Test 2 version 1 - Page 1 of 14 McMaster University...

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Page 1 of 14 McMaster University Department of Economics ECON 1B03 Midterm Test #2 VERSION 1 Instructor: Professor H Holmes Duration: 2 hours Total Number of Pages: 14 INSTRUCTIONS : Answer all questions on the scan sheets. USE AN HB PENCIL ONLY. Make sure you carefully fill in the bubbles. YOU MUST FILL IN YOUR STUDENT NUMBER, AND VERSION NUMBER ON THE SCAN SHEET OR YOUR GRADE WILL NOT BE RECORDED. You may use the Casio FX calculator. Hand in the scan sheet and this test copy. TOTAL MARKS AVAILABLE : 50 NAME:____________________________________________________ STUDENT #: _______________________________________________ MUGSI ID: ________________________________________________ SECTION : Circle One: 9:30-10:20 11:30-12:20 Wednesday Night
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Page 2 of 14 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. Externalities cause markets to a. fail to allocate resources efficiently. b. cause price to be different than the equilibrium price. c. benefit producers at the expense of consumers. d. cause markets to operate more equitably. ____ 2. When negative externalities are present in a market a. producers will be affected, but not consumers. b. overproduction will occur. c. demand will be too high. d. the market will still maximize total benefits. Figure 1 ____ 3. Refer to Figure 1. Which price and quantity combination represents the social optimum for this market? a. P 1 and Q 1 . b. P 2 and Q 2 . c. P 2 and Q 1 . d. P 3 and Q 1. ____ 4. Which of the following is true of the Coase theorem? a. Interested parties can reach an outcome in which everyone is better off. b. The outcome reached will be inefficient. c. Interested parties will need an arbitrator in order to reach an agreement that is efficient. d. None of the above is correct.
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Page 3 of 14 Figure 2 ____ 5. Refer to Figure 2 . If the government imposes a binding price floor of $14.00 in this market, the result would be a a. surplus of 20. b. surplus of 40. c. shortage of 20. d. shortage of 40. Figure 3 ____ 6. Refer to Figure 3 . With a price ceiling present in this market, when the supply curve for gasoline shifts from S1 to S2 a. the price will increase to P3. b. a surplus will occur at the new market price of P2. c. the market price will stay at P1 due to the price ceiling. d. a shortage will occur at the price ceiling of P2.
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Page 4 of 14 ____ 7. Assume that the demand and supply curves for cars are elastic. If the government imposed a $500 tax on the buyer of each car, we can assume that the a. equilibrium price of a car would decrease by less than $500. b. price of a car would decrease by exactly $500. c. price of a car would decrease by more than $500. d.
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This note was uploaded on 04/17/2010 for the course ECON 1B03 taught by Professor Hannahholmes during the Winter '08 term at McMaster University.

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Test 2 version 1 - Page 1 of 14 McMaster University...

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