# 2009 MIDTERM 1 QUESTIONS

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University of Toronto Scarborough

Economics for Management Studies

MGEA02H3

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1
ECMA04H
First Term Test - October 17, 2009 Time: 90 minutes
Professor Gordon Cleveland
Version A
Instructions: PLEASE READ CAREFULLY
1. On the Scantron answer sheet, you must
→ PRINT your last name and first name
→ enter your student number as the identification number
→ FILL IN THE BUBBLES under your name and student number
→ FILL IN THE BUBBLE ASSOCIATED WITH YOUR TEST VERSION
NOTE - THIS IS VERSION A
2. If you fail to carry out all the tasks indicated in part 1, 4 marks will be deducted
from your final score.
th
3. This exam consists of 25 multiple choice questions (and a 26 which will
confirm your exam version). For each question, choose the correct answer. If two
multiple choice answers both seem to be approximately correct, choose the best of
the two answers. Enter the answers to the multiple choice questions on the
Scantron sheet provided to you by filling in the appropriate bubble. If
answers are not written on this sheet, there will be no marks given for
answers. Each correct answer is worth 4 marks (except for question 26, where the
correct answer simply confirms your exam version); incorrect answers receive 0
marks.
4. When entering your answers on the Scantron sheet:
→ Use a medium (HB) pencil (do not use a red pen)
→ Fill in the bubble neatly and completely (this is important)
→ Erase any changes as completely as possible
→ Be very careful to place each answer in the correct place
Note: this exam consists of 8 pages, including this cover page. Make sure that all 8
pages are included in your exam, and notify an invigilator immediately if any are
missing. 2
ECMA04 FIRST TERM TEST October 17, 2009
This term test consists of 25 questions. Answer each question by choosing the best alternative and
indicating your choice by filling in the appropriate bubble on the Scantron sheet - it is the only thing you
will turn in at the end of the exam. You may take the rest of the exam away with you, so you can use the
fronts and back of these pages for your rough work. If you wish to keep a record of your answers, make a
note of them on the exam question sheet. The answer sheet (Scantron) will not be returned to you, but the
answers will be posted on the course website (www.utsc.utoronto.ca/~cleveland), and of course your
mark will be posted on the Intranet. Each correct answer is worth 4 marks (there is no deduction for
wrong answers).
1−3. A country produces goods X and Y and has the following equation for its production possibilities
2 0.5
frontier: Y = 4(900 – X ) , 0<=X<=30
Questions 1 through 3 concern this country.
1. You are told that the economy is producing efficiently and has chosen to produce and consume 18 units
of X and 96 units of Y. At this point on the production possibilities frontier, you can use calculus to
obtain the opportunity cost of Y as:
A) 1/3 B) 1/2 C) 2/3 D) 1 E) 3 F) 4 1/3 G) 5
H) 6 2/3 I) 7 3/8 J) none of the above
2. Now you are told that the economy is producing efficiently and has chosen to produce and consume 24
units of X. At this point on the production possibilities frontier, you can use calculus to obtain the
opportunity cost of X as:
A) 2 B) 2 ½ C) 3/2 D) 4 E) 4.66 F) 5 1/3 G) 6
H) 7 1/3 I) 7 3/8 J) none of the above
3. Suppose that those in charge of this economy want to maximize the utility of the residents of the
country, where utility can be computed according to the equation U = XY 2 The point on the PPF that
will maximize the value of the output involves the production of how many units of X (rounding to one
decimal place)?
A) 4.3 B) 6.7 C) 12.3 D) 17.3 E) 19.5 F) 22.7
G) 24.3 H) 26.1 I) 26.7 J) none of the above 3
4-5. The Department of Management at a major Canadian university has two main outputs: better
students and good research, represented by Y and X. We can assume that this department has a fixed
amount of faculty and other resources to use. The production possibilities frontier for this Department is
shown on the diagram below, along with several points, each of which represents a combination of X and
Y. Questions 4 and 5 deal with this diagram.
Y – better
students D
B
C
A
X - research
4. Fred Cooper, head of the Department of Management, thinks that as the pressure to publish more
research increases, the trade-off between students and research is getting worse. In terms of the diagram,
Fred is thinking about a movement from:
A) a point like A to a point like B or C B) a point like A to a point like D
C) a point like B or C to a point like D D) a point like B or C to a point like A
E) a point like D to a point like A F) a point like D to a point like B or C
G) a point like B to a point like C H) a point like C to a point like B
I) none of the above
5. The Vice Principal of Research at the University disagrees with Fred. He believes that faculty
members are not working hard enough at either teaching or research. Relating this to the diagram, we
might say that the Vice Principal is recommending that the Department of Management should move
from:
A) a point like A to a point like B or C B) a point like A to a point like D
C) a point like B or C to a point like D D) a point like B or C to a point like A
E) a point like D to a point like A F) a point like D to a point like B or C
G) a point like B to a point like C H) a point like C to a point like B
I) none of the above 4
6−9. The market for potatoes is perfectly competitive , and is in equilibrium. Its short run supply and
demand schedules have the usual shapes. Potatoes are an inferior good and you can safely ignore any
effects of income on the demand for related goods. Ketchup (or catsup) is a complementary good to
potatoes, and spaghetti is a substitute good for potatoes. Questions 6 through 9 concern this market in the
short run, and each question should be considered in isolation from the others (that is, in each question
* *
assume that the changes described in the other questions have not occurred). In all cases, P and Q refer
to the equilibrium price and quantity of potatoes.
6. Due to the collapse of the stock market and impending recession, consumers incomes fall. At the same
time, the price of ketchup falls. As a result, in the market for potatoes:
* * * *
A) P and Q both rise B) P and Q both fall
* * * *
C) P rises and Q falls D) P falls and Q rises
E) P rises, but we do not know exactly what happens to Q *
* *
F) P falls, but we do not know exactly what happens to Q
* *
G) Q rises, but we do not know exactly what happens to P
H) Q falls, but we do not know exactly what happens to P *
* * * *
I) either P and Q both rise, or P and Q both fall, or neither changes
* * * *
J) either P rises and Q falls, or P falls and Q rises, or neither changes
7. The cost of potato harvesting machines rises. At the same time, the price of spaghetti falls. As a result,
in the market for potatoes:
* * * *
A) P and Q both rise B) P and Q both fall
* * * *
C) P rises and Q falls D) P falls and Q rises
E) P rises, but we do not know exactly what happens to Q *
* *
F) P falls, but we do not know exactly what happens to Q
* *
G) Q rises, but we do not know exactly what happens to P
H) Q falls, but we do not know exactly what happens to P *
* * * *
I) either P and Q both rise, or P and Q both fall, or neither changes
* * * *
J) either P rises and Q falls, or P falls and Q rises, or neither changes
8. Now, as the result of a baby boom and higher immigration, the population grows. At the same time,
due to positive economic policies, family incomes grow. As a result, in the market for potatoes:
A) P and Q both rise B) P and Q both fall
* * * *
C

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