1) Suppose that a unit tax imposed to a good is removed. Explain the market equilibrium inthis new situation by using appropriate graphs. Show the loss of government and compareit to the changes in the consumer and producer surpluses. Are they the same? Explain.

2) By using an appropriate diagram show that if a unit tax is imposed to a product, the newequilibrium price level of that product will be higher than the initial price level but thedifference will be lower than the tax rate. Explain this conclusion by using the term "priceelasticity of demand".

3) By using an appropriate diagram show the effect of taxation on oil. Why does governmentprefer to impose a tax on that kind of products?

4) Suppose there are two goods A and B in the economy and these two goodsare complementary of each other. At the beginning, the market for each good is inequilibrium. How will an increase in the production costs of B affect both markets? Whichproperties does the new equilibrium have? Use appropriate diagrams in your answer.

5) Suppose that there are two goods A and B in the economy and these two goods aresubstitutes of each other. At the beginning, the market for each good is in equilibrium.How will an increase in the production costs of B affect both markets? Which properties doesthe new equilibrium have? Use appropriate diagrams in your answer.

6) If the aim of the government is to collect the maximum amount of tax possible, the unit taxshould be imposed on a good with a flat demand curve rather than on a good with a steepdemand curve. True or false? Explain your answer by using appropriate diagrams.

7) Explain (by using an appropriate diagram) why the profit maximization condition for afirm is "marginal revenue equals marginal cost".

8) Considering the derivation of supply function, explain why the supply curve has positiveslope.

9) Would it be true to say that consumers always prefer an oligopoly to a monopoly andperfect competition to both? Explain your answer.

10) a. Using appropriate diagram, show the effect of a "rent ceiling" in house market.b. Suppose that the house market is initially at the equilibrium, what will be the short andthe long run effects of an increase in demand if the initial equilibrium rent level kept as arent ceiling.

11) By using an appropriate diagram show that the imposition of a unit tax on a particulargood or service causes a welfare loss. Explain the reason for this welfare loss.2

12) What are the shapes of the production functions from which we can derive thefollowing average and marginal cost functions?a) Linear (increasing) average costb) Constant marginal costc) Decreasing average costd) Zero marginal coste) U-shaped average costf) U-shaped marginal cost

13) Using appropriate diagrams,a. Show how a monopolistic firm can achieve to obtain supernormal profit.b. Show that a unit tax imposed on the good produced by a monopolist decreasesthe monopoly profit.

14) In the below game matrix, price levels of similar products of two competitor firmsand profits that these two firms will earn at those price levels are shown.FIRM BHIGH PRICE LOW PRICEFIRM AHIGH PRICE 300, 300 -100, 400LOW PRICE 400, -100 0,0a) Determine the strategy of each firm at the equilibrium.b) In game theory, what kind of game does the above game constitutes an examplefor?Briefly explain.c) Is any solution in which both firms can obtain higher profits than they do inequilibrium possible? If yes, explain how firms can reach this result.3PART II: MACROECONOMICS

15) Explain the logic behind the derivation of the Aggregate Demand (AD) curve. In particular,explain in detail the mechanism by which a change in price level (P) causes a change in eachof the components of the aggregate demand.

16) Define the demand for money (one sentence). Explain both the motives forholding money and the factors determining the level of money demand.

17) Briefly answer the following questions.a) Why is sustained inflation a purely monetary phenomenon?b) Why is an increase in foreign exchange reserves recorded as a debit (-) item in thebalance of payments?

18) Would inflation be still costly if it were constant and fully anticipated all thetime? Explain.

19) Using AD-AS analysis, describe the effects on the economy of an increase in wages bothin the short run and in the long run.

20) Using AD and AS diagrams, explain in detail the short-run and long-run effects on theoutput and price level of the following events. Assume that the economy is initially in a longrunequilibrium.a) The central bank makes an open market purchase of government bonds.b) Oil prices rise to historical levels.

21) Using AD-AS analysis, describe the short and long run effects of the following events onthe economy.a) The government lowers the value-added tax (KDV) rate in food sector from 18 per cent to8 per cent.b) As a result of a successful campaign by commercial banks, consumer credits explode.

22) Describe how each of the following transactions affects the balance of payments ofTurkey:a) Turkey sends 1 million dollars to Asian tsunami victims.b) Foreigners increase their purchases in the Istanbul Stock Exchange.

23) Using appropriate diagrams describe how the following factors affect the TL-US Dollarexchange rate:a) For political reasons Turkish citizens boycott US goods.b) Interest rates in US increase.

24) Briefly explain the concept of the GDP deflator.

25) Explain the expenditure approach to measure GNP.4

26) Explain the income approach to measure GNP.

27) Explain the money multiplier.

28) Using AD-AS analysis, describe the effects of following actions on the economy both inthe short and long run.a) Central bank increases the discount rate.b) A decrease in wages.