CONCORDIA UNIVERSITY

Department of Economics

ECON 201
Winter 2015
Exam duration: 60 min.

MIDTERM EXAMINATION
Version 1
Instructions:
1. Write your answers on the IBM SHEET ONLY.
2. Use a PENCIL.
3. Put your NAME and ID on the IBM sheet.
4. Put the EXAM VERSION on the top right corner of the IBM sheet.

Multiple Choice Questions (2 marks each).

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 D) all resources have alternative uses, and this gives rise to opportunity costs.
2. The Federal government has decided that more middle-class Canadians should benefit from
the growth of the economy in the next 20 years. Among the three fundamental questions
in economics, which one applies to this situation?
A) What to produce.
B) How to produce.
C) For whom to produce.
D) Not to produce at all.
3. Dynamic aspects of resource allocations help us to understand all of the following issues,
except one. Which is the exception?
A) Why some economies grow at a faster rate than others?
B) Why some economies are stagnant?
C) Why some economies have higher savings and investments than others?
D) Why some economies have stronger governmental regulations than others?
4. Which of the following would not promote economic growth within a society?
A) Increasing the skill level of the workforce.
B) An increase in technological expertise.
C) More people looking for jobs than there are jobs available.
D) An increase in the stock of machines and productive equipment.
5. At the very least, Joe Average and Bill Gates are both identically limited by:
A) their wealth.
B) their knowledge.
C) the square footage in their homes.
D) the 24 hours that comprise a day.

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Use the following to answer the next 4 questions:

6.Referring to the figure, if this society chooses to produce 10 quirks, what is the maximum
quantity of quarks it can produce?
A) 500 quarks.
B) 800 quarks.
C) No quarks.
D) 600 quarks.
7.Referring to the figure, what is the opportunity cost of producing the first 600 quarks?
A) 4 quirks.
B) 8 quirks.
C) 10 quirks.
D) the answer cannot be determined.
8.Referring to the figure, if production is currently that indicated by point A, what is the
(approximate) cost of producing one more quirk?
A) 100 quarks.
B) 50 quarks.
C) 25 quarks.
D) one more quark.
9.Referring to the figure, if new technology increased the output of quirks by 50%, how many
quirks could be produced if 600 quarks were produced?
A) 18 quirks.
B) 20 quirks.

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 C) 15 quirks.
D) No quirks.
10. All of the following statements are false except:
A) Normative economic statements are statements of fact.
B) In positive economics, we are detached scientists and personal values do not enter
our description of economic events.
C) "The unemployment rate for September, 1987 was 5.9 percent" is a normative
statement.
D) "The government should provide a minimum income to every citizen" is a positive
statement.
11. Economists frequently use economic models. These models:
A) are tools used in the analysis of economic relationships.
B) may be graphs expressing the relationship between two economic variables.
C) may be equations expressing a relationship between two or more variables.
D) all of the above.
12. Which one of the following statements does not characterize an economic model?
A) Models are controlled experiments with the economy.
B) Models should contain a set of stated assumptions.
C) Models may very well omit some important economic relationships.
D) Models may be an imprecise representation of the real world.
13. Which one of the following statements is false?
A) If the economist wants to examine the distribution of income in 1987, time- series
data should be used.
B) If the economist wants to examine the relationship between advertising
expenditures and sales during 1987, cross-section data is used.
C) If the economist wants to examine the effect of intellectual ability upon earnings,
cross-section data could be used.
D) If the economist wants to forecast gross national product based upon observations
from previous years, time-series data should be used.
14. A basket of goods in 1987 cost $783, while the value of the same basket in 1997 was $1133.
The value of this price index in 1997, based on 1987 = 100, was:
A) 144.7.
B) 242.
C) 69.1.
D) 117.4.
15. If the CPI for 2005 was 284.1, and economists predicted an inflation rate of 3.5 per cent for
2006, the predicted CPI at the end of 2006 was:
A) 287.1.
B) 290.1.
C) 297.5.
D) 294.
16. If you have the equation Q = 20 - 3P, then:
A) a plot of the equation will result in a graph with a negative slope.
B) a negative relationship exists between P and Q.
C) every time P increases by 1 unit, Q falls by 3 units.
D) all of the above are correct.
17. Consider a negatively sloped linear line in a graph where the vertical axis represents variable
Y and the horizontal axis represents variable X. If the vertical intercept is 10 and the
slope is -0.5, the horizontal intercept must be:
A) 5
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 B) 10
C) 20
D) none of the above
18. We do not expect economists to agree on economic issues that involve:
A) positive analysis.
B) normative analysis.
C) microeconomic analysis.
D) cost and benefit analysis.

