Taiwanese Economics Olympiad

Example of Test Paper

Multiple-Choice Questions

30 multiple choice questions; the overall time limit is 90 minutes.

All 30 multiple choice questions will be graded (4 points for the correct answer, minus
1 point for the incorrect answer, zero points for no answer).
If not stated otherwise, think of all goods, services and assets as of infinitely divisible.
Numbers of firms and people may be only integer.
If you want to leave the room for a while, raise your hand and ask a volunteer.
Good luck!
1. What does UK GDP per capita measure?
(1) the total output of London’s economy
(2) the average disposable income of a UK resident
(3) the total output of the UK citizens, divided by the number of the citizens
(4) the total output of the UK’s economy, divided by the country’s population

2. The local grocery store offers a discount of 20% if a customer pays the 10 USD monthly fee.
How much should a customer’s monthly spending in this store be so that paying this fee makes
sense for her?
(1) At least 10 USD
(2) At least 30 USD
(3) At least 50 USD
(4) At least 60 USD

3. Currently you work for 40 hours per week at the wage rate of $20 an hour. Your free hours are
defined as the number of hours not spent in work per week, which in this case is 24 hours ×
7 days − 40 hours = 128 hours per week. Suppose now that your wage rate has increased by 25%.
If you are happy to keep your total weekly income constant, then:
(1) Your total number of working hours per week will fall by 25%.
(2) Your total number of working hours per week will be 30 hours.
(3) Your total number of free hours per week will increase by 25%.
(4) Your total number of free hours per week will increase by 6.25%

4. Countries A, B and C produce only watermelons (X) and grapefruits (Y). The production
possibility frontiers are given by: XA + YA = 100, 2XB +3YB = 300, XC +2YC = 600. What is the
maximum amount of watermelons that they can produce together if they want to produce at least
200 grapefruits?
(1) 200
(2) 500
(3) 600
(4) None of the above

5. Four farmers are deciding whether to contribute to the maintenance of an irrigation project. For
each farmer, the cost of contributing to the project is $10. But when any one farmer contributes, all
four of them will benefit from an increase in their crop yields, in particular each gains additional
$8. Which of the following statements is correct?
(1) If all the farmers are selfish, none of them will contribute.
(2) There are multiple Nash equilibria in this game.
(3) If Kim is altruistic and contributes $10, the others might contribute too, even if they are
selfish.
(4) If the farmers have to reconsider this decision every year and consider infinite horizon of
planning, they will never choose to contribute to the project if they are selfish.
6. GDP of the country X grows by 1% per year every year. GDP of the country Y grows by 2% per
year every year. If in the year 2019 countries have equal GDP, by what year will their GDP differ
by two times? (Choose the nearest estimate).
(1) 2050
(2) 2090
(3) 2150
(4) 2180

7. Which of the following statements about the outcome of an economic interaction is correct?
(1) If the allocation is Pareto efficient, then you cannot make anyone better off without
making someone else worse off.
(2) All participants are happy with what they get if the allocation is Pareto efficient.
(3) There cannot be more than one Pareto-efficient outcome.
(4) Pareto-efficient outcome is always fair.

8. Jane spends all her money on the ingredients of her favorite cocktail. To make a portion of the
cocktail, she has to mix 200 ml of orange juice with 100 ml of apple juice and with 200 ml of water.
Any juice costs 3 USD per liter, water costs 0.5 USD per liter. If she has 20 USD, how many
portions of the cocktail can she make?
(1) 10
(2) 12
(3) 20
(4) None of the above

9. Maria earns $12 per hour in her current job and works 35 hours a week. Her disutility of effort
is equivalent to a cost of $2 per hour of work. If she loses her job, she will receive unemployment
benefit equivalent to $6 per hour. Additionally, being unemployed has psychological and social
costs equivalent to $1 per hour. Then:
(1) The employment rent per hour is $3.
(2) Maria’s reservation wage is $6 per hour.
(3) If she is offered a job with the wage $11 and disutility of $0,5, she will refuse.
(4) If she is offered a job with the wage $14 and disutility of $3, she will take it.

10. Which of the following statements best describes the concept of commitment device?
(1) A student announces through social media that he will contribute to charity every
time he gets a grade lower than B− and publish the receipts online.
(2) A country leader announces the new policy of fighting corruption through increased fines
for corrupt officials.
(3) An investor buys treasury bonds.
(4) The price of ice-creams increases after a surge in demand.
11. The table represents market demand Q for a good at different prices P.
Q 100 200 300 400 500 600 700 800 900 1,000
P $270 $240 $210 $180 $150 $120 $90 $60 $30 $0
The firm’s unit cost of production is $60. Based on this information, which of the following is
correct?
(1) At 𝑄 = 100, the firm’s profit is $20,000.
(2) The profit-maximizing output is 𝑄 = 400.
(3) The maximum profit that can be attained is $50,000.
(4) The firm will make a loss at all outputs of 800 and above.

