Class Notes
(809,632)

Canada
(493,758)

University of Toronto Scarborough
(30,820)

MGEB11H3
(64)

Victor Yu
(61)

Lecture

# practice mgeb02.doc

Unlock Document

University of Toronto Scarborough

Economics for Management Studies

MGEB11H3

Victor Yu

Fall

Description

1
Ian Parker
MGEB02 SAMPLE MIDTERMS
PRELIMINARY NOTES:
1. The following midterm tests are actual tests from previous years.
*2. The course syllabus has been changed this year from that of previous years. We will be
studying monopoly (Chapter 12), which was not formerly covered in ECMB02. As a result,
certain topics have been eliminated from the present syllabus, in particular those related to
intertemporal choice (in Chapter 5 of your text) and those related to the economics of
information and behaviour under uncertainty (in Chapter 6 of your text). Some of the
questions on the sample tests will therefore not appear on this year’s tests. I have left them
in so that you can try them (for interest’s sake), if you wish, and because they will give you
a sense of the types of question you can be asked, even if these specific topics will not be
covered.
**3. Working through past sample midterms is one means of preparing for this year’s
midterms. But professors can be tricky, and if a question has been asked before, it may be
that the professor will not put it on this year’s midterms, because he or she feels that in
studying for the midterms you already will have mastered this type of question. It may also
be that the prof will put on a question which looks almost the same as a sample question,
but where the wording has been changed so that the right answer is exactly the opposite of
the answer to the sample question. Therefore, read the questions carefully!
In any event, in addition to working through the sample midterms, you will want to
work through the chapter-end questions and problems in the text, and try the suggested
questions I toss out in class (without solving them, as ‘additional exercises’). I promise you
that at least some of the midterm problems will be drawn directly from these problems and
questions in the text (with numbers changed, of course, in the case of number-crunching
questions). The advantage of working through these questions and problems is that the
course manual has detailed solutions, not just answers, and so you can study the methods of
solving various problems, which will come in handy when the stated conditions and
assumptions change.
4. QUESTIONS FOR WHICH YOU WILL NOT BE RESPONSIBLE: In the Sample
Second Midterm, Questions #10, 12, 15, and 18-20 will not be asked. 2
1MGEB02H
First Midterm Test Time: 75 minutes
Prof. Ian Parker
NAME: ____________________________________________________
(Last name) (First name)
SIGNATURE: ________________________________________________
STUDENT NUMBER: ___________ LECTURE SECTION: ___________
DO NOT DETACH THIS SHEET: YOU WILL TURN IN THE ENTIRE
TEST PAPER.
USING CAPITAL LETTERS, PRINT YOUR ANSWERS TO ALL QUESTIONS IN
THE SPACES BELOW. YOU WILL HAND IN THE ENTIRE TEST.
1. 8. 15. ____________
2. 9. 16. ____________
3. 10. 17. ____________
4. 11. 18. _____________
5. 12. 19. _____________
6. 13. 20.
7. 14.
1. If two or more multiple choice answers seem to be approximately correct, choose the ONE
BEST ANSWER. Write answers to the multiple choice questions on this front sheet. If
answers are not written on this sheet, there will be no marks given for answers.
2. IN THIS TEST, THE TERM 'STANDARD CASE' REFERS TO INDIFFERENCE
CURVE CONTOUR MAPS IN WHICH THE CURVES ARE SMOOTH AND
STRICTLY CONVEX TO THE ORIGIN AND IN WHICH SOME OF ALL GOODS ARE
CONSUMED IN EQUILIBRIUM. X IS THE GOOD ON THE HORIZONTAL AXIS AND
Y IS THE GOOD ON THE VERTICAL AXIS.
3. It goes without saying that, often, drawing a rough diagram will assist in clarifying a
question and suggesting either the solution or a way of solving the problem. USE ROUGH
DIAGRAMS WHEREVER NEEDED. 3
MIDTERM TEST NAME:_____________________________________
This term test consists of 20 questions. Answer each question by choosing the best alternative and indicating your
choice with a CAPITAL letter in the appropriate place on the first page of this test. Each correct answer is worth 5
marks. There is no deduction for wrong answers.
1. The income effect of a decrease in the price of one good (ceteris paribus):
(A) describes the movement along an income consumption curve (ICC) from a higher to
a lower indifference curve at the original prices with the new money income.
(B) describes the movement along an ICC from a lower to a higher indifference curve at
the new prices with the original money income.
(C) describes the movement along an ICC from a higher to a lower indifference curve at
the new prices with the original money income.
(D) describes the movement along an ICC from a lower to a higher indifference curve at