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19. If your nominal income has increased by 2 per cent in one year, while the inflation rate for
the same year is 3 per cent, you can conclude that your real income:
A) has increased by 1% approximately.
B) has decreased by 1% approximately.
C) has remained constant.
D) has either increased or decreased by 1%
20. The real value of an economic variable is:
A) a measure of the purchasing power of the variable.
B) adjusted for changes in the price level.
C) expressed in constant dollars.
D) all of the above.
21. Which of the following statements is false?
A) The interaction of demand and supply determines the price and amount of output
produced and sold in the market.

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 B) Markets may be either formally or informally organized.
C) In a market, buyers and sellers of a good are in communication to trade the good.
D) Most of the western industrialized economies rely upon governments to allocate
resources.
22. Which of the following statements is false?
A) When a market is in equilibrium, excess demand is zero.
B) When a market is in equilibrium, quantity demanded equals quantity supplied.
C) When a market is in equilibrium, a price is established that clears the market.
D) When a market is in equilibrium, shortages may still exist.
23. The supply curve:
A) shows the quantity supplied at each specific price.
B) slopes downward.
C) shows the positive relationship between price and quantity supplied.
D) A and C.
24. Other things equal, when the price of a good increases, we would expect:
A) demand to decrease
B) supply to decrease.
C) supply to increase.
D) quantity supplied to increase.
25. Consider the following equations, where P is the price per unit of output Q.
P = 2000 – 10Q
P = 1000 + 10Q

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 The equilibrium quantity is:
A) 50
B) 100
C) 1,000
D) 75,000
26. All of the following are determinants of the level of demand except:
A) the costs of producing the good.
B) tastes and preferences of consumers.
C) consumers' income.
D) the price of substitute and complementary goods.
27. If goods J and K are substitutes, an increase in the price of J causes:
A) quantity demanded of J to fall and the demand curve for K to shift toward the
origin.
B) a decrease in quantity demanded for J and an outward shift of K's demand curve.
C) quantity demanded of J remains constant, but the demand for K decreases.
D) the demand curve for both J and K shift.
28. All the following are complementary goods except:
A) beer and peanuts.
B) ipods and CD players.
C) gasoline and motor oil.
D) tennis balls and tennis rackets.
29. Which of the following determinants will not lead to a shift of the supply curve?

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 A) Input costs.
B) The market price of the good.
C) The level of taxes and government regulation.
D) The existing state of technology used by the firm.
30. An improvement in overall technology that allows more output to be produced with the
same level of inputs causes:
A) a movement up the supply curve, resulting in both a higher equilibrium price and
quantity.
B) a leftward shift of the supply curve so that less is offered for sale at every price.
C) no movement of the supply curve but a fall in price and an increase in quantity
supplied.
D) a rightward shift of the supply curve so that more is offered for sale at every price.
31. “Mad cow” disease led to lower price of Alberta beef, because:
A) The leftward shift of the demand curve of Alberta beef was greater than the
leftward shift of the supply curve of Alberta beef.
B) The leftward shift of the demand curve of Alberta beef was smaller than the
leftward shift of the supply curve of Alberta beef.
C) The leftward shift of the demand curve of Alberta beef was greater than the
rightward shift of the supply curve of Alberta beef.
D) The rightward shift of the demand curve of Alberta beef was greater than the
leftward shift of the supply curve of Alberta beef.
32. Given the following four possibilities, which one results in an increase in total consumer
expenditures?
A) Demand is unitary elastic and price falls.
B) Demand is elastic and price rises.
C) Demand is inelastic and price falls.
D) Demand is inelastic and prices rises.
33. All of the following statements are incorrect except:
A) demand is more elastic in the short run than in the long run.

