test1_oct26 - Department of Economics University of Toronto...

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Page 1 of 9 Department of Economics Prof. Gustavo Indart University of Toronto October 26, 2007 ECO 100Y – L0201 INTRODUCTION TO ECONOMICS Midterm Test #1 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS : 1. The total time for this test is 50 minutes. 2. This question booklet has 9 (nine) pages. 3. Answer all questions in the space provided. 4. Aids allowed: a simple, non-programmable calculator only. 5. Use pen instead of pencil . DO NOT WRITE IN THIS SPACE Part I 1. /12 4. /12 2. /12 5. /12 3. /12 Part II /20 TOTAL /80
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Page 2 of 9 PART I (60 marks) Question 1 (12 marks) The table below represents the supply and demand for Mexican papaya in thousands of pounds. [Note: Use the space provided in this table to work your answers to parts b) to d).] Price ($/pound) Quantity Supplied Quantity Demanded S 0 S 1 S 2 D 0 D 1 0 0 20 10 6 16 20 12 12 30 18 8 40 24 4 50 30 0 a) Graph both the supply (S 0 ) and demand (D 0 ) curves in the diagram below. What is the current equilibrium price? Label that point A. (2 marks) Equilibrium price = 20 $ Q 40 20 10
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Page 3 of 9 b) Assume that Mexico is hit by a hurricane, and the supply of papaya is reduced by one-third. Draw the new supply curve (S 1 ). What will be the new equilibrium price in the market? Label that point B. (3 marks) Equilibrium price = c) Now assume that President’s Choice introduces a new papaya drink, and this increases the demand for Mexican papaya by 50%. Draw the new demand curve (D 1 ). What will be the new equilibrium price keeping in mind that the supply curve is S 1 ? Label this new equilibrium point C. (3 marks) Equilibrium price = d) The government of Mexico wants to increase the country’s production of papaya and to that end introduces a unit-subsidy paid to producers of $10 per pound. Draw the new supply curve
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