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ECON 1540
Rebecca Jubis

York University — Economics Department — Faculty of Liberal Arts and Professional Studies ECON1000.03 Midterm — Professor Lanfranco Version C Name___________________________________________ Student Number:____________________________________ INSTRUCTIONS: This exam is 3 hours long, and you should finish early. Put all of your answers to be graded on the Scantron “bubble page ” answer sheet. Use the “white space” on front and back of these exam pages to draw diagrams and do calculations to assist in arriving at your answers. Do not leave answers blank. Your grade is based on the number of correct answers. It is smart to first record your answers on these exam pages, and then transfer them neatly to your Scantron answer sheet. Write your name and student number on this exam page, and in the appropriate spaces on the Answer Sheet. There are three (3) places for your student number there, including the “bubble” format at the upper left side. Lastly, write the Version of this exam on the top center of your Scantron answer sheet. Turn in BOTH this EXAM and your SCANTRON ANSWER SHEET. You will get no grade if the Scantron sheet is not accompanied by this signed copy of the exam. --------------------------------------------------------------------------------------------- MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Business people speak about income elasticity of demand without using the actual term. Which 1) _______ one of the following statements reflects income elasticity of demand? A) "I don't think a price cut will make any difference to my bottom line. What I may gain from selling more I would lose on the lower price." B) "With the recent economic recovery, people have more income to spend and sales are booming, even at the previous prices." C) "A price cut won't help me. It won't increase sales, and I'll just get less money for each unit." D) "My customers are real bargain hunters. Since I set my prices just a few cents below my competitors, customers have flocked to the store and sales are booming." E) both A and B 2) At West, recognized as the "jewel in Vancouver's culinary crown", reservations are essential. At 2) _______ Le Bistro Chez Michel, a restaurant in North Vancouver, reservations are recommended. At Vij's, a restaurant not too far from the University of British Columbia, reservations are not accepted. West allocates scarce table resources by ________, Le Bistro Chez Michel allocates scarce table resources by ________, and Vij's allocates scarce table resources by ________. A) first-come, first-served; first-come, first-served; first-come, first-served B) a command system; a combination of a command system and first-come, first-served; first-come, first-served C) market price; market price and force; force D) personal characteristics; personal characteristics and first-come, first-served; first-come, first-served E) personal characteristics; personal characteristics; first-come, first-served 3) You are told that a 5 percent increase in the price of a good increases the quantity supplied by 103) _______ percent after one month. Supply of this good is ________. This good is most likely produced using productive resources that are ________. A) inelastic; plentiful or easily obtained B) elastic; plentiful or easily obtained C) unit elastic; unique or rare D) decreasing; unique or rare E) elastic; unique or rare Use the figure below to answer the following questions. Figure 3.5.1 4) Initially, the demand curve for good A is D 2n Figure 3.5.1. Suppose good B is a substitute for 4) _______ good A. If the price of B falls A) the price of A will rise. B) the equilibrium quantity of good A will increase. C) the demand curve for good A will shift from D to2D . 3 D) there will be a surplus of good A at P2. E) all of the above are true except B. 5) A country opens up to trade and becomes an importer of some good. Consumer surplus 5) _______ ________, producer surplus ________, and total surplus ________. A) increases; decreases; increases B) decreases; increases; increases C) increases; increases; increases D) decreases; decreases; decreases E) increases; decreases; decreases Use the figure below to answer the following question. Figure 4.3.1 (Okay, this is a harder question) 6) The two supply curves in Figure 4.3.1 are parallel. Between $7 to $8, 6) _______ A) S 1s more elastic than S 2 B) S is steeper than S . 1 2 C) S 1s flatter than 2 . D) S 1s more inelastic than S 2 E) S 1nd S h2ve the same elasticity. 7) Suppose the price of a football is $20.00 and the price of a basketball is $10.00. The ________ of a 7) _______ football is ________. A) opportunity cost; $10.00 B) relative price; 2 basketballs per football C) relative price; 1/2 basketball per football D) opportunity cost; $15.00 E) relative price; $10 8) If the cross elasticity of demand between goods A and B is negative, then 8) _______ A) A and B are complements. B) the demands for A and B are both price inelastic. C) the demands for A and B are both price elastic. D) A and B are substitutes. E) A and B are independent goods. 9) During the next hour John can choose one of the following three activities: playing basketball, 9) _______ watching television, or reading a book. The opportunity cost of reading a book A) depends on how much the book cost when it was purchased. B) is the value of playing basketball if John prefers that to watching television. C) depends on how much John enjoys the book. D) is the value of watching television if John prefers playing basketball to watching television. E) is the value of playing basketball and the value of watching television. 