It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in 2.5 hours. Work on your own. Keep your notes and textbook closed. Attempt every question. After the time limit, go back over your work with a different colour or on a separate piece of paper and try to do the questions you are unsure of. Record your ideas in the margins to remind yourself of what you were thinking when you take it up at PASS. The purpose of this mock exam is to give you practice answering questions in a timed setting and to help you to gauge which aspects of the course content you know well and which are in need of further development and review. Use this mock exam as a learning tool in preparing for the actual exam. Please note: Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work. Often, there is not enough time to review the entire exam in the PASS workshop. Decide which questions you most want to review the Facilitator may ask students to vote on which questions they want to discuss in detail. Facilitators do not bring copies of the mock exam to the session. Please print out and complete the exam before you attend. Facilitators do not produce or distribute an answer key for mock exams. Facilitators help students to work together to compare and assess the answers they have. If you are not able to attend the PASS workshop, you can work alone or with others in the class. Good Luck writing the Mock Exam!! Dates and locations of mock exam take-up: Tuesday December 12 th 12:30-2pm ME4494 Thursday December 14 th 6-7:30pm ME4494 Office Hour take up: Wednesday December 15 th 5-7pm 4 th Floor Library
PART A 1. Refer to Table 1. The opportunity cost of 1 bicycle for George is: a. 4 wagons b. 2 wagons c. 3 wagons d. 5 wagons Labour hours needed to make one unit of: Amount produced in 80 hours Bicycles Wagons Bicycles Wagons George 20 5 4 16 Harvey 40 8 2 10 2. What will happen in the quinoa market if buyers are expecting higher prices in the near future? a. The supply of quinoa will increase b. The demand for quinoa will be unaffected c. The demand for quinoa will increase d. The demand for quinoa will decrease 3. If a firm producing modems and routers is producing within their production possibility frontier, then a. The firm s production has inefficiencies, or is not using all resources available b. The firm is producing beyond its capacity c. The firm is producing at an efficient combination of their goods d. The firm is producing modems at a high opportunity cost of routers 4. If the income elasticity of demand for a good is negative, it must be a. An elastic good b. An inferior good c. A normal good d. A luxury good 5. For which of the following products would the burden of a tax likely fall more heavily on the sellers? a. Clothing b. Food c. Housing d. Entertainment
6. The discovery of a new hybrid chickpea would tend to increase the supply of chickpeas. Under what conditions would chickpea farmers realize an increase in revenue? a. If the supply of chickpeas is elastic b. If the supply of chickpeas is inelastic c. If the demand for chickpeas is inelastic d. If the demand for chickpeas is elastic 7. Refer to figure 1. When the price falls from P2 to P1, what happens to producer surplus? a. It decreases by an amount equal to A b. It decreases by an amount equal to A plus C c. It decreases by an amount equal to A plus B d. It decreases by an amount equal to B plus C 8. Refer to figure 9-6. How many wagons would this country import or export? a. Export 20 wagons b. Import 20 wagons c. Export 50 wagons d. Import 50 wagons
9. With a positive externality, to ensure that the market equilibrium equals the social optimum, what should government do? a. It should impose a tax greater than the value of the positive externality b. It should not allow production of any product that causes a positive externality c. It should provide a subsidy equal to the value of the positive externality d. It should reward those who benefit from the positive externality 10. When does the Tragedy of the Commons result? a. When a good is rival in consumption and not excludable b. When a good is excludable and not rival in consumption c. When a good is both rival in consumption and excludable d. When a good is neither rival in consumption nor excludable 11. Which tax system requires higher income taxpayers to pay a higher percentage of their income in taxes? a. Progressive b. Proportional c. Regressive d. Percentage 12. Dolores used to work as a high school teacher for $40 000 per year but quit in order to start her own catering business. To buy the necessary equipment, she withdrew $20 000 from her savings (which paid 3 percent interest per year) and borrowed $30 000 from her uncle, to whom she pays 3 percent interest per year. Last year she paid $25 000 for ingredients and had revenue of $60 000. She asked Louis, an accountant, and Greg, an economist, to calculate her profit for her. What did they say? a. Louis said her profit was $34100 and Greg said she lost $6500 b. Louis said her profit was $34100 and Greg said her profit was $6500 c. Louis said her profit was $35000 and Greg said she lost $5000 d. Louis said her profit was $33500 and Greg said her profit was $33500 13. Assuming output is increasing, when will average total cost increase? a. When marginal cost is less than average total cost b. When marginal cost is greater than average total cost c. When marginal cost is less than average variable cost d. When marginal cost is greater than average variable cost
