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Unformatted text preview: Department of Economics ‘ Professor J. L. Carr University of Toronto November 5, 2010 1:00 - 2:00 PM ECONOMICS 100 TERM TEST 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. The pure price system represents a completely unplanned economy. 2. You see an advertisement that a shirt that normally costs $100 is on sale for $75. You take a taxi to the store, which costs $15 for the round trip. When you arrive at the store, you find that the sale is over, and you have to pay $100 to buy the shirt. Nonetheless, you should buy the shirt. 3. A bad harvest will result in an increase in total revenue only if demand is elastic; a good harvest will result in a decrease in total revenue only if demand is inelastic and neither a good or bad harvest will affect total revenue if there is a unitary elasticity of demand. SECTION II (20 Marks) 1. In the housing market in the U.S., a large number of homeowners have been unable to make their mortgage payments and foreclosures (ie. where the mortgage financier takes possession of the house and sells it on the open market) have taken place. (a)[8 marks] Will an increase in foreclosures result in a fall in housing prices ? Explain. (b) [6 marks] If the government subsidizes mortgage payments, will this government action result in a fall in housing prices? Explain. (c) [6 marks] Will the imposition of binding rent controls on the market for rental accommodations result in an increase in housing prices? Explain ...
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