Test 2 Version 1 Day SOLUTIONS

Test 2 Version 1 Day SOLUTIONS - Page 1 of 16 McMaster...

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Page 1 of 16 McMaster University Department of Economics ECON 1B03 DAY SECTIONS Midterm Test #2 Saturday November 10, 2007 VERSION 1 Instructor: Professor H Holmes Duration: 2 hours; 2:00 – 4:00pm Total Number of Pages: 15 INSTRUCTIONS : Answer all questions on the scan sheets. USE AN HB PENCIL ONLY. Make sure you carefully fill in the bubbles. YOU MUST FILL IN YOUR STUDENT NUMBER, VERSION NUMBER AND SECTION NUMBER ON THE SCAN SHEET OR YOUR GRADE WILL NOT BE RECORDED. You may use the Casio FX calculator. Hand in the scan sheet, your rough work paper and this test copy. TOTAL MARKS AVAILABLE : 60 NAME:____________________________________________________ STUDENT #: _______________________________________________ MUGSI ID: ________________________________________________ SECTION : Circle One: C01 (9:30-10:20) C02 (12:30-1:20) EC01 (Wednesday night)
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Page 2 of 16 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. When a negative externality exists in a market the cost to producers a. is greater than the cost to society. b. will be the same as the cost to society. c . will be less than the cost to society. d. and society will be different regardless of whether an externality is present. Figure 1 ____ 2. Refer to Figure 1. The optimum amount of this product from society's standpoint would be a. Q 1 . b . Q 2 . c. Q 3 . d. Q 4 . ____ 3. Refer to Figure 1. If this market currently produces Q 3 , total economic well-being would be increased if a . production decreased to Q 2 . b. production increased to Q 4 . c. this product were no longer produced. d. Since well-being is maximized at Q 3 it cannot be increased. ____ 4. Refer to Figure 1. If this market is currently producing at Q 4 , then total economic well-being would increase if output a. increased. b . decreased to Q 2 . c. decreased to zero. d. stayed at Q 4 .
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3 of 16 ____ 5. Internalizing a positive externality will cause the supply curve of an industry to a . shift to the right. b. shift to the left. c. become more elastic. d. remain unchanged. ____ 6. A price ceiling a . is a legal maximum on the price at which a good can be sold. b. is a legal minimum on the price at which a good can be sold. c. occurs when the price in the market is temporarily above equilibrium. d. will usually result in a market surplus. ____ 7. A price ceiling that is not binding will a. cause a surplus in the market. b. cause a shortage in the market. c. cause the market to be less efficient. d . have no effect on the market price. Figure 2 ____ 8. Refer to Figure 2 . If the government imposes a binding price ceiling of $8.00 in this market, the result would be a a. surplus of 20. b.
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Test 2 Version 1 Day SOLUTIONS - Page 1 of 16 McMaster...

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