test3_feb10 - Department of Economics University of Toronto...

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Page 1 of 9 Department of Economics Prof. Gustavo Indart University of Toronto February 10, 2006 ECO 100Y – L0101 INTRODUCTION TO ECONOMICS Midterm Test #3 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS : 1. The total time for this test is 50 minutes. 2. Answer all questions in the space provided (if space is not sufficient, continue on the back of the previous page). 3. Aids allowed: a simple , non-programmable calculator. 4. Use pen instead of pencil . DO NOT WRITE IN THIS SPACE 1. /8 4. /12 2. /8 5. /9 3. /8 6. /5 TOTAL /50
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Page 2 of 9 Question 1 (8 marks) Assume that a perfectly competitive industry, with “n” identical firms, is initially in long-run equilibrium. The industry has a constant cost long-run supply curve. The product is a normal good. Disposable income increases as a result of a tax cut. Statement: In the new long-run equilibrium, the industry price will increase; the industry output will also increase; each firm will produce a larger output; and the number of firms in the industry will remain unchanged. Position: Do you agree with the statement? Draw the proper diagram to explain your answer.
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Page 3 of 9 Question 2 (8 marks) A perfectly competitive industry is initially in long-run equilibrium with a constant cost long-run supply curve. The government imposes a tax of $2.00 per unit of output on this industry.
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This note was uploaded on 06/09/2010 for the course ECO ECO100 taught by Professor Inheart during the Spring '09 term at University of Toronto- Toronto.

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test3_feb10 - Department of Economics University of Toronto...

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