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UNIVERSITYOFTORONTOMISSISSAUGA
APRil2012FINALEXAMINATION
EC0100Y5Y
IntroductiontoEconomics
W.H. Bailey
Duration- 3hours
Aids:CalculatorModel(s):TI-30Series
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Please note, you CANNOT petition to re-write an examination once the exam has
begun.
INSTRUCTIONS:Answer20multiplechoicequestionsworth 1markeachand6
shortanswerquestionsworth5markseach.Total marks50.Thisexamhas18
pages.
GradingTable
1. Theterm ceteris paribus means,
a) withpartialcertainty.
b) letthebuyerbeware.
c) otherthingsequal.
d) untildeathdouspart.
2. ThedemandcurveDx =120 - 10Px - 20Py + 30Pz suggeststhat,
a) GoodXisanormalgood.
b) GoodYisacomplementin consumptionforGoodX.
c) GoodZisacomplementin consumptionforGoodX.
d) GoodXisan inferiorgood.
3. Ifpriceincreasesandquantitydecreases.Areasonableexplanationforthatis,
a) sellersexpectthepricewillrise.
b) buyersexpectthepricewillrise.
c) sellersexpectthepricewillfall.
d) buyersexpectthepricewillfall.
4. Theintroductionofapriceceiling ontextbookswillincreaseconsumersurplusif,
a) demand isinelastic.
b) supplyisinelastic.
c) demandiselastic.
d) supplyiselastic.
5. Thepriceelasticityofsupplyincreaseswhen alinearsupplycurve,
a) shiftsright, withtheslopeunchanged.
b) getssteeper, withoutchangingtheverticalintercept.
c) getsflatter, withoutchangingthevertical intercept.
d) shiftsleft, withtheslopeunchanged.
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6. Lowerinterestratesmightcauseamaximizingsavertoincreasesavingsif,
a) consumption isnormalandtheIEdominatesthe SE.
b) consumption isinferiorandtheIEdominatestheSE.
c) consumption isnormalandtheSEdominatesthe IE.
d) consumption isinferiorandtheSEdominatesthe IE.
7. Lowerinterestratesmightcauseamaximizingborrowertoincreaseborrowingif,
a) consumption isnormalandtheIEdominatestheSE.
b) consumption isinferiorandtheIEdominatesthe SE.
c) consumption isnormalandtheSEdominatestheIE.
d) consumption isinferiorandtheSEdominatestheIE.
8. IndifferencecurvesforPerfectComplementsare,
a) upwardsloping.
b) L-shaped.
c) linear.
d) concave.
9. Amaximizing consumermustensurethat'--____
a) MUx+Py=MUy+Px
b) MUx xpy=MUy xPx
c) MUx+MUy =Py+Px
d) all ofthesearewrong
10. When marginalutilityis negative,total utilityis,
a) constant.
b) increasing.
c) decreasing.
d) infinite.
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11. Whichofthefollowing is NOTacharacteristicofMonopolisticCompetition?
a) averagerevenueequalaveragecost.
b) revenueequalscost.
c) marginalrevenueequalsmarginalcost.
d) averagerevenueequalmarginalcost.
12. WithOrdinaryPriceDiscrimination__areequalacrossgroupsofbuyers.
a) prices
b) marginalrevenues
c) quantities
d) efficiencylosses
13. Aper-unittax__theminimumefficientscaleandcausesacompetitiveindustryto
a) reduces; contract.
b) increases;contract.
c) doesnotchange; expand.
d) doesnotchange; contract.
14. Alump-sumtax__theminimumefficientscaleandcausesacompetitive
industryto___
a) reduces; contract.
b) increases;contract.
c) doesnotchange; expand.
d) doesnotchange; contract.
15. Whenaverageproductis8and marginalproductis4then,
a) averageproductisrising.
b) marginalproductisrising.
c) marginalproductisfalling.
d) averageproductisfalling.
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--
16. TheGovernoroftheBankofCanadais,
a) ArthurHosios.
b} JimFlaherty.
c) AviCohen.
d) MarkCarney.
17. Monetarypolicyis mosteffectwheninvestmentdemandis__and money
demandis
a) inelastic; elastic.
b) inelastic; inelastic.
c) elastic; elastic.
d} elastic; inelastic.
18. Ifthebankingsectormaintainsatargetreserve ratioof20percentthemoney
multiplierwill beequalto,
a) 20
b} 5
c) 0.05
d) noneofthese.
