mineral resource is false? a) The owners expect the price minus extraction costs to rise each year at the same rate as the rate of interest. Ly b) The owners expect the price to rise over time until it reaches the choke price. ( c) The owners expect the choke price to be reached when the mineral resource is exhausted. (d) In practice, the price may not rise steadily over time, but it will always rise. Question 9 Which of the following should someone not allow for when assessing the costs of continuing full-time education beyond the school leaving age? ( a) The income foregone while undertaking the education. ( b) The value of any extra enjoyment obtained from education beyond that which would be obtained from working. (c) The fact that undertaking further education signals to employers that they are hard- working ad ambitious. ( d) Any scholarships or grants. Question 10 What does UK evidence suggest about the returns from taking an economics degree? ( a) It raises earnings more than most degrees. (" bj It raises earnings by about the average amount for all degrees. (c) It raises earnings by less than most degrees. ( d) It has no significant effect on earnings