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Student Number: _____________
QUEEN'S UNIVERSITY AT KINGSTON
FACULTY OF ARTS AND SCIENCE
Department of Economics
December 13, 2008
Course Sections and Instructors:
Econ 110 Section A – Ian. Cromb
Econ 110 Section B – Lorne Carmichael
Econ 111 Section A (daytime) – Art Stewart
Econ 111 Section X (evening) – Ugurhan Berkok
Time Limit: 3 Hours
Pre-Approved: Casio 991 Stickers: Blue and Gold
Mark your selections on the multiple choice answer card in PENCIL. If you make changes, be sure to erase
completely. Please record your name, student number, course number, and section letter on the multiple
choice answer card.
Part A consists of questions surveying the course material.
Parts B-F each have a series of questions related to a particular problem or situation. Try to do these
questions in order since some of the answers depend on the answers to previous questions in the series.
Part A [40 marks] FORTY course survey multiple-choice questions - 1 mark each
Parts B-F [40 marks] FORTY multiple-choice questions in 5 series - 1 mark each
• Proctors are unable to respond to queries about the interpretation of exam questions. Do your best to
answer exam questions as written. f08-my Page 2 of 25
This section consists of 40 questions that survey the course material.
Answer all 40 questions; each question is worth 1 mark.
Use the multiple choice answer card provided. Shade IN PENCIL the area corresponding to the best answer. If
you make changes, be sure to erase completely. Please record your name, student number, course number, and
section letter on the multiple choice answer card.
1) Which of the following would be least likely to earn economic rent?
A) an owner of land located on Young Street, near downtown Toronto
B) Celine Dion, famous singer
C) Jim Murray, an auto-plant worker in Oshawa, Ontario
D) Robert Bateman, famous wildlife artist
E) a university professor who loves every bit of his job
The diagram below shows the demand and supply curves for refrigerators in Canada.
Refer to Figure 34-1. Suppose that 0 is the world price. If Canada imposes a tariff
causing the price of refrigerators in Canada to rise 0rom P1to P , the consequence
would be that
A) both domestic production and domestic consumption would decrease by equal amounts.
B) domestic production will increase from 1 to 2 and domestic consumption
will fall from Q to Q .
C) domestic production will increase from Q1 to3Q and domestic consumption
will fall from5Q to 3 .
D) domestic production will exceed domestic consumption.
E) both domestic production and domestic consumption would increase by equal
amounts. f08-my Page 3 of 25
Consider the following cost curves for a perfectly competitive firm.
3) Refer to Figure 9-2. If the price is $6 and the firm is producing at its profit-
maximizing output, then total costs for the firm are
A) $100. B) $300. C) $1600. D) $2400. E) $3500.
Suppose a monopolist faces the demand curve and cost curves shown below.
4) Refer to Figure 10-3. The average per unit profit earned by this profit-maximizing
single-price monopolist is
A) P4-P 0 B) P4-P 1 C)P 4P .2 D) P4-P 3 E)P 3P .2 f08-my Page 4 of 25
5) An example of the "infant industry" argument for trade protection is that
A) all tariffs should be eliminated in order to maximize the gains from trade.
B) tariffs should not be imposed on countries that have democratic governments.
C) in the presence of unexploited scale economies, tariff protection may permit a
country to develop future comparative advantage in certain products.
D) imports of certain products should be limited in the interests of national
E) "strategic" trade policy is helpful when other countries are also being strategic.
The table below shows the demand schedule for a product produced by a monopolist.
Price $8 $7 $6 $5 $4 $3 $2
Quantity 5 6 7 8 9 10 11
6) Refer to Table 10-1. For a single-price monopolist, the marginal revenue associated
with increasing sales from 5 to 6 units is
A) -4. B) -2. C) 0. D) 2. E) 4.
7) Suppose that, in a two-good world, the price of the first good has increased from
$3.00 to $4.00 and the price of the second good has increased from $150 to $200.
The relative price of the first good
A) has fallen.
B) has risen.
C) remained constant.
D) cannot be determined from the above data.
E) is completely unrelated to the price of the second good.
8) The shut-down point is the price at which a competitive firm can just cover its
A) marginal costs.
B) non-economic costs.
C) fixed costs.
D) unstated costs.
E) variable costs. f08-my Page 5 of 25
9) Refer to Figure 5-6. The market for good X is in equilibrium at P0and Q .0
Economic surplus is represented by
A) areas 1 and 5.
B) areas 2, 3, 4, 6, 7, 8.
C) areas 1, 2, 3, 5, 6.
D) areas 1, 2, 3, 4, 5, 6, 7, 8.
E) areas 2, 3, 4, 6, 7, 8, 9.
