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UNIVERSITYOF TORONTOMISSISSAUGA
AUGUST2012 FINALEXAMINATION
EC0100Y5Y
IntroductiontoEconomics
W.H.Bailey
Duration- 3 hours
Aids: Non-ProgrammableCalculators
The University of Toronto Mississauga and you, as a student, share a commitment to academic integrity.
You are reminded that you may be charged with an academic offence for possessing any unauthorized
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fail the course.
Please note, you CANNOT petition to re-write an examination once the exam has begun.
INSTRUCTIONS:Answeron Exam Paper. Completeall30multiplechoicequestions 1markeach
and all 6shortanswerquestion5marks each.Total marks 60.Continueanswerontoblank pages
ifrequired.This exam has 20 pages.
GradingTable
1 - 30 31
-
32 33 34
:
35 36
..c
Total
1. An Increaseintheminimum wagewill be mostbeneficial forworkerswhen
a) labourdemandis inelastic
b) laboursupplyis inelastic
c) labourdemandiselastic
d) laboursupplyis elastic
2. Price rises andquantitydeclines.This could havebeen caused byan increasein thepriceof
a) acomplement in consumption
b) acomplement in production
c) asubstitutein production
d) asubstituteinconsumption
Ihcome
2 8 Jan
2 2 10
Feb
3 10
March
3. Usingthetableabove: Priceelasticityofdemand is equal to
a) -1.50
b) - 0.60
c) +3.00
d) +4.50
4. Usingthetableabove: Incomeelasticityofdemand is equalto
a) - 1.50
b) - 0.60
c) +3.00
d) +4.50
5. Governmentrevenuescollected from aper-unittaxwill be largestwhen supplyis __and demand is __.
a) elastic; elastic
b) elastic;inelastic
c) inelastic; elastic
d) inelastic;inelastic
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6. Amaximizingsaverwill save morewhen interestrates increaseif
a) consumptionis inferiorandthe IE dominatesthe SE
b) consumptionis normalandthe IE dominatestheSE
c) consumptionis inferiorandtheSE dominatestheIE
d) consumption is normalandtheSE dominatesthe IE
7. Amaximizing borrowerwill borrowlesswhen interestrates increaseif
a) consumption is inferiorandthe IE dominatestheSE
b) consumption is normalandthe IEdominatestheSE
c) consumption isinferiorandtheSE dominatesthe IE
d) consumptionis normalandtheSE dominatestheIE
2
3
4
5
20
36
50
62
72
2
3
4
5
40
72
96
112
120
8. Usingthetableabove:Aconsumerwithincome$24buysCandyBarsand Cokebothat apriceof$4. Howmany
cansofCokeshouldbepurchasedto maximizeutility?
a) 2
b) 3
c) 4
d) noneofthese
9. USing thetableabove:ThepriceofCandyBarsincreasedto $8, ceteris paribus. Whatbundlemaximizesutility?
a) 2
b) 3
c) 4
d) noneofthese
10. Achange in relative prices
a) shiftsthe budgetlineoutwards
b) shiftsthebudgetlineinwards
c) doesnotaffectthebudget line
d) changestheslopeofthebudgetline
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11. DecreasingAverage Costscan becausedby
a) decreasing returnsto scale
b) economies ofscale
c) economiesofscope
d) technological efficiency
12. If long-run marginalcostis equalto short-runmarginalcost, long-run averagecostwillequal
a) short-run average variablecost
b) short-run averagetotalcost
c) short-run marginalcost
d) short-run averagefixedcost
13. Ifafirm ispaying 20 dollarsper hourforlabourand 10dollarsper hourfor capitalthe opportunityofoneunitof
labourisequalto
a) 0.5
b) 2.0
c) 20
d) none ofthese
14. Intheshort-run, afirm should shutdownif
a) total revenues arelessthan variablecosts
b) total revenuesare lessthantotal costs
c) marginalrevenuesare lessthanmarginalcost
d) averagerevenues are lessthan marginalcost
15. When aper-unittax is introducedIn an IncreasingCost Industry, the exitoffirms will be __and theindustry
quantitywill be __than it would be inaConstantCosts Industry.
a) greater;greater
b) lesser;lesser
c) greater;lesser
d) lesser; greater
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16.Whichofthefollowing pricing planswillNOTeliminatethe monopolyefficiencyloss?
a) Tied Sales
b) PerfectPrice Discrimination
c) MarginalCost Pricing
d) All -or-Nothing Demands
17.Which ofthefollowing isacharacteristicofaTwo-PartTariff?
a) P =MC
b) MR =AC
c) MC =AC
d) TC =TR
18. Whichofthefollowing isacharacteristicofMonopolisticCompetition?
a) P =MC
b) MR=AC
c) MC=AC
d) TC =TR
Low Price
(Bottom)
3,2 1, 1
19. Intheprice-setting gamedescribed bythepayoffmatrixabove.Theequilibrium outcomeis
a) Top, Left
b) Top, Right
c) Bottom, Left
d) Bottom, Right
20. Amonopsonisticfirm faCing laboursupplyL=2w- 4 hasproductionfunction q=2Land sellsoutputin
competitivemarketsatapriceof$20. Howmanyworkers should be hired?
a) 18
b) 32
c) 40
d) none ofthese
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.
