Due : Tuesday May 9th , 2017
Instructor:
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Which of the following statements best describes the underlying feature in most economic problems?
A)
People have unlimited wants in the face of limited resources.
B)
Governments should never interfere in the workings of a market economy.
C)
There are unlimited resources.
D)
People have limited wants in the face of limited resources.
E)
Our country is rich; we just don't realize it.
With a budget of $500 000, a school board can choose to purchase 20 000 textbooks or 2000 laptop computers (or some intermediate combination) for use in classrooms.
Figure 1-2
2)
Refer to Figure 1-2. For the school board, what is the opportunity cost of one additional laptop computer?
A)
0 textbooks
B)
1/10 of a textbook
C)
10 textbooks
D)
20 textbooks
E)
2000 textbooks
3)
Refer to Figure 1-2. Which of the following combinations of textbooks and laptops is unaffordable, given the school board's budget of $500 000?
A)
A
B)
B
C)
C
D)
D
E)
E
4)
Refer to Figure 1-2. What is the price of a textbook in this example?
A)
$25
B)
$40
C)
$50
D)
$100
E)
$250
5)
In the Canadian economy, most decisions regarding resource allocation are made by
A)
business firms only.
B)
legal contract.
C)
the various levels of government.
D)
consumers and producers interacting in the price system.
E)
negotiation between unions and firms.
6)
With regard to various economic systems, most economists agree that
A)
the mix of market and command principles that exists in Canada is the best.
B)
command economies have been very successful in distributing income in socially just ways.
C)
government intervention in the economy is only justified in time of war.
D)
the optimal mix of market and command systems remains constant over time.
E)
most production and consumption decisions are more efficiently coordinated by markets than through central planning.
7)
Which of the following statements belongs more properly in the field of normative economics than positive economics?
A)
The price of one Canadian dollar is $0.85 U.S.
B)
Technological change has reduced the cost of cell phone service.
C)
Canadian governments should provide assistance to the auto industry.
D)
When a drought occurs, the price of vegetables tends to rise.
E)
An increase in the minimum wage leads to more unemployment.
8)
Choose the statement that best characterizes an economic theory. An economic theory
A)
will predict more accurately if it contains a greater number of mathematical equations.
B)
is only useful if its underlying assumptions are realistic.
C)
will be useful only if all human behaviour is rational.
D)
will be useful as long as it is logically consistent.
E)
must be judged on its ability to explain and predict real-world phenomena.
9)
Suppose that a particular theory predicts that on sunny days consumption of ice cream will rise and that on cloudy days consumption of ice cream will fall. If an economist tests this theory and finds that over a six-month period the theory predicts accurately, the economist would likely say
A)
the theory is always reliable.
B)
the theory shouldn't be taken seriously.
C)
the theory has been proven correct.
D)
that the theory is not useful because consumption involves irrational human behaviour.
E)
the evidence fails to reject the theory.
The table below shows hypothetical tuition costs at a Canadian university.
2008 / $5000
2009 / $5050
2010 / $5100
2011 / $5150
2012 / $5200
TABLE 2-1
10)
Refer to Table 2-1. Assume that 2008 is used as the base year, with the index number = 100. The value of the index number in 2010 is calculated as follows:
A)
(5000/5100) × 100 = 98
B)
(5100/5000) × 100 = 102
C)
5000/5100 = 0.98
D)
5100/5100 = 100
E)
5100/5000 = 1.02
11)
To say that the demand curve for movies is negatively sloped means that
A)
less quantity will be demanded as preferences change.
B)
less quantity will be demanded at higher prices.
C)
more quantity will be demanded as consumers' income increases.
D)
less quantity will be demanded at lower prices.
E)
less quantity will be demanded at the same price.
12)
Suppose new medical research suggests that consuming 200 grams of tofu everyday helps to prevent heart disease. Widespread knowledge of this research, other things being equal, is likely to have what impact on the market for tofu?
