m07-part1 - UNIVERSITY OF TORONTO Faculty of Arts and...

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Unformatted text preview: UNIVERSITY OF TORONTO Faculty of Arts and Science APRIL/MAY EXAMINATIONS 2007 ECO 100Yl Y Duration: 3 hours Examination Aids allowed: N on-programmable calculators only INSTRUCTIONS: Students are required to do Part I and QNE of Parts H, HI, IV, or V. Part I is the multiple choice section and is worth 50%. Record all your answers for Part I on the SCAN TRON sheet provided m in the examination booklets (Note: in case of any disagreement, the answer to be marked is the one on the SCANTRON sheet). For the Scantron sheets please use a black pencil or a black or blue ball-point pen. There is no penalty for guessing in the multiple choice so be sure to provide an answer for every question. Answers for the other Part will be written in examination booklets. The blank pages may be used for rough work (which will not be marked). PART I To be answered by all students. PART H To be answered by students fi'om Professor Pesando’s section (L0101) PART III To be answered by students from Professor Hare’s section (L0201) PART IV To be answered by students from Professor Carr’s section (L0301) PART V To be answered by students from Professor Wolfson’s section (L5101) Page 1 of 27 PART I [50%] MULTIPLE CHOICE QUESTIONS (To be answered by all students) INSTRUCTIONS: 0 Multiple choice questions are to be answered using a black pencil or a black or blue ball-point pen on the separate SCAN TRON sheet being supplied. 0 Be sure to fill in your name and student number on the SCANTRON sheet! Write the name of your instructor on the SCANTRON sheet (in the area where it says “DO NOT WRITE IN THIS SPACE”). 0 Each question is worth 1 mark. No deductions will be made for incorrect answers. 0 Write your answers to the multiple choice questions ALSO on the first page of the first examination booklet used for short answer questions. You may use this question booklet for rough work, and then transfer your answers to each multiple choice question onto the separate SCANTRON sheet. Your answers must be on the SCANTRON sheet. In case of a disagreement, the answer to be marked is the one on the SCANTRON sheet. 1. A tax has been levied on a product. The more price-elastic the demand for that product is: a) the greater is the proportion of the tax borne by consumers b) the lower is the revenue that is raised by the tax. 0) the more likely it is that the tax will be reflected in a change in price rather than a change in quantity. d) the more likely it is that the tax is borne equally by consumers and sellers. e) none of the above. 2. The quantity of money which people are willing to hold will decrease as a result of a: a) rise in interest rates and a fall in income; b) rise in interest rates and an increase in income; c) fall in interest rates and a rise in the income; d) fall in interest rates and a fall in income; e) none of the above. 3. In current dollar (or nominal) terms, GDP increases by 4 percent between one period and the next, while La] GDP rises by 6 percent. We can conclude: a) Prices fell by 10 percent; b) Prices fell by 2 percent; c) Output rose by 4 percent; d) Prices increased by 2 percent; e) Prices increased by 10 percent. Page 2 of 27 Initially, Peter mowed his own and Anne’s lawn and Anne paid him $20 to mow her lawn. Now, Anne decides to mow her own lawn. As a result, in the national income accounts: a) Real GDP is unchanged; b) Real GDP rises by $20; 0) Real GDP rises by $40; (1) Real GDP falls by $20; e) None of the above. A planter with no input costs sells sugar cane to sugar manufacturer for $5. The sugar manufacturer uses the sugar cane to make sugar, which he sells for $8 to a candy producer. The candy is sold for $12. What is the combined contribution to the GDP? a) 25 b) 12 c) 7 d) 1 e) Not enough information to determine. A perfectly competitive firm’s marginal cost is $35, its average cost is $40, its average variable cost is $30, its price is $32, and its output is 800 units. Its total cost of producing 801 units is: a) Less than 32,000 b) More than 32,000 but less than 32,040 c) 32,040 (1) More than 32,040 but less than 35,040 e) None of the above The firm in the above question should: a) Produce more in the short run, and shut down in the long run. b) Produce less in the short run, and shut down in the long run. 0) Shut down right away. d) Produce the same amount in the short run, and not shut down in the long run. e) Produce less in the short run, and not shut down in the long run. The opportunity cost of holding money relative to other assets such as a bond is a) Consumption given up. b) Liquidity given up. c) The rate of interest forgone. d) The transactions saved. e) None of the above. Page 3 of 27 10. 11. 