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 B) the time period available for adjustment to changes in a good's price does not
affect the elasticity of demand for the good.
C) the longer the time period consumers have to adjust to price changes, the more
elastic will be demand.
D) the long-run demand curve for a good is steeper than the good's short-run demand
curve.
34. If the percentage increase in quantity demanded of good X is larger than the percentage
decrease in the price of good Y, the cross-price elasticity is:
A) greater than zero but less than one.
B) greater than unity.
C) equal to unity.
D) equal to zero.
35. If a good is a luxury, its income elasticity of demand is:
A) positive and less than 1.
B) negative but greater than -1.
C) positive and greater than 1.
D) zero.
36. Suppose that an increase in consumer income of 5% causes the consumption of a good to fall
from 10 to 7 units , then using the initial quantity as the reference quantity, the income
elasticity is:
A) -10.
B) -7.
C) -5.
D) -6.
37. If the elasticity of supply is 1.2, in order to increase quantity supplied by 3.6 percent, price
must:
A) fall by 4 percent.
B) rise by 3.6 percent.

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 C) fall by 1.2 percent.
D) rise by 3 percent.
38. When the supply curve is horizontal:
A) quantity supplied is slightly responsive to price.
B) quantity supplied is not responsive to price.
C) supply is infinitely elastic.
D) supply is perfectly inelastic.
39. If the government wishes to discourage smoking by tax increases the policy will be more
effective if:
A) demand is price inelastic.
B) supply is price elastic.
C) demand is income elastic.
D) demand is price elastic.
40. Supposing that cigarette smokers demand is more price insensitive than the cigarette
manufacturers supply, this means that tax incidence is:
A) borne entirely by the manufacturers.
B) borne entirely by the consumers.
C) borne more by the manufacturers.
D) borne more by the consumers.
41. If an individual consumer is willing to pay $11 for one unit of a good but finds he can
purchase it for $7, he has a consumer surplus of:
A) $18.
B) $11.
C) $7.

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 D) $4.
42. Suppose the market for coffee is in equilibrium at a price of $5 per pound. This means:
A) all producers who want to sell coffee are pleased.
B) all remaining producers require less than $5 to produce coffee.
C) all consumers who want to buy coffee are satisfied.
D) all remaining consumers value a pound of coffee at less than $5.
43. The demand function of good X is:
P = 100 – Q
The supply function of good X is:
P = 10 + 2Q
We can conclude that the producer surplus at market equilibrium is:
A) $2350
B) $1800
C) $900
D) $450
44. After a price ceiling is imposed, the total economic surplus in that market will:
A) rise.
B) remain unchanged.
C) fall.
D) be reallocated from consumers to producers.
45. If a per unit tax is imposed, the more elastic demand is,

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 A) less likely the deadweight loss will be affected.
B) smaller the deadweight loss.
C) larger the loss in consumer surplus.
D) larger the deadweight loss.
46. Consider the following original demand-supply functions:
P = 100 – Q
P = 10 + Q
Further consider a tax of $20 per unit of output and a new supply function:
P = 30 + Q
Select the false statement from the following statements:
A) Original equilibrium price is $55
B) The new equilibrium price after the imposition of tax is $65.
C) The new equilibrium price after the imposition of tax is $55.
D) The new equilibrium quantity after the imposition of tax is 35.
47. Which one of the following statements is false?
A) With negative externalities in production occur, market supply will be greater than
the socially optimal supply.
B) With negative externalities in production occur, market supply will be less than the
socially optimal supply.
C) If there are external costs associated with a good, there is an over-allocation of
resources in the production of the good.
D) With negative externalities in production occur, the supply curve with social cost
will lie above the supply curve with private costs.
48. In a market economy, the ideal solution to the problem of externalities is to:
A) prohibit all production involving spillover costs.
B) regulate both the amount people may consume and the price they pay for goods
whose production involves spillover costs.
C) charge or tax producers of a good the precise marginal cost of the externality
generated in production.
D) allow producers to produce the output level where both the marginal private
benefit and the marginal private cost equal the price.
49. As more and more of the environment is cleaned up:
A) the marginal benefit of pollution-reduction increases.
B) firms become more willing to undertake programs that improve environmental
quality.
C) the marginal benefit of pollution-reduction declines.
D) the ratio of marginal benefits to marginal costs is much greater than 1.
50. It does not make economic sense to strive for a completely pollution- free environment
because:
A) the cost incurred would be greater than the benefit received.
B) the marginal social benefit would be greater than the marginal social cost.
C) society does not want a pollution-free environment.
D) the total benefit received by society would be greater than the total cost incurred.

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