York University — Economics Department — Faculty of Liberal Arts and Professional Studies
ECON1000.03 Midterm — Professor Lanfranco
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) Individuals A and B can both produce goods X and Y. Individual A has a comparative 1) _______
advantage in the production of X if
A) the amount by which A must reduce production of Y is less than the amount by which B
must reduce production of Y to produce an additional unit of X.
B) A has a preference to consume X.
C) the amount by which A must reduce production of Y is more than the amount by which B
must reduce production of Y to produce an additional unit of X.
D) B has superior knowledge about how to produce X.
E) A is faster than B at producing X.
Use the table3.4.1 below to answer the following question.
(dollars per Demanded Supplied (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
2) Refer to Table 3.4.1. At a price of $3 a unit 2) _______
A) the market is in equilibrium.
B) there is a 180-unit surplus.
C) there is a 180-unit shortage.
D) there is a tendency for the price to rise.
E) C and D. 3) The ________ principle is the proposition that people should pay taxes equal to the benefits they 3) _______
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) equality; fairness
B) efficient; inefficient
C) ability-to-pay; benefits
D) benefits; ability-to-pay
E) services; burden
4) Complete the following sentence. Capital is 4) _______
A) stocks and bonds.
B) money in the bank.
C) tools, instruments, machines, buildings, and other constructions that businesses use to
produce goods and services.
E) "gifts of nature."
5) Business people speak about income elasticity of demand without using the actual term. Which 5) _______
one of the following statements reflects income elasticity of demand?
A) "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."
B) "A price cut won't help me. It won't increase sales, and I'll just get less money for each
C) "With the recent economic recovery, people have more income to spend and sales are
booming, even at the previous prices."
D) "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."
E) both A and B
Choose the correct statement. (think hard, one answer looks good and is wrong)
6) 6) _______
A) When the efficient quantity is produced in a competitive market, consumer surplus is
B) The competitive market pushes the quantity produced to its efficient level.
C) When the efficient quantity is produced in a competitive market, producer surplus is
D) Competitive equilibrium occurs when demand equals supply.
E) When the efficient quantity is produced in a competitive market, producer surplus is
7) If the cross elasticity of demand between goods A and B is negative, then 7) _______
A) the demands for A and B are both price inelastic.
B) the demands for A and B are both price elastic.
C) A and B are substitutes.
D) A and B are complements.
E) A and B are independent goods.
8) When the efficient quantity is produced 8) _______
A) marginal social benefit equals marginal social cost.
B) resources are used in the activities in which they are most highly valued.
C) the quantity demanded equals the quantity supplied.
D) the sum of consumer surplus and producer surplus is maximized.
E) all of the above. 9) If both demand and supply increase, then the equilibrium price 9) _______
A) could either rise or fall, but the equilibrium quantity increases.
B) rises and the equilibrium quantity could either increase or decrease.
C) falls but the equilibrium quantity increases.
D) and equilibrium quantity increases.
E) falls and the equilibrium quantity could either increase or decrease.
Use the figure5.3.2 below to answer the following question.
10) Refer to Figure 5.3.2. If the level of output is 100 units, the deadweight loss is area 10) ______
A) ACH. B) HCG. C) DCE. D) BCF. E) ACG.
Use the figure below to answer the following question. 11) Refer to Figure 6.3.3. Suppose a tax of $1 is imposed. In which market would the seller pay the 11) ______
highest portion of the tax?
E) all markets equally
12) A price elasticity of demand of 2 means that a 10 percent increase in price will result in a 12) ______
A) 5 percent decrease in quantity demanded.
B) 2 percent decrease in quantity demanded.
C) 20 percent increase in quantity demanded.
D) 2 percent increase in quantity demanded.
E) 20 percent decrease in quantity demanded.
13) Suppose a hurricane causes extensive devastation, destroying houses, roads, schools and 13) ______
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 inward at all points.
