Econ 101 - Sample Exam 1u4c11

DISCLAIMER The purpose of this sample examination is to provide you with the VSE expectations. It is helpful for you to know what degree of difficulty and level of critical thinking is expected. You can then adjust your learning accordingly. This sample exam should not be relied on to guarantee the format of questions. The format of questions can and will take any form, for example T/F, multiple choice, short answers, calculations, problems, articles, etc. You should not study in a way that tries to second guess the format of questions. You should study to learn the concepts and practice critical thinking skills.

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THE UNIVERSITY OF BRITISH COLUMBIA VANCOUVER SCHOOL OF ECONOMICS Course: Professor:

Microeconomics 101 R.G. Gateman

Semester: Time Allowed: 50 MINUTES MIDTERM EXAMINATION #1

Course Information TA QUESTION (1 MARK):

WHAT IS YOUR TA’S NAME?

PLEASE CIRCLE BELOW!

LAB DAY

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LAB TIME ________________________________

LECTURE TIME

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Student Information SURNAME

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GIVEN NAME

____________________________________(NICKNAME)_______________________

STUDENT NO.

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EMAIL

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SIGNATURE

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FOR OFFICE USE ONLY TA

______________ 01 Marks (0 minutes)

Part A

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05 Marks (5 minutes)

Part B

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15 Marks (15 minutes)

Part C

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10 Marks (10 minutes)

Part D

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09 Marks (10 minutes)

Part E

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10 Marks (10 minutes)

Total

_____________ / 50 Marks (50 minutes)

EXAMINATION ASSESSMENT

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GENERAL EXAMINATION RULES 1. Identification: Each examination candidate must be prepared to produce, upon the request of the invigilator or examiner, his or her UBC card for identification. 2. Asking Questions: Examination candidates are not permitted to ask questions of the examiners or invigilators, except in cases of supposed errors or ambiguities in examination questions, illegible or missing material, or the like. 3. Leaving the Exam Room: No examination candidate shall be permitted to leave during the examination. You must remain in the examination room until the instructor says you may leave. 4. Dishonest Practices: Examination candidates must conduct themselves honestly and in accordance with established rules for a given examination, which will be articulated by the examiner or invigilator prior to the examination commencing. Should dishonest behaviour be observed by the examiner(s) or invigilators(s), pleas of accident or forgetfulness shall not be received. Examination candidates suspected of any of the following, or any other similar practices, may be immediately dismissed from the examination by the examiner/invigilator, and may be subject to disciplinary action: i. speaking or communicating with other examination candidates, unless otherwise authorized; ii. purposely exposing written papers to the view of the other examination candidates or imaging devices; iii. purposely viewing the written papers of other examination candidates; iv. using or having visible at the place of writing any books, papers or other memory aid devices other than those authorized by the examiner(s); and, v. using or operating electronic devices including but not limited to telephones, calculators, computers, or similar devices other than those authorized by the examiner(s) – (electronic devices other than those authorized by the examiner(s) must be completely powered down if present at the place of writing, and at arm’s length). 5. Exam Materials: Examination candidates must not destroy or damage any examination material, must hand in all examination papers, and must not take, or distribute in any way, any examination material from the examination room without permission of the examiner or invigilator. 6. Dictionaries

- No dictionaries are allowed.

7. Calculators

- gPod or Sharp EL-510R ONLY.

8. Beepy Things - Please turn off anything that “beeps”, for example cell phones in backpacks. 9. Personal Stuff - All backpacks, briefcases, binders, cell phones, iPods, iPads, etc. shall be left at the side of the room. If you are concerned about security, please do not bring them. UBC is not responsible for lost/stolen property. Obviously, you may have pens, pencils, erasers, calculator and ID.

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10. Cell Phones - Cell phones cannot be accessible. Not accessible means that you cannot have your cellphone on your person or within reach. Leave them in you pack or at home. 11. Use of Pencils - Answers in pencil will not be reread. 12. After Exam - Please remain seated until the exam papers have been collected by the TA. Hand your exam personally to the TA. Do not give your exam to anyone else to hand in (e.g. do not send your exam to the aisle or leave it on the desk). Please remain seated and quiet until the instructor says you may leave. The exam collection period is considered part of the examination period, thus the rules against talking apply. The purpose of this process to ensure that your exam is not misplaced. NOTICES FOR THIS SPECIFIC EXAMINATION 1.

Please enter your answers to the following questions on the lines provided in this booklet, unless otherwise directed. Answers elsewhere will not be graded.

2.