12. Jim can produce either 2 units of X or 4 units of Y in an hour, while Bill can produce either 3 units of X or 6 units of Y in an hour. Given the above data, which one of the following statements is true? a) Jim has an absolute advantage in the production of both goods. b) Bill has a comparative advantage in the production of both goods. c) Bill will gain fi'om trade and Jim will not. (1) Jim will gain from trade and Bill will not. e) None of the above. A $20 billion increase in government spending for goods and services has: a) no effect on aggregate demand (or aggregate expenditure) if this amount is spend on imports. b) the same effect on aggregate demand (or aggregate expenditure) as a $20 billion cut in taxes; c) a stronger efi‘ect on aggregate demand (or aggregate expenditure) than a $20 billion cut in taxes; (1) (a) and (b) e) (a) and (c) If an employer and employees enter into a wage contract specifying a wage increase of 12 percent but the price level rises by 15 percent over the course of the contract, a) the employer will experience a greater fall in purchasing power than would have occurred if the price level had held steady; b) the employees’ real purchasing power will rise; c) the employees’ real purchasing power will fall; d) both employer and employees will benefit in increased purchasing power. e) none of the above. “Gains from trade” means that: a) One country gains while another country loses; b) Both countries gain by expanding their production possibility frontier; c) Both countries see the prices going down for both goods; d) Both countries gain by consuming beyond their production possibility fi‘ontier. e) None of the above. Page 4 of 27 13. 14. 15. 16. 17. How much would the production of a kayak add to GDP in Canada if the kayak was purchased in the United States for $250, painted in Canada for $20, and sold by a dealer in Canada to his customer for $800. a) $800 b) $20 c) $270 d) $550 e) $530 A museum increases its admission price by 10 percent. As a result, total revenues increase by 10 percent. This implies that the price elasticity of demand for admission IS: a) less than unity; b) greater than unity; c) unity; d) unaffected by the programs offered; e) none of the above. If there is a decrease in the wages of farm workers who harvest cofi‘ee beans, the equilibrium quantity of coffee will a) rise; b) fall c) remain the same; d) rise or fall, depending on the relative shifts of the supply and demand curves; 6) none of the above A firm’s fixed costs are $50. If total costs are $150 for one unit of output and $260 for two units, what is the marginal cost of that second unit? a) $50 b) $410 c) $210 d) $110 e) none of the above Land is a fixed factor and labour is variable factor of production. The law of diminishing marginal productivity [returns] starts at the labour input where: a) average product equals marginal product; b) average product is at a maximum; c) total product is at a maximum; d) marginal product is at a maximum; e) total product starts to decrease. Page 5 of 27 18. 19. 20. 21. If a representatiVe family’s disposable income increased fi'om $60,000 to $65,000 and, as a result, its desired consumption expenditures rose from $50,000 to $53, 500, then which one of the following statements is valid: a) The family’s average propensity to consume is 0.7; b) The family’s average propensity to save is 0.7; c) The family’s marginal propensity to consume is $3,500; d) The family’s marginal propensity to consume is 0.7 e) The family’s marginal propensity to save is 0.7. Which one of the following would be included in the calculation of this year’s GDP? a) The sale of a pre-owned 2000 year Toyota for $5,000; b) A pair of $100 tickets for the Dave Brubeck Concert in Toronto in June, 2007; c) Old Age pensions received from the Canadian Government by the Sidney family of $6,000; (1) The purchase of a painting by Marc Chagall, painted in 1950 for $45,000; e) The sale of Canadian wheat from inventory worth $20 million: the wheat was harvested in 2005. Using the final goods approach [the expenditure approach], GDP does n_ot include: a) maintenance costs in the Toronto subway system; b) imports of television sets; c) exports of Canadian beef; (1) the value of Canadian Government bonds sold through the open market operations of the Bank of Canada; e) professional fees paid to lawyers. Suppose that Ireland and Australia both produce beer and hats with labour as the only factor. It is observed that 100 units of labour in Ireland could produce either 200 units of beer or 400 units of hats. It is observed that 100 units of labour in Australia could produce either 100 units of beer or 100 units of hats. Which one of the following statements is correct: a) With trade, Ireland would specialize in beer because it has an absolute advantage in beer; b) With trade, Ireland would specialize in hats because it has a comparative advantage in hats; c) With trade, Australia would specialize in hats because it has an absolute advantage in hats; d) With trade, Australia would specialize in beer because it has an absolute advantage in beer; e) None of the preceding statements are correct. Page 6 of 27 22. 23. 24. 25. Suppose that Japan and Germany both produce subway cars and cargo boats with labour as the only factor of production. It is observed that in Japan 100 units of labour are required to produce one subway car and 200 units of labour are required to produce one cargo boat. It is observed in Germany that 600 units of labour are required to produce one subway car and 300 units of labour are required to produce one cargo boat. Which one of the following statements is correct if trade were to ' occur between these two countries: a) With trade, Japan would specialize in cargo boats; b) With trade, Germany would specialize in subway cars; 0) With trade, Germany has a lower labour productivity [output per unit of labour] in both products, so Germany can not achieve gains from trade; (1) Both (a) and (b) are correct; e) None of the above There are four measures of revenue: total revenue, average revenue, marginal revenue, and price. For a perfectly competitive firm, which statement below is true? a) Total revenue, average revenue, marginal revenue, and price are all equal