2010 MIDTERM 1 QUESTIONS

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Department
Economics for Management Studies
Course
MGEA02H3
Professor
All Professors
Semester
Summer

Description
ECMA04H First Term Test - October 20, 2010 Time: 90 minutes Prof. 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 → Fill in the bubble neatly and completely → 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. Page 2 of 8 ECMA04H FIRST TERM TEST October 20, 2010 th This term test consists of 25 questions (plus a 26 identifier question). Answer each question by choosing the best alternative and indicating your choice in the appropriate place on the scantron sheet provided with this exam (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 this test booklet. The scantron sheet will not be returned to you, but correct answers will be posted on the course website, and your grade will be available to you through the intranet. Each correct answer to questions 1 through 25 is worth 4 marks (there is no deduction for wrong answers). 1. A point on the graph of a demand curve has co-ordinates P and Q . Which of the following three 1 1 interpretations of this point (on the demand curve) are correct?: I. The maximum price that any consumer is willing to pay for this good is P and the1minimum amount this consumer is willing to purchase at that price is Q of1the good. II. At the price P1, the maximum amount of the good that consumers are willing to purchase is Q of the 1 good. III. Although some consumers are willing to pay more than P for thi1 good, the maximum price consumers are willing to pay for the last unit of the good (i.e., the Q th1unit of the good) is P . 1 (A) Only statement I is correct (B) Only statement II is correct (C) Only statement III is correct (D) Statements I and II are both correct (E) Statements I and III are both correct (F) Statements II and III are both correct (G) Statements I and II and III are all correct (H) None of the statements are correct 2. If the government decides to levy a small excise tax on the buyers in a perfectly competitive market in which the elasticity of demand is greater than the elasticity of supply, then we can conclude that: (A) The buyers will bear all of the tax (B) The sellers will bear all of the tax (C) The buyers will bear more of the tax than sellers (D) The sellers will bear more of the tax than buyers (E) The government will bear most of the tax (F) It is not possible to tell who will bear most of the tax without additional information (G) The tax will be shared equally between the buyers and the sellers (H) There will be a smaller amount of excess burden than there would have been if the elasticity of supply is greater than the elasticity of demand (I) all of the above (J) none of the above Page 3 of 8 3. The price of a particular good falls by a small amount, and as a result the total amount of money spent purchasing this good decreases. We can conclude that: (A) In the neighbourhood of the original price, the supply curve of this good is elastic (B) In the neighbourhood of the original price, the supply curve of this good is inelastic (C) In the neighbourhood of the original price, the supply curve of this good is perfectly elastic (D) In the neighbourhood of the original price, the supply curve of this good is perfectly inelastic (E) In the neighbourhood of the original price, the demand curve of this good is elastic (F) In the neighbourhood of the original price, the demand curve of this good is inelastic (G) In the neighbourhood of the original price, the demand curve of this good is perfectly elastic (H) In the neighbourhood of the original price, the demand curve of this good is perfectly inelastic (I) In the neighbourhood of the original price, the demand curve of this good is unit elastic (J) None of the above 4. When a perfectly competitive market reaches equilibrium, which of the following statements are true: I. The quantity of the good supplied by suppliers is just equal to the quantity of the good that consumers wish to purchase. II. All consumers will get to consume the amount of the good they are willing to consume at that price and all suppliers will get to supply the amount of the good they are willing to supply at that equilibrium price III. There will be no consumers who want to change their consumption behaviour and no suppliers who wish to change their supply decisions. A) only I B) only II C) only III D) I & II E) I & III F) II & III G) I, II & III H) none of the three 5-8. A country produces goods X and Y and has the following equation for its production possibilities frontier (or production possibilities curve): 2 Y = 30 - .3(1+2X) Questions 5 through 8 concern this country. 5. The point X = 2.5, Y = 20.2 is: A) attainable and efficient B) attainable and inefficient C) unattainable D) unattainable and efficient E) imaginable and feasible F) none of the above 6. You are told that the economy is producing efficiently and has chosen to produce and consume 2 units of X and 22.5 units of Y. At this point on the production possibilities frontier, you can use calculus to obtain the opportunity cost of X as: A) 1.4 B) 2.8 C) 3.0 D) 4.8 E) 5.0 F) 5.8 G) 6.0 H) 6.4 I) 7.2 J) none of the above Page 4 of 8 7. Now you are told that the economy is producing efficiently and has chosen to produce and consume 2.5 units of X. At this point on the production possibilities frontier, you can use calculus to obtain the opportunity cost of Y as: A) 12/5 B) 5/12 C) 2 D) 1/2 E) 1 F) 14/5 G) 5/14 H) 16/5 I) 5/36 J) 36/5 8. Suppose that those in charge of this economy want to maximize the value of the output produced. Each unit of X sells for $6 and each unit of Y sells for $1, so that the value of the output can be represented by the equation V = 6X + Y The point on the PPF that will maximize the value of the output involves the production of how many units of X? A) 0 B) 1 C) 2 D) 3 E) 4 F) 5 G) 6 H) 7 I) 8 J) 9 9. Which of the following statement(s) about production possibilities frontiers (PPFs) is (are) generally true? I) the changing slope of the PPF illustrates the concept of increasing costs II) the second derivative of the PPF illustrates the concept of scarcity of resources III) the slope of the PPF illustrates the concept of opportunity costs A) only I B) only II C) only III D) I & II E) I & III F) II & III G) I, II & III H) none of the three 10-14. The market for broccoli (which we will assume is a competitive industry) is in equilibrium, and its short run supply and demand schedules have the usual shapes. Broccoli is a normal good and you can safely ignore any effects of income on the demand for related goods. Cheese sauce is a complementary good to broccoli, and asparagus is a substitute good for broccoli. Questions 10 through 14 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 broccoli. 10. The price of asparagus rises. As a result, in the market for broccoli: * * * * * * 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 Page 5 of 8 11. Wages in the broccoli industry rise. At the same time, the price of cheese sauce falls. As a result, in the market for broccoli: A) P and Q both rise B) P and Q both fall C) P rises and Q falls * * *
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