12. Which of the following scholars represents the modern institutional theory of economic growth?
(1) Daron Acemoglu
(2) Jared Diamond
(3) Thomas Malthus
(4) Adam Smith

13. Which of the following statements is correct?

(1) A fall in the mortgage interest rate would shift down the demand curve for new houses.
(2) The launch of a new Samsung smartphone would shift up the demand curve for existing
iPhones.
(3) A fall in the oil price would shift up the demand curve for oil.
(4) A fall in the oil price would shift down the supply curve for plastics.

14. The demand for widgets is given by Q = 100–2P, the supply is given by Q = –20 + P. The
government sets the price ceiling at P̄ which results in the deficit 30. Find P̄ .
(1) P̄ = 10
(2) P̄ = 20
(3) P̄ = 30
(4) P̄ = 40

15. Which of these measures will by itself decrease the Gini coefficient of income distribution?
(1) Flat rate income tax
(2) Regressive income tax
(3) Progressive income tax
(4) Income tax at the rate of 80% for the richer half of the population and income tax at the
rate of 20% for the poorer half.

16. Which of the following best describes natural monopoly?

(1) An eco-friendly monopoly.
(2) A firm that can produce at lower average costs than two or more firms.
(3) A monopoly on the agricultural market.
(4) A monopoly that was created without government intervention.
17. Which of the following statements is correct?
(1) The fundamental value of the shares in a firm is determined by expected future
profits and systematic risk.
(2) If there is no new information regarding the future profitability or systematic risk of a
firm, but its share price keeps rising, the fundamental value must be increasing.
(3) Buying a share at a price above its fundamental value in the hope that someone else would
buy it from you at an even higher price is guaranteed to lose money.
(4) All investors always agree on the fundamental value of the shares in a firm.

18. Consider a perfectly competitive market where all firms have constant and equal average cost
(a constant cost industry). How will an increase in demand affect the long run equilibrium price on
such a market?
(1) Price will increase
(2) The price will remain constant
(3) The price will decrease
(4) Unclear

19. Consider the situation where the noise of a factory’s production affects nurses in the dormitory
next door. If there are no transaction costs to impede bargaining, which of the following statements
is correct?
(1) Whether the final output level will be Pareto efficient depends on who has the initial
property rights.
(2) The nurses would be better off in the bargained allocation if they initially had a
right to undisturbed sleep than they would if the factory has the right to make noise.
(3) If the factory has the right to make noise, it will prefer not to bargain with the nurses.
(4) If the nurses have the initial rights, they will obtain all of the net social gain from factory
production.

20. You are going to buy a laptop for 1,000 USD. You can either withdraw this money from your
bank account (it pays 10% interest yearly) or do it using one of the following credit schemes. Pick
the scheme in which you will spend the most amount of money overall.
(1) Paying directly from you bank account.
(2) Credit at 0.1% compound interest per day, the only payment is at the end of the
year.
(3) Credit at 12% interest rate per year, the only payment is at the end of the year.
(4) Credit at 0.5% compound interest per month, the only payment is at the end of the year.

21. Which of the following statements is correct?

(1) GDP can be measured either as the total spending on domestically produced goods
and services, or the total value added in domestic production, or the sum of all incomes
received from domestic production.
(2) Both exports and imports are included in the measurement of GDP.
(3) Government production is not included in the GDP.
(4) Domestically consumed goods are included in GDP with more weight than exports.
22. A perfectly competitive market has 100 firms, each of which has constant MC = 10. The
demand function is given by Q = 100−P. How much will the market price increase if all firms create
a cartel and maximize joint profit?
(1) By 15
(2) By 35
(3) By 45
(4) By 50

23. Which of the following statements is correct?

(1) Maintaining fiscal balance in a recession helps to stabilize the economy.
(2) Automatic stabilizers refer to the fact that economic shocks are partly offset by
households smoothing their consumption in the face of variable income.
(3) The multiplier on a fiscal stimulus is higher when the economy is functioning at full
capacity.
(4) A fiscal stimulus can be implemented by raising spending to directly increase
demand, or by cutting taxes to increase private sector demand.

24. Which of the following happened at the beginning on the 21st century?
(1) The Great Depression
(2) The Great Recession
(3) The First Industrial Revolution
(4) Collapse of the gold standard

25. Which of the following statements is correct?

(1) When interest rates go down, asset prices go up.
(2) The zero lower bound refers to the central bank’s inability to set the real interest rate to
below zero.
(3) Quantitative easing involves the central bank lowering its official interest rate.
(4) Interest rates cannot be set in a currency union.

