Eco1104-Midterm-Fall04

Eco1104-Midterm-Fall04 - ECO 1104A INTRODUCTION TO...

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ECO 1104A INTRODUCTION TO MICROECONOMICS MIDTERM EXAMINATION Professor: David Gray October 25, 2004 INSTRUCTIONS a) The allotted time is one hour and twenty minutes. There are a total of 80 points, with one point per minute. The first part consists of short answer problems, while the second part consists of problems. This examination counts for 25 % of your course grade. b) You may not consult with any written materials whatsoever, including other students' papers, and no conversation is permitted while the examination is in progress. Any contravention of these rules will be treated as an infraction to the honour code of the university. c) With the multiple choice questions, it may not be the case that one answer is obviously correct while the other three are totally wrong. Select the best answer in these cases. You will not be penalised for guessing. d) Good luck. I do not anticipate that you will be pressed for time. Please pace yourself accordingly, and respond carefully. e) All of the questions which follow are very straightforward, and can be answered in a few sentences. The responses that I hope to elicit have been repeated by me several times in class. Please take a minute to concentrate on the question being asked, as opposed to writing down everything which comes to your mind about a certain topic. I have tried to pose the questions in such a way that you focus correctly.
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Part A: Short Answer Questions (38 points in total) 1) (4 points; 2 or 3 sentences) Identify and give the significance of the price elasticity of demand. In other words, what is its purpose? In still other words, why do we bother studying it? Do not give any details or formula concerning the price elasticity of demand. What I am looking for here is a brief discussion of how it fits in with supply and analysis. I went over this in class very thoroughly IT INDICATES THE RESPONSE OF QUANTITY DEMANDED TO CHANGES IN PRICE. THE LAW OF DEMAND SAYS THERE IS ALWAYS A NEGATIVE, INVERSE RELATIONSHIP BETWEEN PRICE AND QUANTITY DEMANDED. THE PRICE ELASTICITY OF DEMAND IS A TOOL THAT MEASURES THE DEGREE OF THIS RESPONSIVENESS. 2) (4 points; 2 sentences) How does the model of supply and demand relate to the first central coordination task that faces any economy - what goods and services should be produced, and in what quantities? I went over this in class very thoroughly THE EQUILIBRIUM QUANTITY THAT IS GENERATED ON THE QUANTITY AXIS SHOWS HOW MUCH OF A GOOD WILL BE PRODUCED IN A FREE MARKET ECONOMY. 3) (6 points) Consider a situation in which the market for buggy whips (a favorite example of the professor that I had for this class in 1978) is in equilibrium. THE OLD EQUILIBRIUM PRICE IS P*. AFTER THE SHIFT IN SUPPLY TO S’, THERE IS EXCESS QUANTITY SUPPLIED. a)
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This note was uploaded on 09/15/2008 for the course ECO 1104 taught by Professor Crabbe during the Spring '08 term at University of Ottawa.

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Eco1104-Midterm-Fall04 - ECO 1104A INTRODUCTION TO...

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