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Midterm

ECON 1010 Study Guide - Midterm Guide: Opportunity Cost, Economic Equilibrium, Diesel FuelExam


Department
Economics
Course Code
ECON 1010
Professor
All
Study Guide
Midterm

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PRINCIPLES OF MICROECONOMICS
Midterm Test #1; Sample #3
Time Allowed: 50 Minutes
This total marks in this test are 50. The test is divided into two parts:
Part I - problem format - is worth 40 marks (80% of the total mark of 50)
Part II - multiple choice- is worth 10 marks (20% of the total mark of 50)
(5 multiple choice questions worth 2 marks each)
Show your work where applicable.
YOU MUST USE PEN INSTEAD OF PENCIL
Print your name and student number clearly on the front of the exam and on any loose pages.
Name: _______________________________________
(Family Name) (Given Name)
Student #: ______________________
There are 6 pages to the exam.

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Principles of Microeconomics, Midterm Test #1: Sample #3
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Part I: Place your answers (and work where necessary) in the space provided.
Clearly label all axes, curves, and points.
1. Production Possibilities Curves (11 marks)
Suppose that Canadian resources can produce the following production possibilities for
Hospital Beds and Military Units.
a) 1 mark: Military units intercept = 16,000
and Beds intercept = 24,000
1 mark: PPC curve is concave initially and then
linear (must be obvious)
b) A point inside PPC
d) i) 1 mark: no change in the Military intercept (whatever
it is)
1 mark: Beds intercept = 26,400 (1.1*24,000) Don’t
worry about shape of PPC provided it only touches at Military intercept
a) Sketch the country's production possibilities curve (PPCo) in the space below the table with
Military units on the vertical axis. (2 marks)
b) Put a point ‘R’ on your diagram indicating output during a recession. (1 mark)
c) The opportunity cost of increasing production of Military Units from 12,000 to 16,000 is
9,000 Beds (must have Beds or Hospital) ? (1 mark)
d) The opportunity cost of increasing Hospital Bed production from 9,000 to 16,000 beds is
4,000 Military Units (don’t deduct marks if no Beds) ? (1 mark)
e) The opportunity cost/unit of increasing production of Hospital Beds from 16,000 to 20,000
beds is ___4,000/14,000 = 1 (Military Unit but don’t worry about this) ? (1 mark)
f) What is the opportunity cost of increased output from 9,000 Military Units and 12,000 Beds
to 12,000 Military Units and 9,000 Beds? (1 mark)
1 mark: = 3,000 Beds
g) Suppose that Canada is at full employment. What is the opportunity cost of increased output
from 6,000 Military Units to full employment at 8,000 Military Units? (1 mark)
1 mark: = 2,000 Beds (18,000 Beds at 3,000 Units minus 16,000 beds)
h) Suppose that technological change increases the output of Beds by 10% for each amount of
resource but does not effect producton of Military Units.
i) Sketch (particularly the intercepts) in your diagram above the production possibilities
curve (PPC1) that results from this technological change. (2 marks)
ii) What is the opportunity cost of increasing Military Units from 0 to 4,000
after technological change raises Beds output by 10%? (1 mark)
1 mark: = 4,400 [from something like 4,000 + 0.1*4000 or 1.1*4,000]
Hospital Beds
24,000
20,000
16,000
9,000
0
Military Units
0
4,000
8,000
12,000
16,000
Military Units
Beds
16,000
24,00026,400
R
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