A)
there would likely be no effect.
B)
movement along the demand curve to the right
C)
shift the whole demand curve to the left
D)
movement along the demand curve to the left
E)
shift the whole demand curve to the right
13)
The market supply curve for wooden shipping crates would shift to the right
A)
if the prices of inputs fall.
B)
if a government subsidy for shipping crates is withdrawn.
C)
if a tax is applied to shipping crates.
D)
if technological conditions for the production of crates deteriorates.
E)
if suppliers leave the industry.
14)
An equilibrium price can be described as
A)
the final price.
B)
a regulated price
C)
an aggregate price.
D)
the price at which excess demand equals excess supply.
E)
one at which there is neither excess demand nor excess supply.
The supply and demand schedules for dozens of roses are given below:
per period / Quantity Demanded per period
$10 / 200 / 500
$20 / 300 / 450
$30 / 400 / 400
$40 / 500 / 350
$50 / 600 / 300
TABLE 3-1
15)
Refer to Table 3-1. At a price of ______there would be an excess ______of 300 dozen roses.
A)
$10; demand
B)
$50; demand
C)
$30; demand
D)
$30; supply
E)
$10; supply
16)
Refer to Table 3-1. How many dozens of roses would actually be purchased if the price in this market were $10?
A)
400
B)
500
C)
200
D)
350
E)
300
FIGURE 3-3
17)
Refer to Figure 3-3. At a price of P3 there is excess ______in the market for X and pressure for the price to ______.
A)
demand; fall
B)
demand; rise
C)
supply; rise
D)
supply; fall
18)
Refer to Figure 3-3. At a price of P1 there would be excess supply equal to
A)
0.
B)
Q4 Q5.
C)
Q1 Q2.
D)
Q1 Q5.
E)
Q2 Q4.
19)
Tickets for music concerts that are sold on the Internet are often sold out within minutes and many unsatisfied customers are unable to get tickets (in the legitimate market). One explanation for this is that
A)
the market price for concert tickets may be set above its equilibrium price.
B)
the market price for concert tickets may be set below its equilibrium price.
C)
the market price for concert tickets is at its equilibrium level.
D)
prices for purchasing digital music have increased.
E)
concert goers are not rational.
20)
Consider a local market for 4-litre containers of windshield-wiper fluid. In January 2012, 100 000 containers were sold at a price of $3 each. In March 2012, 120 000 containers are sold at a price of $8 each. Does this change in equilibrium price and quantity violate the "law of demand"?
A)
Not necessarily, because the supply curve could have shifted to the right, leading to an increase in equilibrium price and quantity.
B)
No, because the "law of demand" is not valid.
C)
Not necessarily, because the supply curve could have shifted to the left, leading to an increase in equilibrium price and quantity.
D)
Not necessarily, because the demand curve could have shifted to the right, leading to an increase in equilibrium price and quantity.
E)
Not necessarily, because the demand curve could have shifted to the left, leading to an increase in equilibrium price and quantity.
Part 2: Problems
1. Brazil produces ethanol from sugar and the land used to grow sugar can be used to grow food crops. Suppose that Brazil’s production possibilities for ethanol and food crops are as follows:
Ethanol (barrels per day) / Food crops (tonnes per day)70 / 0
64 / 1
54 / 2
40 / 3
22 / 4
0 / 5
a) Draw a graph of Brazil’s production possibilities curve and explain how your graph illustrates scarcity.
b) If Brazil produces 40 barrels of ethanol a day, how much food must it produce if it achieves production efficiency?
c) If Brazil increases its production of ethanol from 40 barrels per day to 54 barrels per day, what is the opportunity cost of the additional ethanol?
d) If Brazil increases its production of food crops from 2 tonnes per day to 3 tonnes per day, what is the opportunity cost of the additional food?
e) What is the relationship between your answers to d and e?
