Test 2 version 3 - Page 1 of 13 McMaster University...

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Page 1 of 13 McMaster University Department of Economics ECON 1B03 Midterm Test #2 VERSION 3 Instructor: Professor H Holmes Duration: 2 hours Total Number of Pages: 13 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 13 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. When externalities are present in a market a. the established equilibrium maximizes the total benefit to society as a whole. b. market participants lose some market benefits to bystanders. c. both equity and efficiency are maximized. d. the market fails to allocate resources efficiently. ____ 2. A positive externality a. causes the product to be overproduced. b. provides an additional benefit to market participants. c. benefits consumers because it results in a lower equilibrium price. d. is a benefit to a market bystander. Figure 1 ____ 3. Refer to Figure 1. Which quantity represents the social optimum for this market? a. Q 1. b. Q 2 . c. Q 3. d. Q 4. ____ 4. According to the Coase theorem a. private parties can bargain to reach an efficient outcome. b. government assistance is necessary for markets with externalities to reach an efficient outcome. c. externalities, both positive and negative, will always cause markets to be inefficient. d. no market will experience long-term externalities, since normal market adjustments will eliminate externalities.
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Page 3 of 13 Figure 2 ____ 5. Refer to Figure 2 . If the government imposes a binding price ceiling of $8.00 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 . Without the price ceiling in this market for gasoline, when the supply curve shifts from S1 to S2 the price will a. increase to P3, but a shortage will still exist. b. increase to P3 and the market will clear. c. remain at P1 and a shortage will still exist. d. eventually move to P2 without government assistance.
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Page 4 of 13 ____ 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.
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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 3 - Page 1 of 13 McMaster University...

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