Eco100Carr_PT1 - © Prep101...

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Unformatted text preview: © Prep101 http://www.prep101.com/freestuff ECONOMICS 100 (Carr) Practice Term Test 1 SECTION I (30 marks) Answer the following questions TRUE, FALSE or UNCERTAIN. Give a brief explanation of your answer. Marks will be given entirely for your explanation. 1. Suppose a reduction in the interest rate inspires an increase in the demand for homes (mortgages become relatively cheaper). This, accompanied by an increase in the supply of homes for sale, will result in increased house prices. 2. Unexpectedly good weather causes an increase in the supply of a particular agricultural good. This will necessarily result in higher revenues for this industry. 3. Rising oil prices have inspired, among other things, a call for price controls. Such a policy will ensure an abundant supply of affordable oil. SECTION II (20 marks) 1. The Canadian government frequently increases taxes on cigarettes to lower the consumption of cigarettes, but also to generate tax revenues. Focusing on the Government’s desire to maximize tax revenues, why would the government tax cigarettes and not orange juice? (Hint: assume equilibrium price and quantities are identical for these 2 products) 2. What is meant by the term marginal utility per dollar spent? How can this term be used to define the utility maximization in an economy with only 2-goods? Page 1 of 1 ...
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