UNIVERSITY OF TORONTO

DEPARTMENT OF ECONOMICS
ECO100Y L0301: Principles o Econo!ics
Mi"#er! $1: Oc#o%er &1' &011
Ti!e Allo(e": )0 Min*#es
T+is #o#,l !,r-s in #+is #es# ,re .0/ T+e #es# is "i0i"e" in#o #(o p,r#s:
P,r# I: Pro%le! or!,# (or#+ 10 !,r-s 2304 o #+e #o#,l !,r- o .05
P,r# II,5 E6pl,n,#ions (or#+ . !,r-s2 104 o #+e #o#,l !,r- o .05
II%5:M*l#iple C+oice (or#+ . !,r-s 2104 o #+e #o#,l !,r- o .05
S+o( 7o*r (or- (+ere ,pplic,%le/
YOU MUST USE PEN INSTEAD OF PENCIL
Print your name and student number clearly on the front of the exam and on any loose pages.
Name: _______________________________________
(Family Name) (Given Name)
tudent !: ______________________
T+ere ,re 3 p,8es #o #+e e6,!.
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EC0100Y L0301: Mi"#er! $1' Oc#o%er &1' &011
P,r# I: Pl,ce 7o*r ,ns(ers 2,n" (or- (+ere necess,r75 in #+e sp,ce pro0i"e"/
Cle,rl7 l,%el ,ll ,6es' c*r0es' ,n" poin#s/
1/ Pro"*c#ion Possi%ili#ies C*r0es 23 !,r-s5
uppose that "anadian resources can produce the follo#ing Production Possibilities for
Ferris $heels and %ibraries.
a) 1 mark: Ferris Wheels intercept = 30
and Libraries intercept = 75
1 1 1 mark: PPC curve is cncave !culd be pints)
") i) 1 mark: n chan#e in the Libraries intercept
and Ferris Wheels intercept = 3$ !1%&'30)
(n)t *rr+ abut shape " PPC prvided it nl+
tuches at ri#inal PPC at Libraries) intercept
a) &etch the country's Production Possibilities curve (PP"o) in the space above #ith Ferris
$heels on the vertical axis. (( mar&s)
b) $hy does this Production Possibility curve have the shape you gave it)
*xplain and illustrate #ith some actual numbers. (( mar&s)
1 mark: !Cncave) because pprtunit+ cst is increasin#
1 mark: rec#nitin that Ferris Wheels decrease b+ the same amunt !r $) each time but
Libraries increase b+ less each time% !e%#%, rec#nitin that Librar+ -C increases *ith same
increase in Ferris Wheels)% (n)t need numbers i" the+)re ver+ clear n the pattern
c) +he opportunity cost of increasing the output of Ferris $heels from ,( to (- is
35 Libraries !must have Libraries ) ) (, mar&)
d) +he opportunity cost per unit of increasing the number of %ibraries from ./ to 0/ is
___.1,/ = 0%$ !Ferris Wheels but dn)t *rr+ abut this)) (, mar&)
e) $hat is the opportunity cost of changing output from -/ %ibraries and 2 Ferris $heels to
full employment output of %ibraries and Ferries $heels at 0/ %ibraries) (, mar&)
1 mark: = 3 Ferris Wheels !since $ Ferris Wheels at 70 Libraries)

f) uppose that technological change increases the output of Ferris $heels by (/3 for each
amount of resource but does not effect output of %ibraries.
4n your diagram above5 s&etch the Production Possibilities curve (PP"
,
) that results from this
technological change and specifically indicate the numerical intercepts of the axes (( mar&s)
9 &:3 9
Ferris $heels 6/ (- ,7 ,( . /
%ibraries / (8 -8 ./ 0/ 08
0 5
1
0
1
5
2
0
2
5
3
0
3
5
4
0
4
5
5
0
5
5
6
0
6
5
7
0
7
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8
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8
5
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Libraries
0
6
12
18
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30
36
42
Ferris Wheels
PPo
PP1
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EC0100Y L0301: Mi"#er! $1' Oc#o%er &1' &011
&/ De!,n" ,n" S*ppl7 23 !,r-s5
+he diagrams belo# represent the original e9uilibrium position for "ar 4nsurance5 a normal
good. Public +ransit is a substitute in consumption and "ars are a complement in consumption
for "ar 4nsurance. "onnections to :uto ;epair hops is a complement in production and %ife
4nsurance is a substitute in production for "ar 4nsurance. %abour is an input into production.
