test1_solns

# test1_solns - Department of Economics University of Toronto...

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Page 1 of 9 Department of Economics Prof. Gustavo Indart University of Toronto June 5, 2009 ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 1 LAST NAME FIRST NAME STUDENT NUMBER Check your section of the course : L0201 (T/R from 2:00 to 4:00 PM) L5101 (T/R from 6:00 to 8:00 PM) INSTRUCTIONS : 1. The total time for this test is 1 hour and 50 minutes. 2. Aids allowed: a simple calculator. 3. Write with pen instead of pencil. DO NOT WRITE IN THIS SPACE Part I /40 Part II 1. /10 2. /10 3. /9 4. /9 5. /12 6. /10 TOTAL /100 SOLUTIONS

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Page 3 of 9 PART II (60 marks) Instructions : Answer all questions in the space provided. Question 1 (10 marks) Richard’s weekly demand for playing tennis is given by the following table: Price per hour (for each player) of court time 5 4 3 2 1 0 Hours of tennis demanded per week 0 1 2 3 4 5 a) The only tennis courts available are at The Annex Tennis Club where each player is charged $2 per hour (independently of whether the player uses the court for the whole hour or not). How much tennis does Richard play per week? (1 mark) What is, in money terms, his weekly consumer surplus from playing tennis? Briefly explain . (3 marks) i) If P = 2, then Q = 3 ii) Consumer surplus is the difference between the maximum price the consumer is willing to pay for each hour of court time and the price he is actually paying. Richard’s weekly consumer surplus for the first hour is$4 – $2 =$2, for the second hour is $3 –$2 = $1, and for the third hour is$2 – $2 =$0. Therefore, his total weekly consumer surplus is $3. b) The Annex Tennis Club is considering a pricing scheme whereby individuals still pay$2 per hour of court time, but in addition they must also pay a mandatory membership fee. What is the largest fee The Annex Tennis Club could charge for a weekly membership without losing Richard as a customer? Briefly explain . (3 marks) The membership fee will reduce Richard’s consumer surplus. Therefore, the maximum

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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.

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test1_solns - Department of Economics University of Toronto...

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