2. The table sets out the demand and supply schedules for potato chips. (Quantities are in thousands of bags per week)
Price (cents per bag) / Quantity demanded / Quantity supplied50 / 160 / 130
60 / 150 / 140
70 / 140 / 150
80 / 130 / 160
90 / 120 / 170
100 / 110 / 180
a) Draw a graph of the potato chip market and mark in the equilibrium price and quantity.
b) If the price is 60¢ a bag, is there a shortage or a surplus, and how does the price adjust?
c) If a new dip increases the quantity of potato chips that people want to buy by 30 million bags per week at each price, how does the demand and/or supply of chips change?
d) If a new dip has the effect described in c, how does the price and quantity of chips change?
e) if a virus destroys potato crops and the quantity of potato chips produced decreases by 40 million bags a week at each price, how does the supply of chips change?
f) If the virus described in e hits, how does the price and quantity change?
Part 3: Short Answer Questions
As prices for the flavourful beans soar on global markets, it may be time to stock up on chocolate, Dana Flavelle writes
Apr 06, 2007 04:30 AM
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Dana Flavelle
Business Reporter
You wouldn't know it from all the "sale price" stickers in the Easter treats aisle at Shoppers Drug Mart yesterday, but the price of cocoa is on the rise.
Two of the world's largest candy bar makers announced they are jacking up the price they charge retailers in the United States by as much as 5 per cent.
Consumers can expect the price of the average chocolate bar to rise by about five cents (U.S.), analysts estimated.
In Canada, most popular chocolate bars sell for $1.19 (Canadian) in corner stores and $1.25 in vending machines.
The U.S. announcements don't apply to Canada, representatives of Hershey Co. and MasterFoods USA, a division of Mars Inc., said yesterday.
But it's probably just a matter of time.
The same pressures driving costs higher at confectionery companies based in the United States are hitting cocoa processors around the globe, economists said.
Long-term demand for chocolate is on the rise, driven by higher incomes in developing countries like China, and the perceived health benefits in North America of eating dark chocolate, a source of anti-oxidants linked to the fight against cancer.
Meanwhile, short-term supply has been erratic, according to the International Cocoa Organization.
The latest scourge is the harmattan, a dusty wind that blew across west Africa last December creating drier than expected conditions in the world's biggest cocoa-producing countries. The winter is one of the two major growing seasons.
The harvest in Ivory Coast, Ghana and Nigeria – which together make up 60 per cent of the world's supply – is now expected to miss analysts' forecasts, the cocoa organization noted.
"I think there is really lots of concern in the short term on supply coming out from the Ivory Coast and Ghana," Sudakshina Unnikrishnan, an analyst with Barclays Capital in London, told Reuters.
"Weather is the key factor that drives prices up."
Chocolate makers are also grappling with factors that afflict a broad range of food suppliers, including rising competition from new environment-friendly fuels, such as ethanol, for basic food ingredients, such as sugar and corn.
"Corn is already used in a lot of stuff. It's what animals eat and then we eat the animals. If it's now going to be used for ethanol, corn prices went way up. There were riots in Mexico about a month ago because tortilla prices have gone up," said David Wolf, chief Canadian economist with Merrill Lynch Canada.
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Bottom of Form
1. Read the preceding article “As prices for the flavourful beans soar on global markets, it may be time to stock up on chocolate” and explain, in terms of demand and supply analysis what happening in the chocolate market. Use diagrams to support your answer. What do you expect to happen to the price of a chocolate bar based on your analysis?
2. Identify the following statements as either positive or normative.
(a) The price of oil rose by over 10 percent last year.
(b) The price of oil will be lower this time next year.
(c) The government should try to reduce the price of oil.
(d) A decrease in taxes should help reduce the price of oil.
(e) The high price of oil in Canada is unacceptable.
3. Explain, in terms of demand and supply analysis (using correctly labeled diagrams) why the price of maple syrup maybe different in London, Ontario, from that in London England.