26. Firm S is a monopolist on the market for space tourism. The demand for its service is discrete:
consumers are eager to pay 12M USD for the first trip, 11M USD for the second trip, etc., up to
1M USD for the 12th trip. To organize a trip, the firm must spend 4M USD. What is the difference
between the maximum profit that the firm S can obtain with the perfect price discrimination
compared to linear pricing?
(1) 10M
(2) 16M
(3) 20M
(4) None of the above

27. Which of the following statements is correct?

(1) In the short-run model the amount of some factor is fixed, while in the long-run
model the amount of this factor can vary.
(2) Labor-saving technological progress raises unemployment in both the short and long run.
(3) Firms are more likely to enter the market when the markup is low.
(4) The markup is independent of the number of firms.
28. You can often hear the success stories of investors who earn a lot of money at the stock market.
At the same time, the stories of many failures remain untold. This can create a wrong impression
that investing in the stock market is always profitable. This logical fallacy is called
(1) Survivorship bias
(2) Confirmation bias
(3) Self-fulfilling prophecy
(4) Endowment effect

29. Which of the following statements is correct, ceteris paribus?

(1) An increase in the trade surplus would lead to a decrease in a country’s current account.
(2) A country with zero trade balance but historically high foreign direct investment would
always have a current account deficit.
(3) An increase in remittances by a country’s nationals abroad would lead to a lower current
account.
(4) An increase in the official aid payment sent to other countries means a lower current
account.

30. Which of the following best describes the concept of liquidity trap?
(1) A person cannot withdraw money from his bank account because of the bank’s
bankruptcy.
(2) A firm wants to invest money earned but cannot find projects worth investing in.
(3) A government has so much debt that it has to default.
(4) The interest rate is so low that people prefer holding cash.
 Taiwanese Economics Olympiad

Example of Test Paper

Open Questions

3 sections with 6 open questions; the overall time limit is 180 minutes.
Every problem is worth 30 points.
You must choose at least one problem from each section. Solve no more than 4
problems out of 6.
If you provide solutions for 5 or 6 problems, all of them will be commented by the
Jury but only 4 will add to your score. In this case, if you do not specify which to grade,
the lower 4 grades will be included.
If not stated otherwise, think of all goods, services and assets as of infinitely divisible.
Numbers of firms and people may be only integer.
Convey your ideas clearly. Don’t skip important logical transitions in your reasoning.
Take care of handwriting. If you strike something out, it won’t be graded.
If you want to leave the room for a while, raise your hand and ask a volunteer.
Good luck!
 Section 1
Problem 1. “Cross-Strait Service Trade Agreement”. (30 raw points)
The Cross-Strait Service Trade Agreement, commonly abbreviated CSSTA and sometimes
alternatively translated Cross-Strait Agreement on Trade in Services (Chinese: 海峽兩岸服務貿
易協議) is a treaty between the People's Republic of China and the Republic of China on Taiwan,
signed in June 2013 but never ratified by the Taiwanese legislature, aimed at liberalizing trade in
services between the two economies. Under the terms of the treaty service industries such as
banking, healthcare, tourism, film, telecommunications, and publishing would be opened to
investment and businessmen would be able to obtain indefinitely renewable visas for the other
territory. It would become easier for businesses to set up offices and branches in the other territory
and for large stakes in businesses to be sold to the other party’s investors.
a) (15 rp) Describe how the trade situation between the two countries will change if the
agreement is passed.
b) (15 rp) Do you support or oppose this agreement? Explain why.

Problem 2. “The Consumer Voucher”. (30 raw points)