10) Two nations want to engage in trade but discover that one of them is more efficient
in producing all goods. In this case,
A) each nation should export the good in which it has a comparative advantage.
B) no trade is possible.
C) the more efficient country should produce all goods and export them.
D) the less efficient country should engage in importation of goods only.
E) the more efficient country should import all goods. f08-my Page 6 of 25
Consider the following AR and MR curves for a single-price monopolist.
11) Refer to Figure 10-1. The price elasticity of demand at Q i2
B) greater than 1.
C) less than 1.
D) equal to 1.
E) not determinable from the diagram.
12) All of the following will cause the supply curve to shift EXCEPT:
A) a change in factor costs.
B) a technological change.
C) a change in the price of the good.
D) a change in the number of suppliers of the commodity.
E) a change in the price of a good that is a production substitute.
13) The imposition of an excise tax will cause the least burden on consumers when
B) unitary elastic.
C) perfectly inelastic.
D) perfectly elastic.
14) When the percentage change in quantity demanded resulting from a price change is
less than the percentage change in price, demand is said to be
B) zero elastic.
C) perfectly elastic
D) unit elastic.
E) inelastic f08-my Page 7 of 25
15) During the nineteenth and early twentieth centuries, millions of people immigrated
to Canada. The effect on the Canadian economy was to
A) move it beyond its new production possibilities boundary.
B) move it inside its new production possibilities boundary.
C) shift its production possibilities boundary inward.
D) shift its production possibilities boundary outward.
E) move it along an unchanged production possibilities boundary.
16) Suppose that a monopolistically competitive firm decides to raise its price. The
theory of monopolistic competition predicts that
A) this firm would lose some, but not all of its customers.
B) this firm would increase its profits.
C) this firm would lose all of its customers.
D) increasing the price has no effect on profits.
E) a large loss of customers as the demand facing the firm is quite inelastic.
The diagram below shows the market for litres of milk.
17) Refer to Figure 5-8. Suppose that a binding output quota is imposed on this market
at quantity Q1. The loss in economic surplus due to the quota is equal to
A) areas 5 and 6.
B) areas 5, 6 and 7.
C) areas 2 and 5.
D) area 1.
E) areas 1, 2 and 3. f08-my Page 8 of 25
18) Each point on a supply curve shows the ________ acceptable price to firms for
selling that unit; this price reflects ________ to firms from producing that unit.
A) minimum; the equilibrium price
B) maximum; the additional value
C) minimum; the additional value
D) maximum; the additional cost
E) minimum; the additional cost
19) Refer to Figure 5-1. If the diagram applies to the market for rental housing and3P
represents the maximum rent that can be charged, then
A) there will be an excess supply of rental units equal to BD.
B) units supplied will be reduced relative to the competitive equilibrium by AF
C) windfall profits will be earned by landlords.
D) there will be excess demand for rental units equal to FC.
E) there will be excess demand for rental units equal to AF.
20) In the short run, when a perfectly competitive firm is at its profit-maximizing level
of output, it
A) is doing as well as it can and is making a profit.
B) may be making a profit or incurring a loss.
C) is producing where P = AVC.
D) is producing where MC = AC.
E) is producing where price exceeds marginal cost. f08-my Page 9 of 25
Chris's consumption of specialty coffee per week.
21) Refer to Figure 6-7. Suppose Chris's income is such that he is able to buy no more
than 10 specialty coffees per week. If Chris is maximizing his utility at this level of
income, how many specialty coffees is he consuming per week?
A) 2 B) 4 C) 5 D) 6 E) 10
22) An economic theory
A) is only useful if its underlying assumptions are perfectly realistic.
B) will be useful as long as it is logically consistent.
C) must be judged on its ability to explain and predict real-world phenomena.
D) will predict more accurately if it contains a greater number of mathematical
E) will be useful only if all human behaviour is rational. f08-my Page 10 of 25
The payoff matrix below shows the payoffs for Firm A and Firm B, each of whom can
either "cooperate" or "cheat". The numbers in parentheses are (payoff for A, payoff for B).
▯▯▯▯▯ ▯▯Table 11-1
23) Refer to Table 11-1. What is the smallest value for x in order for both firms'
cheating to be a Nash Equilibrium?
A) 25 B) 40 C) 60 D) 70 E) 100
24) Consider a firm that uses only labour and capital. At the present use of labour and
capital, the MP of labour is two times the MP of capital, and the price of labour is
two times the price of capital. In order to minimize its costs, the firm should
A) substitute capital for labour until their marginal products are equal.
B) decrease both capital and labour.
C) decrease capital and increase labour.
D) increase both labour and capital.
E) not alter its present factor mix.
