ECF1100 Mid-Semester Test (01) with Answer.docx

Suppose that after a five per cent increase in the

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4. Suppose that after a five per cent increase in the price of timber, a forestry company increases its supply of timber by 10 per cent in the next three months, and 15 per cent by 12 months. This means that the elasticity of supply is _____. A. 3 at three months and 2 at 12 months B. 0.5 at three months and 0.3 at 12 months C. 2 at three months and 3 at 12 months D. 0.3 at three months and 0.5 at 12 months 5. Daniel decides to spend an hour playing cricket rather than working at $16 per hour. His trade-off is: A. nothing, because he enjoys playing cricket more than working B. the increase in skill he obtains from playing cricket for that hour C. the $16 he could have earned D. nothing, because he spent $16 for admission into the sports complex to play cricket 6. Suppose that a decrease in the price of X results in more of good Y sold. This would mean that X and Y are: A. complementary goods B. substitute goods C. inferior goods D. normal goods 7. Workers with high levels of skill and experience are not affected by the minimum wage because: A. they belong to unions B. they are not legally guaranteed the minimum wage C. they generally earn wages less than the minimum wage D. their equilibrium wages are well above the minimum wage 8. A hot summer’s day can lead to dramatic increases in the demand for electricity. Suppose the government decides a binding price ceiling is necessary so pensioners can continue to afford their power bills. The effect of this policy will be such that: A. the quantity of electricity supplied will be unchanged Page 2 of 7
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B. electricity producers will increase supply, leading to a decrease in price C. electricity producers will supply less than demanded, leading to a shortage D. demand will decrease, leading to a decrease in price 9. Suppose a producer is able to separate customers into two groups, one having a price inelastic demand and the other having a price elastic demand. If the producer’s objective is to increase total revenue, she should: A. increase the price charged to customers with the price elastic demand and decrease the price charged to customers with the price inelastic demand B. decrease the price charged to customers with the price elastic demand and increase the price charged to customers with the price inelastic demand C. charge the same price to both groups of customers D. increase the price for both groups of customers 10. Last year, Joan bought 50 kg of hamburger mince when the household income was $40 000. This year, the household income was only $30,000 and Joan bought 60 kg of hamburger mince. All else being constant, Joan’s income elasticity of demand for hamburger mince is: A.
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