14. If a firm in a perfectly competitive market doubles the number of units of output sold, what will happen to total revenue? a. It will less than double b. It will exactly double c. It will more than double d. It will increase, but by an unpredictable amount 15. When will a firm shut down? a. When the price falls below the average total cost in the long run b. When the price falls below the average total cost in the short run c. When the price falls below the average variable cost in the short run d. When price falls below the average variable cost in the short run 16. If duopolists individually pursue their own self-interest when deciding how much to produce, how will the amount they produce collectively compare with the monopoly quantity? a. It will be less than the monopoly quantity b. It will be equal to the monopoly quantity c. It will be greater than the monopoly quantity d. It will be unrelated to the monopoly quantity 17. When a single firm can supply a product to an entire market at a smaller cost than could two or more firms, what is the industry called/ a. Resource industry b. Exclusive industry c. Government monopoly d. Natural monopoly 18. A perfectly price-discriminating monopolist is able to do which of the following things? a. Maximize profit and produce a socially optimal level of output b. Maximize profit, but not produce a socially optimal level of output c. Produce a socially optimal level of output, but not maximize profit d. Exercise illegal preferences regarding who it sells to
19. Ignoring oligopoly and focusing on the other three types of market structures, in which of those market structures does a profit-maximizing firm charge a price that exceeds marginal cost? a. Monopoly only b. Monopoly and monopolistic competition only c. Monopoly, monopolistic competition and perfect competition d. It depends on whether we are in the short run or the long run 20. If hiring more workers results in each additional worker contributing successively smaller amounts of output, then which of the following applies? a. Diminishing profitability b. Diminishing marginal cost c. Diminishing marginal product d. Increasing marginal product PART B (Try to answer all) 1. Draw a PPF for socks and sandals. Show the difference between those allocations that are feasible and not feasible. a. What happens to the opportunity cost of sandals as more and more socks are produced? Show this on your diagram. b. If both socks and sandals are made by dads, show what happens to the PPF if dads become more efficient at making them. c. If a new technology lets us produce socks using fewer dads, show what happens to the PPF and explain the effect this has for the opportunity cost of sandals. 2. Assume that the demand for gas is relatively inelastic and the supply of gas is relatively elastic. a. If the government imposes a $1 tax per litre, draw a diagram to show the effect on consumer surplus and producer surplus. b. Who bears the incidence of the tax?
3. Are these true or false for: perfect competition; monopoly; monopolistic competition? Explain why. a. Price equals marginal cost b. Price equals average total cost 4. The market for skis is a duopoly. If firms both charge a high price, each firm earns $10 million in profits. If both firms charge a low price, each firm earns $2 million in profits. If one firm charges a high price and the other charges a low price, the firm with the high price earns $0 in profit and the firm with the low price earns $12 million in profits. a. Does each firm have a dominant strategy? What is it? Explain what it means. b. What is Nash Equilibrium in this duopoly? Explain what that means. c. Explain whether those two firms would want to merge. d. Explain whether the government should let them merge. 5. Draw a diagram showing: the demand and supply of labour used to pick blueberries; the equilibrium wage; the level of employment a. Explain the relationship between the labour demand curve, the price of blueberries, and the marginal product of blueberry pickers b. Explain why the labour demand curve slopes down c. Show the effect of a binding minimum wage for blueberry pickers d. Explain how this will affect eh marginal product of blueberry pickers 6. Explain what is meant by a Pigouvian tax and illustrate your answer with a diagram. a. Does a Pigou tax cause deadweight loss like most other taxes? Explain. 7. Explain what a common resource is. Give one example to illustrate your answer. Explain whether the equilibrium use of a common resource is efficient or inefficient. 8. What are the characteristics of monopolistic competition? a. Draw a diagram showing the short run equilibrium. b. Draw a diagram showing the long run equilibrium. What happens in the long run that changes conditions from the short run?
9. If Antigua has a lower opportunity cost in producing coffee than Bolivia, which country will export coffee? a. Show the relationships between coffee exports in one country and coffee imports in the other country. PART C (Try to answer all) 1. Assume Canada is a small open economy that imports some of the grapes it consumes. a. Draw a diagram showing the equilibrium under free trade in grapes b. Show the effects of $1 per kg tariff on imported grapes. Show the effect on: imports, Canadian production, consumption, the government s revenue, the change in (Canadian) producer surplus, consumer surplus and total surplus. c. What would be the effect of replacing the import tariff with an import quota? Which would be better? Explain. 2. The Scottish milk industry is perfectly competitive, and is initially in long-run equilibrium, with 1,000 dairy farmers each producing 1,000 liters of milk per day, so 1 million liters per day in total. Draw a diagram showing the individual dairy farmer s equilibrium. a. Show the effect of an increased demand for milk, both in the short run and in the long run. b. How would your answer change if the government had required all dairy farmers to be licensed, and had only issued 1,000 licenses? 3. What are the assumptions of the theory of monopolistic competition. Explain how they differ from the assumptions for perfect competition and monopoly. a. Explain how the monopolistically competitive firm chooses its profitmaximising output and price. Explain how this differs from: perfect competition; monopoly. b. Explain what happens to profits in long run equilibrium in monopolistic competition. Explain how this differs from: perfect competition; monopoly. c. Do monopolistically competitive firms produce the socially optimal (efficient) level of output? What would happen if the government forced them to set a price equal to marginal cost?