Eco100Carr_PT2 - © Prep101...

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Unformatted text preview: © Prep101 ECONOMICS 100 (Carr) Practice Term Test 2 Answer the following questions TRUE, FALSE or UNCERTAIN. Give a brief explanation of your answer. Marks will be given entirely for your explanation. All questions are worth an equal share of the total mark. 1. If we know that a particular good’s income and substitution effect move in the same direction, we know it is a Giffen good and that its demand curve is upward sloping. 2. A firm in a perfectly competitive industry will inevitably enjoy economic profits in long run equilibrium; otherwise there would be no incentive to stay in business. 3. A monopoly is bad for the economy because of the excess economics profits earned by that monopoly. If the government imposes a tax that took these profits away from the monopoly, there would be no cost/burden on society as a result of the monopoly. Assume that governments hold all tax revenues. 4. Airfare during the workweek is typically more expensive than over the weekend. This pricing strategy demonstrates a social concern for non-business travelers with less income. (Suppose that business travelers fly out and back within a workweek, and non-business travelers travel for just the weekend.) 5. Total costs are made up of fixed costs (i.e. plant and equipment, capital) and variable costs (i.e. labour). If the price of a variable input increases, producers will increase their production in the short-run to cover the additional costs. Page 1 of 1 ...
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This note was uploaded on 09/18/2010 for the course ECON 100 taught by Professor Carr during the Spring '10 term at University of Toronto- Toronto.

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