21. When GDP exceedspotentialGDPthereis
a) upwardspressureon wages
b) excesscapacityin factories
c) anaturaltendencyfor investment spending to increase
d) anegative naturalrate ofunemployment
10 BaseYear 8 5 2
12 10 25 4 2011
22. Usingthetableabove: NominalGDPfor2011 is equalto
a) 110
b) 200
c) 220
d) noneofthese
23. Usingthetable above: Real GDPfor2011 isequalto
a) 110
b) 200
c) 220
d) noneofthese
24. Usingthetable above : TheGDP Deflatorfor2011 isequalto
a) 110
b) 200
c) 220
d) noneofthese
25.Usingthetable above : TheCPI for 2011 isequalto
a) 110
b) 200
c) 220
d) noneofthese
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26. TheGovernorofThe BankofCanadais
a) AlexanderTrebek
b) Stephen Harper
c) AnthonyBlair
d) Mark
27. Reductionsin moneydemandduringeconomicdownturnsisconsistentwith atheorycalled
a) precautionarydemand
b) the quantitytheoryofmoney
c) liquidity
d) transactionsdemand
28. When commercial banksmaintainatargetReserve Ratio of20 percentThemoneymultiplierisequalto
a) 5
b) 20
c) 40
d) noneofthese
29. The ClassicalSchoolarguethatadoublingofthemoneysupplywouldcause todouble
a) real GDP
b) thepriceofbonds
c) the CPI
d) theparticipationrate
30. To close an inflationarygapgovernmentswill typically
a) increasespending
b) increasetaxes
c) sacrificegoats
d) decreaseinterestrates
August2012
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.'
31. Demand and supplyat asmall downtownparking lot aregiven by 0 =100 - 2p and S=2p - 20. Currentlythe
citygovernmentimposesaproduction quotathatlimitscapacityto20cars. 8eginningin Septemberthe
governmentwill increasethequotato 30units.
a) Provideafullylabeleddiagram and supplementarycalculationstoassess howincreasingthisquotawill
affectconsumer, producerandtotal surplusin this market. Calculatesurplusand illustrate it in yourdiagram
as areas"A", "8","C"etc.
b) Acity hallofficial saysthat increasing aquotawill onlybe favorableforproducerswhen supplyis inelastic.
Making referenceto yourdiagramexplain whythisperson is mistaken.
Q=31)
CS
. PS
TS
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.
32. Amaximizing workerwith preferences U =ZF earns 144dollarsperdayin non-labourincomefrom his stock
investmentsand ispaid awageof 16dollarsperhourforhisjobas atelleratCIBC.
a) Providealabelled indifferencecurvediagramshowingthe numberofhoursworked as atellerat CIBC as
Bundle"au.
b) Arestaurantownerhasmadethistelleran offertowork as atableserver.Thejobpays9dollarsper hour.
Non-labourincomewouldn'tbe affectedbuthewould haveto quithisjobatCIBC.Onyourdiagramfrom
Parta), illustratehis maximizing choice atthe restaurant as Bundle"c" and explainwhyhewould nottake
thisjob.
c) Serversattherestaurantearntips.Tipswould increasehisnon-labourincomeabove144perday. Usingthe
samediagram,illustrateas Bundle"b",the minimumamounthe would needtoearn intipstomakehim quit
at CIBCand takethe restaurantjob. Besureto showand labeltheCBL.
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,'
33. All firms in aconstantcosts, competitiveindustryhavelong-runtotalcosts C=q2 +25. Demand increasesfrom
00=150 - 5pto 0,=300 - 5P.
a) Providelabelleddiagramsshowing "Typical Firm" and "Industry"and supplementarycalculationsto illustrate
howthis industrywould initiallyatQo wouldrespondto thisincreasein demand"beforeentry"Q, and after
entryQ2.
b) Makingclearreferenceto yourdiagramsexplain whythe numberoffirms entering this industrywould be
greaterifthis was adecreasingcostsindustry.
-;.
'S Ii,;
..
';e
Initial
5
Before
Entry
.;;.
After
Entry
..
I. .;'
price
firm
output
industry
output
number
of firms
firm
profits
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34. Mikesells hotdogsoutsideofthe eeTbuilding with costs C=0.02502. Professors have demand Op =60 - 20P
whilestudents have demand Os = 100 - 20P.
a) Provide afullylabelleddiagramandsupplementarycalculationstodemonstratethat Mike'soperation will
bemoreprofitable with ordinarypricediscriminationthanit would be operating as asingle-pricemonopoly.
b) Theuniversityhasproposedthat Mike'sefficiencylossshould be eliminated with the useofaper-unit
subsidy. Makingreferencetoyourdiagram in Parta) explainwhythis plan in noteconomical.
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, .
35. An economywithafixed exchangerateisdescribedbythefollowing equations.
c=10+0.SYD G=10 NX=20 - 4p- .04Y
1=20-5r T=5
MD=20- 5r t =0.50
AS=10p MSo =4 to MSI =12
a) ProvidefullylabelleddiagramsforAE, AD/AS, NX, BB, SS to illustrate howthis increaseinthemoney
supplyaffectstheeconomy.
b) The calculationsmadein Parta) should suggestthat householdsare increasingsavings50to 52even
though interestrates are lowerro to r2. Explainwhythisparadoxicalbehavioroccurs.
r
CPI
nx
bb
5
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.
36.Continueyouranalysisofthe monetaryexpansion in the economyfrom Question35.
a) Provideaseparatediagramthatshowshowthe FOREx marketwould be affectedbythisexpansionary
monetarypolicyand indicatethe impactifthiswere aflexible exchange rate.
b) Making clearreferencetoyourdiagram explainwhythecentral bankerneedtobuyorsell foreign reserves
tomaintainthe fixed exchangerate at itscurrent level.
c) Identifyand explainthegeneralprincipleofcentral banking underfixed exchangerate regimesthat is
illustrated in thisexample.
Page 18 August 2012