The Republic of China Consumer Voucher (Chinese: 振興 經濟消 費券) was part of an
economic stimulus package held by the government of the Republic of China. The distribution of
the vouchers to every ROC citizen born before 31 March 2009 and some foreign residents (i.e.
spouses of citizens) began on 18 January 2009. The purpose of these vouchers was to combat the
economic downturn in the country mainly due to the global financial crisis which began in 2007.
According to government officials, the vouchers had to be picked up before 30 April 2009, had to
be used before 30 September 2009, and could not be deposited into bank accounts. The overall
amount distributed in the form of Consumer Vouchers was NT$85.8 billion.
Each recipient was entitled to NT$3600, the day the vouchers were distributed. Around 91%
of the vouchers were issued during the first phase of the distribution. These vouchers could be
used to purchase just about any item in Taiwan; however, there were a few notable restrictions.
They could not be used to buy lottery tickets or stored-value merchandise, such as prepaid cards.
Based on the premise of a multiplier effect in economics, the ROC Government estimates a
growth of 0.66% to 1% in GDP.
a) (15 rp) Describe how the Consumer Voucher results in the growth in GDP.
b) (15 rp) Do you support or oppose this policy? Explain why.
 Section 2
Problem 3. “True cost?” (30 raw points)
In Moscow, there exists a restaurant chain that uses the following pricing mechanism. A
consumer must pay some entrance fee, after that they can order whatever they want for the
price that is equal to the cost of ingredients.
The price of an entry ticket depends on the time of the day (being higher in the evening
than in the morning), but prices of menu items remain the same and are very low for Moscow
standards. For instance, a portion of pasta costs only about $2–2.5, the price of a ribeye steak
is about $4, a burger with grilled tiger prawns and arugula can be purchased for merely $3. For
only $3–4 a customer can drink a glass of decent wine. These prices are very low compared
to other restaurants in the city. Customers must eat and drink inside; if they want to take
something away, the price doubles.
c) (15 rp) One of the well-known models of price discrimination explains how similar
pricing scheme can be profitable for a seller (for instance, in Disneyland entrance fee is
high while using most of its facilities is free). Using this model, explain, how such pricing
technique helps this restaurant maximize profits (use graphical analysis where
appropriate).
d) (15 rp) While such a scheme is successful in the theme park industry and restaurant
business, we don’t see supermarkets or clothes shops pricing this way. Explain why.
Problem 4. “Intergenerational Elasticity” (30 raw points)
The degree to which members of society have equal opportunity of success, irrespective of
their family background, is often measured by intergenerational elasticity of income. Roughly,
it measures what percentage of inequality between members of the generation is passed on
to the members of the next generation. Here is a definition from The Economy by CORE:
[C]onsider two pairs of fathers and children. The father in the first pair is richer
than the father in the second. The intergenerational elasticity measures how much
richer the child of the well-off father will be than the child of the poorer father. An
elasticity of 0.5, for example, means that if one father is 10% richer, then his child,
when grown up, will be on average 5% richer than the other child.
The following graph show the relation between inequality and intergenerational income
elasticity. Sometimes it is called The Great Gatsby Curve.

Corak, M. (2012). Inequality from generation to generation: The United States in comparison.
Provide two distinct economic arguments that explain the positive correlation between
current inequality (measured by the Gini coefficient) and intergenerational inequality.
 Section 3
Problem 5. “Substitutes and complements” (30 raw points)
Consider two commodities, A and B, that are substitutes in consumption.
a) (10 rp) Suppose that the number of consumers of good A increased, thus shifting the
demand for it. Assuming perfect competition in both markets, what can you say about the
resulting change in the price of B? Explain in detail.
b) (10 rp) Suppose that A and B are not only substitutes in consumption but also
complements in production. What can you say about the resulting change in the price of B?
Explain in detail.
c) (10 rp) Give a real-world example of two commodities that are both substitutes in
consumption and complements in production.

Problem 6. “Letting the Briber Go Free” (30 raw points)

A situation where a government official uses his position to acquire illicit benefit is called
corruption. Corruption is a big problem in many countries and governments design
different policies to curb it. According to one of the proposed policies (sometimes called the
Basu proposal), the government should make it legal to give bribes and severely punish only
bribe-takers.
a) (10 rp) Explain the logic behind this proposal: why may it work?
b) (10 rp) Suppose Alice and Beatrice are trying to pass a test to get the driver’s licenses.
Alice is a good driver. However, Beatrice is a hazard to other drivers and is about to fail
the test. The examiner is corrupt and tries to maximize his revenue from bribes. How will
implementing the Basu proposal might affect Alice and Beatrice?
c) (10 rp) Generalize the example above: for what class of bribes the Basu proposal can be
an efficient policy?
 Taiwanese Economics Olympiad

Example of Test Paper

Business Case Study

This task includes the oral presentation of the results. Presentations can be supported
by slides or posters. The presentations should be in English.
Case study task lasts for 1 hour and 15 mins — 1 hour of preparation, 10 minutes of
the presentation and 5 minutes for Q&A. You are allowed to use your own personal
computer. During the period of preparation, you may use any online and offline materials,
but it is prohibited to contact other people for help.
If not stated otherwise, think of all goods, services and assets as of infinitely
divisible.
Numbers of firms and people may be only integer.
If you want to leave the room for a while, raise your hand and ask a volunteer.
Good luck!
 Taiwan High Speed Rail
You are hired as a financial advisor for Taiwan High Speed Rail (THSR). Now the
company wants to evaluate whether all THSR stations generate operating benefits.
Please help the operating team to collect and analyze data and give some suggestions.