b) Only average revenue, marginal revenue and price are all equal c) Only marginal revenue and price are equal d) Only average revenue and price are equal e) None of these revenues are equal. Suppose that in a perfectly competitive industry, the market price of the product is $6. Firm A is producing the output level at which average total cost equals marginal cost, both of which are $8. Average variable cost is $5. To achieve its profit-maximizing output in the short run, Firm A should a) reduce output b) expand output 0) leave output unchanged (1) change the price of the product e) shut down. If a perfectly competitive firm is faced with average revenue below average variable cost it will shut down so as to reduce its a) Costs to below its revenue b) Costs to zero 0) Losses to the amount of its fixed costs d) Losses to the amount of its variable costs e) Losses to the amount of its marginal costs. Page 7 of 27 26. 27. 28. 29. In the short run, an increase in a perfectly competitive firm’s fixed costs should lead to a) A decrease in output b) A increase in the industry price c) A decrease in the units of fixed factor that the firm uses d) An increase in output e) None of the above. Consider a perfectly competitive firm in the following position: output = 4000 units, market price = $1, total fixed cost = $2000, total variable cost = $2000 and marginal cost = $1. To maximize profits, the firm should a) Reduce output b) Expand output c) Shut down d) Increase the market price e) Not change output. A perfectly competitive industry is in long-run equilibrium with a constant cost industry supply curve. The government then provides a subsidy to every firm of $10 per unit of output. As a result, which one of the following statements is correct in the long run? a) Consumer price will decrease by $10 and industry output would rise b) Consumer price would decrease, but not by $10, and industry output would rise c) Industry output would decrease and consumer price would be unchanged d) Industry output would increase and consumer price would increase e) None of the above A perfectly competitive industry is initially in long run equilibrium. The industry has a constant cost long run supply curve. Industry demand increases. Which one of the following statements is correct for the long run? a) Industry price would increase, industry output would decrease and each firm would produce an unchanged output b) Industry price would increase, industry output would decrease and each firm would produce a smaller output 0) Industry price would decrease, industry output would increase and each firm would produce an unchanged output. (1) Industry price would remain unchanged, industry output would decrease and each firm would produce a smaller output e) Industry price would remain unchanged, industry output would increase and each firm would produce an unchanged output Page 8 of 27 30. 31. 32. 33. 34. A perfectly competitive industry is initially in long run equilibrium The industry has a constant cost long run supply curve. The price of a substitute product decreases. In the new long run equilibrium, a) industry price would fall and some firms would leave the industry b) industry price would rise and some firms would leave the industry c) industry output would decrease and some firms would leave the industry d) industry output would decrease and some firms would enter the industry e) industry output, price and the number of firms would all remain constant For a monopolist, marginal revenue falls faster than price because a) To sell additional units the price must be lowered on all units sold b) Profits are maximized when marginal cost equals marginal revenue c) The firm has no supply curve (1) The cost of producing extra units of output increases as production is increased e) None of the above explains the phenomenon. The price set by a profit-maximizing monopolist will increase if a) there is a reduction in marginal costs. b) there is an increase in fixed costs. c) marginal revenue is less than price. d) total revenue exceeds total costs. e) none of the above. Which of the following statements concerning a monopoly firm is TRUE? a) MC is less than MR if the firm is at the profit-maximizing point. b) MR exceeds price. 0) Average revenue is less than marginal revenue. d) A reduction in fixed costs will increase output. 6) None of the above. Suppose a monopolist is operating where price is $10 and marginal revenue is $8. We know all of the following EXCEPT: a) Price elasticity is greater than one b) The firm is not perfectly competitive c) The firm is making a profit d) Total revenue is increasing (as output increases) 6) Price exceeds marginal revenue. Page 9 of 27 35. 36. 37. 