First Term Test - October 19, 2011 Time: 90 minutes
Profs. Gordon Cleveland and Jack Parkinson
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.
3. This exam consists of 25 multiple choice questions (and a 2which will
confirm your exam version). For each question, choose the correct answer. If two
multiple choice answers both seem to be approximately correc t, 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
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 9 pages, including this cover page. Make sure that all 9
pages are included in your exam, and notify an invigilator immediately if any are
ECMA04 FIRST TERM TEST October 19, 2011
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 s. The answer sheet (Scantron) will not be returned to you, but
the answers will be posted on the Blackboard site, and of course your mark will be posted on the
Blackboard site as well. 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
frontier: Y = 8(400 – X ) , 0<=X<=20
Questions 1 through 3 concern this country.
1. You are told that the economy is producing efficiently and has c hosen to produce and consume 1 2 units
of X and 128 units of Y. At this point on the production possibilities frontier, you can use calculus to
obtain the opportunity cost of Y as:
A) -12 B) -6 C) 0 D) 1/6 E) 3 F) 4 1/3 G) 5
H) 6 I) 8 J) none of the above
2. Now you are told that the economy is producing efficiently and has chosen to produce and consume 16
units of X. At this point on the production possibilities frontier, you can use calculus to obtain the
opportunity cost of X as:
A) 12/128 B) 16/136 C) 6/71 D) 1/6 E) 6 F) 8 1/3 G) 9
H) 10 2/3 I) 12 1/3 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 equatio n U = XY . How many units of X
(rounding to one decimal place) are included in the set of X and Y that will maximize the utility value of
the output produced?
A) 4.3 B) 6.7 C) 7.5 D) 8.2 E) 9.6 F) 11.5
G) 12.0 H) 13.3 I) 14.5 J) none of the above 3
4. A point on the graph of a supply curve has co-ordinates P and Q1. Which1of the following three
interpretations of this point (on the supply curve) are correct?:
I. The maximum price that any supplier will accept and still supply the good is P and the1minimum
amount any supplier is willing to supply at that price is Q of 1he good.
II. At the price P1, the maximum amount of the good that suppliers are willing to supply is Q of the 1
III. Although some suppliers are willing to supply a good for less than P , the 1inimum price
suppliers are willing to accept for the last unit of the good (i.e., the Q 1h unit 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
5. If the government decides to levy a small excise tax on the buyers in a perfectly competitive market in
which the demand is perfectly elastic and supply curve is positively sloped, then we can conclude that:
(A) The buyers will bear all of the tax , and there will be some excess burden.
(B) The sellers will bear all of the tax , and there will be some excess burden.
(C) The tax burden will be shared. The buyers will bear more of the tax than sellers , and there will be
some excess burden.
(D) The tax burden will be shared. The sellers will bear more of the tax than buyers, and there will be
some excess burden.
(E) The buyers will bear all of the tax , and there will be no excess burden.
(F) The sellers will bear all of the tax , and there will be no excess burden.
(G) The tax burden will be shared. The buyers will bear more of the tax than sellers , and there will be no
(H) The tax burden will be shared. The sellers will bear more of the tax than buyers , and there will be no
(I) The buyers will bear all of the tax, and they will also bear the excess burden.
(J) none of the above
6. The price of a particular good rises 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 e lastic
(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
7. When a perfectly competitive market reaches equilibriumwhich of the following statements are true:
I. 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
II. There will be no consumers who want to change their consumption behaviour and no suppliers who
wish to change their supply decisions.
III. The quantity of the good supplied by suppliers is just equal to the quantity of the good that consumers
wish to purchase.
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
8-10. A consumer has a kinked demand curve for a good given by the following function:
P = 8 - (1/6)Q 0 ≤ Q ≤ 24
P = 20 - (2/3)Q 24 ≤ Q ≤ 30
where Q is the number units purchased each month and P is measured in dollars. The demand function is
shown in the diagram below. The good cannot be stored, but must be used in the month it is purch ased.
Questions 8 through 10 concern this consumer.
0 6 12 18 24 30
8. If the price of this good is set at $2 per unit, the consumer surplus gained by this consumer each month
through purchasing it will be:
A) $0 B) $48 C) $55 D) $74 E) $81
F) $96 G) $99 H) $104 I) $112 J) $115 5
9. One month, this consumer receives a special promotional offer through the mail offering a special deal
for one month only: instead of having to pay $2 per unit, the consumer will be allowed to consume
unlimited amounts of this good if the consumer makes an all -inclusive payment of $????. Unfortunately,
as you can see, the amount of the all -inclusive fee is missing, having been obscured by a printing error.
Intrigued, the consumer decides to call up the company to find out what the missing all-inclusive payment
is. Given what we have learned, we predict that the consumer will decide to take the special promotional
offer only if the fee is less than:
A) $30 B) $48 C) $51 D) $57 E) $59
F) $61 G) $65 H) $71 I) $75 J) $99
10. Now forget about the all-inclusive fee and return to the initial situation in which the c onsumer is
charged a price of $2 per unit. Suppose that the government imposes a tax of $3 per unit on this good,
and that the effect of the tax f alls entirely on consumers. The deadweight loss associated with such a tax