C) It would shift outward at all points.
D) There would be a movement along the existing production possibilities frontier towards a
more capital-intensive point.
E) There would be a movement from the existing production possibilities frontier inwards
towards a point with unused or misallocated resources.
14) An economic model is 14) ______
A) tested by examining the realism of its assumptions.
B) not useful because it simplifies real problems.
C) not useful unless it predicts with 100 percent accuracy.
D) tested by the Testing Committee of the Canadian Economic Association.
E) useful if it predicts well, even if its assumptions are not realistic.
15) If a turnip is an inferior good then 15) ______
A) a large decrease in income decreases the quantity of turnips demanded at the current price
by a small amount.
B) turnips taste awful.
C) a small decrease in income decreases the quantity of turnips demanded at the current price
by a large amount.
D) an increase in income decreases the quantity demanded at the current price.
E) an increase in income increases the quantity demanded at the current price.
16) What will happen to the equilibrium price and quantity of coffee if it is discovered to help 16) ______
prevent colds and, at the same time, Brazil and Vietnam emerge in the global market as massive
producers of coffee?
A) The equilibrium quantity will decrease and the equilibrium price will rise.
B) The equilibrium quantity will increase and the effect on the equilibrium price is uncertain.
C) The equilibrium quantity will increase and the equilibrium price will remain unchanged.
D) The equilibrium price will fall and the effect on the equilibrium quantity is uncertain.
E) The equilibrium price will rise and the effect on the equilibrium quantity is uncertain. 17) Economists tend to 17) ______
A) disagree about efficiency but agree about fairness.
B) be more disagreeable than philosophers about fairness.
C) be more agreeable than philosophers about fairness.
D) agree about efficiency and about fairness.
E) agree about efficiency but disagree about fairness.
18) Complete the following sentence. A price floor set below the equilibrium price results in 18) ______
A) the equilibrium price.
B) an increase in supply.
C) a shortage.
D) a decrease in demand.
E) a surplus.
19) You are told that a 5 percent increase in the price of a good increases the quantity supplied by 10 19) ______
percent after one month. Supply of this good is ________. This good is most likely produced
using productive resources that are ________.
A) decreasing; unique or rare
B) elastic; unique or rare
C) unit elastic; unique or rare
D) elastic; plentiful or easily obtained
E) inelastic; plentiful or easily obtained
20) Suppose the demand for gasoline is inelastic, but not perfectly inelastic, and the supply is elastic, 20) ______
but not perfectly elastic. A tax on gasoline is paid
A) mostly by sellers.
B) mostly by buyers.
C) equally by buyers and sellers.
D) totally by buyers.
E) totally by sellers.
21) Governments tend to tax items with inelastic demand because 21) ______
A) buyers pay most of the tax in these cases.
B) these goods yield the most tax revenues.
C) sellers pay most of the tax in these cases.
D) governments wish to avoid big rises in after-tax prices.
E) none of the above.
22) Complete the following sentence. Microeconomics is 22) ______
A) not concerned with factors of production.
B) concerned with normative issues only.
C) concerned with the size of the total amount of income earned by all households in an
D) the branch of economics that studies the choices of individuals and businesses.
E) concerned exclusively with the role of the government in the economy.
Use the figure 6.2.1 below to answer the following question. 23) Refer to Figure 6.2.1. If the minimum wage is set at $2 per hour, what is the level of 23) ______
unemployment in millions of hours?
A) 0 B) 10 C) 50 D) 20 E) 40
24) If A is an inferior good and consumer income rises, the demand for A 24) ______
A) decreases and the equilibrium price falls but the equilibrium quantity increases.
B) decreases and the equilibrium price and the equilibrium quantity decrease.
C) increases and the equilibrium price and the equilibrium quantity increase.
D) decreases and the equilibrium price rises; as a result, the equilibrium quantity decreases.
E) increases and the equilibrium price rises but the equilibrium quantity decreas