*valuate the statement given in each part to sho# the shift in the demand curve and1or the
supply curve or movement along either curve for "ar 4nsurance. <ar& the ne# e9uilibrium price
P
,
and the ne# e9uilibrium 9uantity =
,
. >esignate =s and =d if there is no mar&et e9uilibrium.
:naly?e each 9uestion independently of the other 9uestions. No explanations are re9uired. ((
mar&s per graph)
a) Fares for Public +ransit 4ncrease and the Price of %ife 4nsurance
decreases.
1 mark: (emand increases
1 mark: .uppl+ increases !shi"ts ri#ht)
!(n)t *rr+ abut P r / e0uilibrium thru#hut)
b) 4mprovements in "ars reduces the fre9uency of accidents and the
price of %abour increases.
1 mark: (emand decreases
1 mark: .uppl+ decreases !shi"ts up)
c) :n economic expansion increases 4ncomes and :uto ;epair
hops offer a bonus for car repair referrals.
.
1 mark: (emand increases
1 mark: .uppl+ increases
d) +he price of "ars decreases and.the price of "ar 4nsurance
increases
1 mark: (emand increases
1 mark: 1 chan#e in .uppl+ !simpl+ chan#e in 0uantit+ supplied due
t increase in (emand)
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Qo
Do
So
Po
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Do
So
Po
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Do
So
Po
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Do
So
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EC0100Y L0301: Mi"#er! $1' Oc#o%er &1' &011
3/ De!,n" ,n" S*ppl7 ,n" ;o0ern!en# Price Con#rols: Line,r E6,!ple 23 !,r-s5

+he demand and supply e9uations for "anoes in "anada are
P @ ,57// A /.//8= and P @ 6./ B /.//6= (P @ C per canoe and = @ number of canoes)
a) $hat is the e9uilibrium price and 9uantity of "anoes) (( mar&s)
1 mark: / = 120,000 "rm slutin " smethin# like ,57// A /.//8= @ 6./ B /.//6=

1 mark: P = 3400 "rm ,57// A /.//8D,7/5/// or 6./ B /.//6D,7058//
b) $hat is consumer surplus at e9uilibrium) (, mar&)
1 mark: = !3) 21,000,000 "rm smethin# like !1,200 5 400)!120,000)6&
c) &etch the >emand and upply e9uations in a graph indicating the Price (not the =uantity)
intercepts of each function from the above e9uations5 the relative steepness of each function5
and e9uilibrium Price and =uantity derived in part a). (( mar&s)
1 mark: (emand intercept is 1,200 and .uppl+ intercept is 3$0 !must have bth)
1 mark: Linear (emand !ne#ative slpe) steeper than Linear .uppl+ !psitive slpe) intersectin#
at their P and / "rm a) !nt necessaril+ the crrect P and /)
d) uppose that the government guarantees a minimum price (price floor) e9ual to C26/.
i) $hat is the =uantity >emanded at the price floor of C26/) (, mar&)
1 mark: = /d = 177,000 "rm smethin# like 430 = 1,200 5 0%005/
ii) $hat is the =uantity upplied at the price floor of C26/) (, mar&)
1 mark: /s = 140,000 "rm 430 = 3$0 8 0%003/
iii) $hat is the cost to the government of the price floor of C26/) (, mar&)
1 mark: Cst =317,220,000 "rm 430'1$,000 !"rm 140,000 5 177,000)
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EC0100Y L0301: Mi"#er! $1' Oc#o%er &1' &011
1/ El,s#ici#7 23 !,r-s5
a) $hat is the 3 "hange in =uantity >emanded if elasticity of >emand is /.0 in absolute value
(or A /.0) #hen Price decreases from C-7/ to C-(/) (, mar&)
1 mark: 9 Chan#e /d = 82%759 "rm :0%7 = 9 Chan#e /d6:1&%59
!(n)t) take a mark "" i" 2%759 is ne#ative thu#h the+ shuld kn* it is psitive)
b) $hat is the poin# elasticity of demand (to t#o decimals) for <aple %eaf Eoc&ey tic&ets if an
increase in average Price per game from C(8/ to C68/ decreases =uantity >emanded from
6(5/// to (75/// eager buyers per game) (( mar&s))
1 mark: crrect set up the numeratr and denminatr " e0uatin
= smethin# like ;!&2,000 5 3&,000))63&,000<6;!350:&50)6&50< r 5 0%1&560%7 r in 9
1 mark: crrect ans*er = : 0%31&5 !r 0%31&5)
c) $hat is the ,rc elasticity of demand (to t#o decimals) for <aple %eaf Eoc&ey +ic&ets if an
increase in Price from C(8/ to C68/ decreases =uantity >emanded from 6(5/// to (75///
eager buyers per game) (( mar&s))
1 mark: set up numeratr r denminatr " e0uatin crrectl+, i%e%, understand that it is a rati
" chan#e t avera#e
= smethin# like:13%39 6833%39 r ;!&2,000 5 3&,000))630,000<6;!350:&50)6300<
1 mark: = :0%7 !r 0%7 r smethin# ver+ clse t it impl+in# the+ erred in rundin# "")
d) uppose that the >emand function for <aple %eaf Eoc&ey +ic&ets is P @ ,5/8/A /./(8= but
that upply is fixed at (/5/// seats.