19. TheQuantityTheoryofMoneystates___
a) e=MC2
b) PY=vM
c) MP=vY
d) Y=C+I+G
20. The PhillipsCurvepositsaninverserelationshipbetween,
a) moneyandinflation.
b) employmentand immigration.
c) employmentand output.
d) unemploymentand inflation.
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21. Thedemandfororangesin Canada isgivenbyD =1000 - 100P andsupplyby
domesticproducersisS=200P - 200. Theworldpricefororangesis$2.
a) Providealabelleddiagramandsupportingcalculationstoexplainhowwillatariff
of$1 wouldaffectconsumer, producerand governmentsurplusinthemarketfor
oranges.
b) Adasuggeststhatthistariffwouldbebad newsforourCanadianapplegrowers
becauseapplesareasubstituteinconsumptionfororanges. Doyouagreewith
Ada'sclaim?
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22. Nancyis autilitymaximizingworkerwithpreferencesforfood and leisureU =FZ is
paidawageof$20 perhourandearnsnonlabourincomeof$60 perday.An
alternativejoboffersaprofitsharingplanthatwould increasehernonlabourincome
to$120 perdaybutthewageisonly$15perhour.
a) Providea labelledindifferencecurvediagramandsupportingcalculationsto
showing Nancy'sutilitymaximizingchoicesathercurrentjobasBundle"A"and
herchoicesatthealternativejobasBundle"B".
b) AlinasuggeststhatNancywould bebetteroffquittinghercurrentjoband
acceptingthisnewoffer. Doyou agreewithAlina'sassessment?
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23. Toyin pays 8dollarsperglassforBoosterJuice(goodX)andand 2dollarsfora
sliceofbananabread (goodY). HispreferencesareU =XY andhespends400dol-
larsamonthonthesegoods. Ifhepurchasesamembershipcard,Toyin cangethis
BoosterJuicesforonly50 cents. Bananabreadwillstillcost2dollars.
a) Providealabelledindifferencecurvediagramandsupportingcalculationsto
illustratethemaximumamountthatToyin iswillingtopayforthismembership
card. YourdiagramshouldshowBundles"A", "B"and"e"alongwiththeirasso-
ciated budgetlines.
b) JacquelinesuggeststhatToyin'sbehaviorindicatesthathemustbelievethat
BoosterJuiceandbananabreadarecomplementsin consumption. Doyou
agreewithherassessment?
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24. Firmsin acompetitiveindustryincurproductioncostofC=q2 +16. Marketdemand
isD =160 - 10P.
a) Providethe usualpairoflabelleddiagramsshowing The Firm and The Industry
toillustratehowthisindustrywouldrespondtotheintroductionofasubsidyof$4
per-unit.
b) Orianasuggeststhatthepricereduction associatedwiththissubsidywouldbe
evenbiggerifthiswasadecreasingcostsindustry(DCI). Doyou agreewith
Oriana'sclaim?
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25. ApatentensuresTheCrossPen CompanyLtd. hasmonopolypoweroverthesale
ofatypeofmechanicallead pencil(goodX). Demand isP =12- 2X andproduction
costsareC=Xl +4. Thecompanyalsohasmonopolypoweroverthesaleoflead
replacementsforthesepencils(goodV). Demandforthesereplacementsis
P =20- 2Yandproductioncostsare C=Y2 +1.
a) Provideapairoflabelleddiagramsandsupportingcalculationstoillustratethe
firm'schoicesforpricesand quantitiesundera Tied Sales pricingplan.
b) Natalysuggeststhatifthecompanywasabletoengravecustomer'snamesonto
thepencilsthattheycould implementaPerfect Price Discrimination planforthe
mechanicalpencils.Assumethatthisengravingwouldn'taffectthecompany's
costs. DoyouthinkthatNataly'ssuggestionwould increaseprofits?
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26. Aneconomywithafixedexchangeratehas C=8+O.aVO, G=1, 1= 1, NT =10+
0.5Y, AS=5P and1M =0.1 Y. TourismincreasesexportspendingfromX =12- 4P
toX=20- 4P.
a) Providetheusualstackof3diagramsandsupportingcalculationstoshowhow
realGOP, thepricelevel, andthebalanceoftradewould beaffectedbythis
change.
b) Provideadiagramshowingtheforeignexchangemarketand explainhowthe
CentralBankwould needtointervenetoensurethattheexchangeratewasnot
affectedbythechangeintourismspending.
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