25) Refer to Figure 4-3, which shows a demand shift and the short-run and long-run
supply curves for some product. The diagram illustrates the general principle that
A) supply is less elastic in the long run.
B) demand is less elastic in the long run.
C) supply is more elastic in the long run.
D) both demand and supply are less elastic in the long run.
E) demand is more elastic in the long run. f08-my Page 11 of 25
26) The conditions for a perfectly competitive market include which one of the
A) Firms behave as price takers.
B) Profits are zero in the short run.
C) New entrants cannot threaten the position of existing firms.
D) Firms can control prices.
E) Firms must employ the newest technologies as soon as they are developed.
The following production possibilities schedule shows the quantities of soybeans and
oil that can be produced in Canada and Mexico with one unit of equivalent resources.
Canada 60 10
Mexico 24 8
27) Refer to Table 33-3. The opportunity cost of a barrel of oil in Canada is
A) 16.67 bushels of soybeans.
B) 6 bushels of soybeans.
C) 2.5 bushels of soybeans.
D) 1.2 barrels of oil.
E) 0.8 barrels of oil.
28) Given the assumption of utility maximization, Karen will allocate her expenditures
in such a way that
A) her total utility from each good is equal.
B) the total number of dollars she spends on each good is equal.
C) her utility received from the last unit of each good is equal.
D) her utility received per dollar spent on the last unit of each good is equal.
E) none of the above. f08-my Page 12 of 25
29)Refer to Figure 6-8. Suppose the consumer begins at 1 . The income and
substitution effects of the reduction in the price of X are represented as follows:
A) the distance Q1d shows the substitution effect and the distan2e Q e shows the
B) the distance de shows the income effect and the distance cd shows the
C) the distance 1 2 shows the income effect and the distance 2 3 shows the
D) the distance Q1 2shows the substitution effect and the distance2 3Q shows
the income effect.
E) the distance Q Q shows the substitution effect and the distance Q Q shows
1 3 2 3
the income effect.
30) We can predict that resources will move into an industry whenever
A) accounting profits for firms in that industry are greater than zero.
B) accounting profits for firms in that industry are zero.
C) economic profits for firms in that industry are zero.
D) economic profits for firms in that industry are greater than zero.
E) economic losses for firms in that industry are minimized.
31) Which of the following statements belongs more properly in the field of normative
economics than positive economics?
A) An increase in the minimum wage leads to more unemployment.
B) The price of one Canadian dollar is $0.85 U.S.
C) When a drought occurs, the price of vegetables tends to rise.
D) Canadian farmers should be assisted by the federal government.
E) Technological change has reduced the cost of long-distance phone service. f08-my Page 13 of 25
32) Consider cars and gasoline. Other things being equal, when the price of cars
decreases, the demand for gasoline is likely to
A) increase because the two goods are complements.
B) decrease because the two goods are complements.
C) remain unchanged.
D) remain unchanged because cars and gasoline are produced independently of
E) remain unchanged because cars and gasoline are two distinct markets.
33) If all countries try to expand their exports and restrict their imports through the use
of export subsidies and import tariffs, the net effect will probably be
A) a fall in the volume of trade and an increase in the standard of living in each
B) a fall in the volume of trade and a decline in the average living standards in
C) an increase in the volume of trade but little change in unemployment levels.
D) no change in the volume of trade but an increase in the overall unemployment
E) no change in the volume of trade but less unemployment.
34) Suppose that supply for some good increases and that simultaneously the demand for
the same good decreases. The result would be
A) a decrease in P and an indeterminate change in Q.
B) a decrease in Q and an indeterminate change in P.
C) an increase in Q and a decrease in P.
D) an increase in Q and an increase in P.
E) no change in either P or Q.
35) The main reasoning behind protectionist trade policies is to
A) create a level playing field.
B) promote exports.
C) raise government revenues through tariffs.
D) maximize world production.
E) to shield local producers from foreign competition. f08-my Page 14 of 25
36)Refer to Figure 3-6. If the initial demand and supply curves 1re D a1d S , and
demand shifts to D2, then
A) a permanent shortage of X will result.
B) a surplus of1 3Q will occur.
C) a shortage will occur at any price above P .
D) if price remained at2P , a shortage o1 3 Q would exist.
E) all of the above
The table below shows the demand schedule for museum admissions in a small city.
Price Quantity Demanded
(per visit (thousands of person-
per person) visits per year)
$ 8 4
$ 6 6
$ 4 8
$ 2 10
37)Refer to Table 4-1. The elasticity of demand for museum admissions is
A) greater at higher prices than at lower prices.
B) elastic at all points on the demand curve.
C) inelastic at all points on the