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Test 1 2011 Winter v3.pdf

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Department
Economics
Course
ECON 1B03
Professor
Hannah Holmes
Semester
Fall

Description
Page 1 of 11 McMaster University Department of Economics ECON 1B03 Midterm Test #1 VERSION 3 Instructor: Professor H Holmes Duration: 1.5 hours Total Number of Pages: 11 INSTRUCTIONS: Answer all questions on the scan sheets. USE AN HB PENCIL ONLY. Make sure you carefully fill in the bubbles. YOU MUST FILL IN YOUR STUDENT NUMBER, AND VERSION NUMBER ON THE SCAN SHEET OR YOUR GRADE WILL NOT BE RECORDED AND YOU WILL LOSE THE BONUS MARK. You may use the Casio FX calculator. Hand in the scan sheet and this test copy. TOTAL MARKS AVAILABLE: 45 NAME:____________________________________________________ STUDENT #: _______________________________________________ MUGSI ID: ________________________________________________ Page 2 of 11 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Which of the following would NOT be a determinant of demand? a. the price of related goods b. income c. tastes d. expectations e. the prices of the inputs used to produce the good ____ 2. If a good is "normal," then an increase in income will result in a. no change in the demand for the good. b. an increase in the demand for the good. c. a decrease in the demand for the good. d. a lower market price. ____ 3. If the price of a substitute to good X increases, then the a. demand for good X will decrease. b. market price of good X will decrease. c. demand for good X will increase. d. quantity demanded for good X will increase. Figure 4-2 ____ 4. Refer to Figure 4-2. The shift from D to D 1 could be caused by a. an increase in price. b. a decrease in the price of a complement. c. an increase in technology. d. a decrease in the price of a substitute. Page 3 of 11 ____ 5. Lead is an important input in the production of crystal. If the price of lead decreases, all else equal, we would expect the supply of a. crystal to be unaffected. b. crystal to decrease. c. crystal to increase. d. lead to increase. Figure 4-7 ____ 6. Refer to Figure 4-7. At a price of $35, a. there would be a shortage of 400 units. b. there would be a shortage of 200 units. c. there would be a surplus of 200 units. d. there would be a surplus of 400 units. e. the market would be in equilibrium. ____ 7. Which of the following would definitely result in a higher price in the market for Snickers? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase ____ 8. Suppose that the number of buyers in a market increases and a technological advancement occurs. What would we expect to happen in the market? a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous. b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous. c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. d. Both equilibrium price and equilibrium quantity would increase. e. None of the above are correct. Page 4 of 11 ____ 9. Market demand and supply are given as Qd = 200 - 3P and Qs = 2P - 50. Equilibrium price and quantity (P, Q) are a. ($30, 110) c. ($110, 30) b. ($50, 50) d. ($200, 5) ____ 10. Market demand and supply are given as Qd = 200 - 3P and Qs = 2P - 50. At a price of $60, there would be a. a shortage of 50 units c. equilibrium b. a surplus of 50 units d. none of the above ____ 11. Market demand and supply are given as Qd = 200 - 3P and Qs = 2P - 50. Producer surplus in this market is a. $625 c. $100 b. $1250 d. $2500 ____ 12. Market demand and supply are given as Qd = 200 - 3P and Qs = 2P - 50. If price changes from $50 to $60, the price elasticity of demand in this range is a. .21 c. 2.4 b. .86 d. 4.7 ____ 13. Demand is said to be elastic if a. the price of the good responds substantially to changes in demand. b. demand shifts substantially when the price of the good changes. c. buyers do not respond much to changes in the price of the good. d. the quantity demanded responds substantially to changes in the price of the good. ____ 14. If a good is a necessity, demand for the good would tend to be a. elastic. b. horizontal. c. unit elastic. d. inelastic. ____ 15. When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, you know that the demand for bubble gum is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic. ____ 16. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a a. 4.0 percent decrease in the quantity demanded. b. 10 percent decrease in the quantity demanded. c. 40 percent decrease in the quantity demanded. d. 400 percent decrease in the quantity demanded. Page 5 of 11 Figure 5-1 ____ 17. Refer to Figure 5-1. The section of the demand curve labeled A represents the a. elastic section of the demand curve. b. inelastic section of the demand curve. c. unit elastic section of the demand curve. d. perfectly elastic section of the demand curve. ____ 18. When the local used bookstore prices economics books at $15.00 each, they generally sell 70 per month. If they lower the price to $7.00 each they sell 90. Given this, we know that the elasticity of demand for economics books is a. 2.91, so this store should lower price to raise total revenue. b. 2.91, so this store should raise price to raise total revenue. c. 0.34, so this store should lower price to raise total revenue. d. 0.34, so this store should raise price to raise total revenue. ____ 19. If a 6 percent increase in income results in a 10 percent increase in the quantity demanded of pizza, then the income elasticity of demand for pizza is a. negative and therefore pizza is an normal good. b. negative and therefore pizza is a inferior good. c. positive and therefore pizza is an inferior good. d. positive and therefore pizza is a normal good. ____ 20. If two goods are substitutes, their cross-price elasticity will be a. positive. b. negative. c. zero. d. 1. ____ 21. Suppose that an increase in the price of carrots from $1.20 to $1.40 per pound raises the amount of carrots that carrot farmers produce from 1.2 million pounds to 1.6 million pounds. Using the midpoint method, what would be the elasticity of supply? a. 2.00 b. 1.86 c. 0.54 d. 0.50 Page 6 of 11 ____ 22. Belva is willing to pay $65.00 for a pair of shoes for a formal dance. She finds a pair at her favorite outlet shoe store for $48.00. Belva’s consumer surplus is a. $17. b. $31. c. $48. d. $65. ____ 23. Ray buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ray’s willingness to pay is a. $13,000. b. $105,000. c. $118,000. d. $131,000. ____ 24. If the cost of producing sofas decreases, consumer surplus will a. increase, then decrease. b. decrease. c. remain constant. d. increase. ____ 25. The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium market price of chocolate a. increases, and producer surplus increases. b. increases, and producer
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