the original prices with the new money income.
(E) describes the shift along an indifference curve to a point of higher utility.
(F) can occur only if the goods concerned are normal.
2. Over the relevant range of money income and prices, Pretzels are a net complement of Beer,
Beer is an inferior good, and Pretzels are an inferior good. The price of Pretzels is P and the
quantity of Beer demanded is Q .BWhich of A to D is IMPOSSIBLE?
(A) PPincreases and Q dBcreases.
(B) PPincreases and Q iBcreases.
(C) P decreases and Q decreases.
P B
(D) PPdecreases and Q iBcreases.
(E) Both A and D are impossible.
(F) Both B and C are impossible.
(G) All of A to D are possible.
3. With X (measured in tonnes) on the horizontal axis and Y (measured in kilograms) on the
vertical axis, and dollars as the unit of account, the slope of the budget constraint is measured in
the following units:
(A) kilograms per tonne.
(B) dollars per tonne divided by dollars per kilogram.
(C) dollars per kilogram divided by dollars per tonne.
(D) A and B.
(E) A and C.
MRS=MUx/MUy
= $/tonne / $/kg
= kg/tonne 4
4. In a 2-good (X and Y) world, utility-maximizing Eudora’s utility function has the form
U = XY . When the price of X (P )Xis $8/unit, Eudora purchases 12 units of X and 6 units of Y.
The price of Y (PY) in $/unit must therefore be:
A) 1 B) 2 C) 3 D) 4 E) 6 F) 8
G) 12 H) 18 I) 24 J) 36 K) 48 L) 96
M) 192 N) impossible to determine without additional information.
1+3=4
So, share of X is ¼. Price of x is 8x12=96
Share of Y is ¾= 96 x 3=288
288/6=48
5. Over a given range of money income and prices, X is a normal good. Therefore, if the price
of X increases (ceteris paribus):
(A) the Substitution Effect (S.E.) will increase the demand for X while the Income
Effect (I.E.) will decrease the demand for X.
(B) the S.E. will decrease the demand for X while the I.E. will increase the demand for
X.
(C) both the S.E. and the I.E. will increase the demand for X.
(D) both the S.E. and the I.E. will decrease the demand for X.
(E) the total effect of the S.E. and the I.E. combined will increase the demand for X.
(F) the total effect of the S.E. and the I.E. combined will decrease the demand for X.
(G) the total effect of the S.E. and the I.E. on the demand for X will be indeterminate.
(H) A and G
(I) B and G
(J) C and E
(K) D and F
6. If X and Y are perfect complements, then with a decrease in the price of X:
(A) the Substitution Effect (S.E.) will increase the demand for X.
(B) the S.E. will increase the demand for Y.
(C) the Income Effect (I.E.) will increase the demand for X and Y.
(D) the I.E. will decrease the demand for X and Y.
(E) the I.E. will increase the demand for X and decrease the demand for Y.
(F) the I.E. will decrease the demand for X and increase the demand for Y.
(G) we cannot say what the effect will be unless we know whether X and Y are normal
or inferior goods.
If two goods x and y are perfect complements, then if the price of x falls, the entire change
in the demand for x is due to the income e
ect.
In perfect complements of a two good world, they must both be normal goods. In perfect
complement of a multi-good world, both x and y can be inferior if at least one good is
normal 5
7. Over the relevant range of money income and prices, an increase in the price of good X XP )
causes an increase in the quantity of good Y (Y ) consumed. Which of A to D is
IMPOSSIBLE?
(A) X is a net complement of Y, and Y is normal.
(B) X is a net complement of Y, and Y is inferior.
(C) X is a net substitute for Y, and Y is normal.
(D) X is a net substitute for Y, and Y is inferior.
(E) All of A to D are possible.
[THE FOLLOWING SITUATION APPLIES TO THE NEXT 2 QUESTIONS. Max Enby,
a rational decision-maker, is engaged in a project where he must determine the optimal level of
an activity x. His Total Benefit curve is given by B(x) = 40x − 0.5x , and his Total Cost curve
is given by C(x) = 4x + 0.25x , where B(x) and C(x) are in dollars ($) and x is in units.]
8. Max’s Total Net Benefit is maximized where x =
A) 0 B) 8 C) 16 D) 18 E) 24 F) 30
G) 36 H) 40 I) 48 J) 72 K) 120 L) 144
M) 288 N) 360 O) 432 P) 480 Q) 960 R) 1056
S) 1920 T) None of the above.
Total net benefit= total benefit – total cost
Then, diff total net benefit
9. At the optimal point, Max’s Total Net Benefit (to the nearest dollar) is
A) 0 B) 8 C) 16 D) 18 E) 24 F) 30
G) 36 H) 40 I) 48 J) 72 K) 120 L) 144
M) 288 N) 360 O) 432 P) 480 Q) 960 R) 1056
S) 1920 T) None of the above.
Total net benefit=total benefit-total cost
=672-240
=432
10. In a 2-good (X and Y) world, at an initial equilibrium point, the elasticity of substitution
along Ralph’s indifference curve is less than 1. Therefore the substitution effect of a decrease
in PX/P Yt this point:
(A) will cause an increase in Y/X.
(B) will lower the proportion

More
Less
Related notes for MGEB11H3