i) $hat is the maximum price the <aple %eafs can charge and still sell all (/5/// tic&ets)
(, mar&)
1 mark: = 3550 "rm P = 1,050 5 0%0&5'&0,000
ii) $hat is point elasticity of demand at (/5/// tic&ets) (, mar&)
1 mark = :1%1 !r 1%1) "rm !16:0%0&5)'5506&0,000
e) 4s >emand inelastic5 unit elastic5 or elastic for a fall in price from Po to P
,
in the diagram
belo#) Friefly explain. (No mar& #ithout an explanation). (, mar&)
1 mark: elastic because 9Chan#eP = 9Chan#e / r t le"t "
midpint " linear demand
9 .:3 9
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Qo
P
1
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
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I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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EC0100Y L0301: Mi"#er! $1' Oc#o%er &1' &011
./ Per *ni# #,6: Di,8r,! 2) !,r-s5 ,n" E<*,#ions 2& !,r-s5
:) uppose that the Gntario government imposes a C,/1unit tax (for noise pollution) on %eaf
Flo#ers to be collected by sellers. >ra# a diagram in the space belo# indicating the
FuyersH hare and the ellersH hare of this tax to sho# #ho #ould pay the most tax1unit if
the demand for %eaf Flo#ers is relatively inelastic and the supply of %eaf Flo#ers is
relatively elastic. Fe sure to clearly label your diagram. 4n particular:
a) >ra# a diagram depicting an initial mar&et e9uilibrium (Po5 =o) for %eaf Flo#ers if demand
is relatively inelastic and supply is relatively elastic. (, mar&)
b) >epict the ne# e9uilibrium price (P
,
) and 9uantity (=
,
) (relative to the original price plus the
tax) that #ould result from the tax1unit on %eaf Flo#ers. (( mar&s)
c) 4ndicate the FuyersH hare (F) per unit of the tax and the ellersH hare () per unit of the
tax. (( mar&s)
d) Finally5 clearly indicate in your diagram the total tax collected by the government. (, mar&)
P
Po+tax
Po
Q1
Q
Qo
So
D
So+tax
P
1
P
1
-tax
S
SS
Tax Revenue
a) 1 mark: P and / at intersectin " relativel+ steep (emand and relativel+ "lat .uppl+
b) 1 mark: shi"t up .uppl+ t # thru#h P8ta> !r P8310) and /
1 mark: pst subsid+ e0uilibrium at P
1
? P and = P8ta> and /
1
= /
c) 1 mark: @. = P
1
: P
1 mark: .. = P:!P
1
5 ta>) indicated n the dia#ram !the+ d nt have t sa+ !P
1
5 ta>) but
the+ must indicate the distance bet*een P and the ri#inal .uppl+ at /
1
%
d) 1 mark: the crrect vertical dimensin " the ta> !P
1
5 P
0
,) i%e%, distance bet*een the t*
suppl+ curves at /
1
) and the crrect hriAntal dimensin " the ta> !/
1
)
F) uppose that "anada imposes a C-/ tax1unit (collected by sellers) on "anoes5 #hich have
demand and supply functions described by P @ ,57// A /.//8= and P @ 6./ B /.//6=.