10) Which one of the following events shifts the demand curve for grape jelly to the right? 10) ______ A) an increase in the price of peanut butter, a complement of grape jelly B) a decrease in the population C) a decrease in the price of strawberry preserves, a substitute for grape jelly D) an increase in income if grape jelly is a normal good E) a decrease in the price of grape jelly 11) Complete the following sentence. Capital is 11) ______ A) money in the bank. B) stocks and bonds. C) land. D) tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services. E) "gifts of nature." 12) Governments tend to tax items with inelastic demand because 12) ______ A) these goods yield the most tax revenues. B) governments wish to avoid big rises in after-tax prices. C) sellers pay most of the tax in these cases. D) buyers pay most of the tax in these cases. E) none of the above. 13) Which of the following statements is normative? 13) ______ A) Warts are caused by handling toads. B) Scientists should not make normative statements. C) If income increases, sales of luxury goods fall. D) As e-book prices fall, people buy more of them. E) There is more caffeine in a cup of tea than in a cup of coffee. 14) If both demand and supply increase, then the equilibrium price 14) ______ A) falls but the equilibrium quantity increases. B) falls and the equilibrium quantity could either increase or decrease. C) rises and the equilibrium quantity could either increase or decrease. D) and equilibrium quantity increases. E) could either rise or fall, but the equilibrium quantity increases. Use the figure below to answer the following questions. Figure 6.3.3 15) Refer to Figure 6.3.3. Suppose a tax of $1 is imposed. In which market would the seller pay the 15) ______ highest portion of the tax? A) (a) B) (b) C) (c) D) (d) E) all markets equally 16) When the efficient quantity is produced 16) ______ A) the quantity demanded equals the quantity supplied. B) the sum of consumer surplus and producer surplus is maximized. C) resources are used in the activities in which they are most highly valued. D) marginal social benefit equals marginal social cost. E) all of the above. 17) Suppose a hurricane causes extensive devastation, destroying houses, roads, schools and 17) ______ factories. What would be the effect of this hurricane on a production possibilities frontier consisting of consumption goods and capital goods? A) There would be a movement along the existing production possibilities frontier towards a less capital-intensive point. B) It would shift outward at all points. C) There would be a movement from the existing production possibilities frontier inwards towards a point with unused or misallocated resources. D) There would be a movement along the existing production possibilities frontier towards a more capital-intensive point. E) It would shift inward at all points. Use the table below to answer the following questions. Table 3.4.1 Price Quantity Quantity (dollars per Demanded Supplied (units) unit) (units) 1 1,100 50 2 800 200 3 600 420 4 500 500 5 420 580 6 350 640 7 320 680 8 300 700 18) Refer to Table 3.4.1. At a price of $3 a unit 18) ______ A) there is a 180-unit surplus. B) the market is in equilibrium. C) there is a 180-unit shortage. D) there is a tendency for the price to rise. E) C and D. 19) The ________ principle is the proposition that people should pay taxes equal to the benefits they 19) ______ receive from the services provided by government. The ________ principle is the proposition that people should pay taxes according to how easily they can bear the burden of the tax. A) ability-to-pay; benefits B) benefits; ability-to-pay C) services; burden D) equality; fairness E) efficient; inefficient Use the figure below to answer the following questions. Figure 5.3.2 20) Refer to Figure 5.3.2. If the level of output is 100 units, the deadweight loss is area 20) ______ A) HCG. B) ACH. C) DCE. D) ACG. E) BCF. 21) Economists tend to 21) ______ A) be more agreeable than philosophers about fairness. B) disagree about efficiency but agree about fairness. C) agree about efficiency but disagree about fairness. D) agree about efficiency and about fairness. E) be more disagreeable than philosophers about fairness. 22) A subsidy 22) ______ A) makes marginal social cost equal marginal social benefit. B) makes world prices higher than domestic prices. C) raises marginal social cost above marginal social benefit. D) results in efficient production. E) raises marginal social benefit above marginal social cost. 23) What will happen to the equilibrium price and quantity of coffee if it is discovered to help 23) ______ prevent colds and, at the same time, Brazil and Vietnam emerge in the global market as massive producers of coffee? A) The equilibrium price will fall and the effect on the equilibrium quantity is uncertain. B) The equilibrium quantity will increase and the equilibrium price will remain unchanged. C) The equilibrium quantity will increase and the effect on the equilibrium price is uncertain. D) The equilibrium quantity will decrease and the eq
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