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Unformatted text preview: Name: ANSWER KEY ECO 1104A INTRODUCTION TO MICROECONOMICS MIDTERM EXAMINATION Professor: David GrayOctober 23, 2002 INSTRUCTIONS a) The allotted time is one hour and twenty minutes. This examination counts for 25 % of your course grade. It consists of short answer questions and problems, and you should answer all of them. There are a total of 50 points. 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. Furthermore, no palm pilots or programmable calculators are permitted. Any contravention of these rules will be treated as an infraction to the honour code of the university. c) You might be pressed for time. I anticipate that some of you will be pressed for time, so please pace yourself according to the point totals that are given for each item. d) All of the questions which follow are very straightforward, and can be answered in two sentences or less. 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 immediately comes to your mind about a certain topic. I have tried to pose the questions in such a way that you focus correctly. e) Write only in the space provided. For most of the questions that follow, you should write in sentences. Part A: INTRODUCTORY MATERIAL (10 points) 1) Economics is a social science, which means that it is concerned with human behaviour. What is the fundamental assumption that economists make regarding the motivation of humans when they engage in economic activity? (1 point) THEY ARE GREEDY AND MATERIALISTIC 2) In most types of economies, with the exception of the Robinson Crusoe economy (that is a hint), there are three basic types of economic activity. What are they? (Another hint: we see all three of them operating in the market place). (2 points) CONSUMPTION ACTIVITIES, PRODUCTION ACTIVITIES, AND EXCHANGE ACTIVITIES Note: Despite the two hints given, most students missed this question. Students incorrectly zeroed in on the word three, and then responded what?, how?, and for whom?, without reading the question carefully and thinking hard about what question was actually being asked. Do not answer any question too hastily: instead, you should spend a little time zooming, which means to focus on the part of the course to which the question refers. 3) Define the term opportunity cost and explain the relationship between scarcity, choices, and opportunity costs. (2 points) OPPORTUNITY COST IS THE COST OF THE HIGHEST FOREGONE ALTERNATIVE WHEN AN ECONOMIC ACTOR MAKES A CHOICE. DUE TO THE EVER PRESENT PROBLEM OF SCARCITY, ALL ECONOMIC ACTORS ARE FORCED TO MAKE CHOICES, AND WHEN THEY DO, THEY INCUR AN OPPORTUNITY COST....
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