38. A monopolist is currently producing 3,000 units of output, and earning $24,000 in total revenue. Its marginal revenue at that point is $2. Its total cost is $40,000, its fixed cost is $9,000, and its marginal cost is $2. The monopolist can maximize profits in the short run by: a) staying at the current price and output b) lowering price and increasing output c) raising price and reducing output (1) raising price and leaving output unchanged e) shutting down. If a profit-maximizing firm’s marginal revenue is less than its marginal cost, the firm a) must be experiencing losses b) must be earning profits c) should decrease its output (1) should increase its output e) must have its average revenue less than its marginal revenue. Suppose a monopolist can sell 20 units of output at a price of $10 each and 21 units of output for $9.80 each. The marginal revenue for the 21st unit sold is a) $0 b) $5.80 0) $9.80 d) $0.20 e) none of the above. Consider a monopolist currently operating at the profit-maximizing point. Suppose the cost of inputs falls, creating a change in both marginal and average cost curves. As a result, a) the firm sells its goods at a lower price, sells a higher quantity, and makes a higher profit than originally b) the firm sells its goods at a lower price, sells a higher quantity, and makes a lower profit than originally c) the firm sells its goods at the same price, sells a higher quantity, and makes a higher profit than originally d) the firm sells its goods at a higher price, sells a lower quantity, and makes a higher profit than originally e) the firm sells its goods at the same price, sells the same quantity, and makes a higher profit than originally. Page 10 of 27 39. 40. 41. 42. Bad weather causes a serious crop failure and reduced output in the California orange industry, however the total revenue of California orange growers increases. Which one of the following statements is correct given these circumstances? a) The supply curve for oranges is inelastic b) The supply curve for oranges is elastic c) The demand curve for oranges is elastic d) The demand curve for oranges is inelastic e) None of the above Suppose you were given $100 as a gift by your grandparents for successfully passing EcolOO (they know it is not easy). You spend the money on a nice dinner with your best friend. Your next best alternative was to spend the $100 for a new coat, which was on sale fi'om its usual price of $150. The opportunity cost of the dinner is: a) nothing, because the money was a gift. b) $100, the value of the gift. 0) $50, since you took a friend. d) $100 plus the value of the time spent in the restaurant minus your valuation of the dinner. e) $1 50. Which one of the following statements is correct? a) If a price floor (in excess of the initial industry equilibrium price) were introduced then supply would increase (or shift outward) b) If a price ceiling (below the initial industry equilibrium price) were established then quantity supplied would exceed quantity demanded c) Rent controls prevent a temporary skyrocketing of rents when demand rises but also interfere with the long-term supply adjustment to demand increases (1) In the short run, the establishment of a fixed quota for an agricultural product (i.e., only X thousand units of product can be produced) will cause a higher industry price because of a shift in the demand schedule 6) None of the above Assume the Bank of Montreal wants a three percent real rate of interest on all its loans, and anticipates an annual inflation rate of two percent, then it should lend its money at a nominal interest rate of a) Four percent b) Nine percent c) Five percent d) One percent e) None of the above Page 11 of 27 43. 44. 45. 46. 47. Which of the following is NOT a primary function of money? a) To act as a medium of exchange b) To encourage people to work c) To act as a store of value d) To serve as a unit of account 6) To avoid the use of barter Which of the following will NOT cause the demand curve for a good A to shift? a) A change in the price of A b) A change in the price of B, a complement c) A change in the price of C. a substitute d) An increase in average income e) A shift in tastes and preferences The demand for hamburger is predicted to decrease if there is a) A rise in the price of hot dogs (a substitute good). b) A rise in the price of hamburger buns (a complementary good). c) A fall in the price of onion rings (a complementary good). (1) A decrease in the price of meat, used to produce hamburgers. e) None of the above. Suppose a rise in the price of a good fi'om $6.50 to $7.50 leads to a decrease in quantity demanded from 10,500 to 9,500 units. In this range of the demand curve, the price elasticity of demand is approximately a) 14 b) 7 c) 1,000 d) l e) 0.7 Revenue from the sale of a good will decrease if a) Income increases and the good is normal b) Its price rises and demand is elastic c) Income falls and the good is inferior (1) Its price falls and demand is elastic e) None of the above Page 12 of 27 48. 49. 50. With the imposition of an excise tax on the seller of a product, the price to a buyer will be unchanged if the a) Supply is elastic b) Demand is elastic c) Supply is perfectly elastic (1) Supply is perfectly inelastic e) Demand is inelastic Suppose you have to write an E00100 final exam, and you (of course) have to study the day before. There are only three things you could do instead of studying. You could spend the day on the beach with some fiiends (you value this at $50), you could read a novel (you value this at $30) or you could work at your part-time job and earn $40. The opportunity cost of studying for the EcolOO exam is: a) $40 b) $50 0) $120 d) $40 minus your valuation of a good grade in EcolOO e) $50 minus your valuation of a good grade in E00100 Suppose you found a $100 bill that was stored under your grandmother’s mattress and you decided to deposit this money in a Regina Bank. If the desired reserve ratio in the banking system were 20 percent and all excess reserves were lent out, then a new deposit of $100 would lead to an expansion of total deposits of: a) $120 b) $200 c) $500 d) $1200 e) $2000 Page 13 of 27 ...
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m07-part1 - UNIVERSITY OF TORONTO Faculty of Arts and...

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