i) $hat is the FuyersH hare of the +ax)
1 mark: = 3&5 "rm either 0%0056!0%005 8 0%003) '370 r "rm slutin " 1200 5 0%005/ = 3$0
8 70 8 0%003/
ii) $hat is the c+,n8e in e9uilibrium 9uantity of "anoes given the tax) (, mar&)
1 mark: = :5,000 !dn)t *rr+ abur minus) "rm either 516!0%002) '70 r slutin " 1200 5
0%005/ = 3$0 8 70 8 0%003/ cmpared *ith ans*er in 0uestin B3
9 ):3 9
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
Item ID: 5350
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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Item ID: 5350
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Item ID: 5350
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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Item ID: 5350
D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
Item ID: 5350
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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Item ID: 5350
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2
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I t e m I D : 5 3 5 0
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EC0100Y L0301: Mi"#er! $1' Oc#o%er &1' &011
P,r# II,: S+or# Ans(er =*es#ions 2. !,r-s5: >e %rie %*# cle,r ,n" co!ple#e
,. $illaim +hornton critici?ed the supply and demand approach of economics in ,7.2 because
a decrease in supply increases price but a decrease in price decreases supply. Eo# does our
understanding of supply and demand explain +horntonHs contradiction)
(. $hy are #e able to say that linear >emand is inelastic relative to linear upply at e9uilibrium
#hen the slope of >emand is greater than the slope of upply) (, mar&)
6. $hat is the competitive mar&et criticism of rent controls for the original tenants) Iou may
use a diagram but mar&s are for the explanation. (( mar&s)
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2 Item ID: 5350
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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Item ID: 5350
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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EC0100Y L0301: Mi"#er! $1' Oc#o%er &1' &011
P,r# II: M*l#iple C+oice: Circle #+e %es# ,ns(er or e,c+ <*es#ion/
E,c+ <*es#ion is (or#+ 1 !,r-/ No !,r-s "e"*c#e" or (ron8 ,ns(ers/
1. uppose that the Ferris $heel (F$)1%ibraries (%) Production Possibilities curve is
F$ @ 6/ A /.-%. $hat is the opportunity cost of . %ibraries at full employment)
a) / b) /.- F$ c) /.- % d) (.- F$ e) (.- % f) 8 F$
g) 8 % h) ,8 F$ i) ,8 % J) None of the above
2. $hich of the follo#ing is true at e9uilibrium for the FuyersH hare of a per1unit tax on a
commodity that has perec#l7 elastic >emand and relatively elastic upply)
a) +he Fuyers hare of the tax is /
b) +he Fuyers hare is more than / but less than the ellers hare of the tax
c) +he Fuyers hare is greater than the ellers hare of the tax
d) +he Fuyers hare is e9ual to the total amount of the per unit tax
e) None of the above
6. $hich determines the maximum number of hours #or&ed by a person at a given #age rate
per hour ceteris paribus)
a) +he number of free hours available to the person
c) +he resource cost of hours #or&ed
c) +he average opportunity cost of the hours #or&ed
d) +he number of hours #ith an opportunity cost less than (or e9ual to) the #age rate
e) None of the above
-. $hich of the follo#ing is the effect on the e9uilibrium price of "ars in +oronto of a
simultaneous decrease in the price of "ar 4nsurance and +echnological "hange that reduces
the resource input in "ar production)
a) >ecrease b) 4ncrease c) No change
d) >epends on relative shift of >emand and upply e) None of the above
8. $hich of the follo#ing is the effect on the e9uilibrium =*,n#i#7 of "ars in +oronto of a
simultaneous decrease in the price of "ar 4nsurance and +echnological "hange that reduces
the resource input in "ar production)
a) >ecrease b) 4ncrease c) No change
d) >epends on relative shift of >emand and upply e) None of the above
9 3:3 9
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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Item ID: 5350
D o w n l o a d e r I D : 5 5 9 2
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
Item ID: 5350
D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
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D o w n l o a d e r I D : 5 5 9 2
I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
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I t e m I D : 5 3 5 0
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I t e m I D : 5 3 5 0
D o w n l o a d e r I D : 5 5 9 2
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D o w n l o a d e r I D : 5 5 9 2
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