This examination consists of 05 PARTS on ** PAGES, is ** MINUTES in duration, for a TOTAL POSSIBLE SCORE of 50 MARKS. Each question is not equally weighted, so please govern your time carefully. “Suggested” times for each question are provided for your assistance.

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TA SCHEDULE

PROFESSOR R. GATEMAN

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PART A

(5 QUESTIONS; 5 MARKS TOTAL)

KNOWLEDGE

Faris wants you to define the following five (5) precisely and concisely: One mark each; either they get it, or they don’t. A1

Unitary elasticity of supply

Relative change in Qs = rel change in P A2

Equilibrium

If you are there, you will stay there, or It doesn’t change over time A3

Incentive

A factor that motivates or enables a course of action An “expectation” that encourages behaviour A4

Normal Good

As income increases, Qd increases Positive income elasticity of demand A5

Deadweight Social Loss

Economic surplus lost to society.

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PART B

(3 QUESTIONS; 15 MARKS TOTAL)

ANALYSIS

Please answer the following three SHORT ANSWER questions. 5 marks each. B1 Megan collected the following data for the price of a sub sandwich for lunch at the following university student union cafeterias for 1 May 2011. Using Calgary as the base university, construct the Canadian university sub price index. University Calgary Manitoba McGill Queen’s Saskatchewan UBC

Price for Lunch ($) 6.25 5.50 6.00 8.00 5.75 7.25

Sub Price Index

Using Calgary as the “base university” means that we choose $6.25 as the base price. This means dividing all prices by $6.25 and then multiplying by 100. In this way, we will determine, in percentage , how prices at other universities differ from Calgary prices. The index values are as follows: University Dalhousie Laval McGill Queen’s Waterloo Manitoba Saskatchewan Calgary UBC Victoria

Price per pizza $6.50 5.95 6.00 8.00 7.50 5.50 5.75 6.25 7.25 7.00

Index of pizza prices (6.50/6.25)×100 = 104 (5.95/6.25)×100 = 95.2 (6.00/6.25)×100 = 96 (8.00/6.25)×100 = 128 (7.50/6.25)×100 = 120 (5.50/6.25)×100 = 88 (5.75/6.25)×100 = 92 (6.25/6.25)×100 = 100 (7.25/6.25)×100 = 116 (7.00/6.25)×100 = 112

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B2 Borna wants you to reword the following statement to make it testable. Explain. “Laws requiring equal pay for work of equal value will make women better off.” Measurable effects might be on wages, unemployment, participation rates and the structure of jobs filled by women. Once again, the gap between the possibly significant quantitative effects in these dimensions (if they exist) and the vague “better off” needs to be stressed.

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B3 Ruluca is curious. She suspects that the specialization of labour is more efficient than selfsufficiency. Explain two reasons why Ruluca’s suspicions may be correct.

Page 11 of text at bottom First, define “specialization” -= each worker makes a product (not to be confused with division of labour) Then, suggest two reasons: 1. individual abilities differ (comparative advantage) 2. learning by doing – increase efficiency bc indiv. becomes more efficient

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PART C

(4 QUESTIONS; 10 MARKS TOTAL)

ANALYSIS

Suppose the government of Canada issues a fixed quantity, Q*, of tradable pollution permits, each permit permitting the holder of the permit to emit one tonne of CO2e. Using a well labeled diagram, Kayla wishes you to answer the following questions. C1

Explain and illustrate what determines the supply of permits.

2 marks G sets the number. How? Some determination of the optimal level of pollution abatement or pollution, I assume determined by an assessment of the carrying capacity of the environment. C2

Explain and illustrate what determines the demand for permits.

2 marks See the diagram below. The demand curve for pollution permits reflects the benefits that the owner of the permit receives by not having to abate pollution. In other words, the marginal benefit of owning a pollution permit is the firm’s marginal cost of pollution abatement. The demand curve for permits is downward sloping for the same reason that the MC of abatement is upward sloping. A firm that owns many pollution permits needs only to abate a little pollution, and the marginal cost of doing so is low, and thus the benefit from having an additional permit is correspondingly low. In contrast, a firm that owns very few pollution permits must abate a lot of pollution, and the marginal cost of doing so is high, and thus the benefit from having an additional permit is correspondingly high.

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C3 Explain why the competitive price for permits will equal the firms’ marginal abatement costs. 3 marks The supply curve for pollution permits is vertical at Q*, the number of permits issued by the government. The equilibrium price of each permit will be p*, and from the discussion above we know this will equal firms’ marginal abatement cost.

C4 Explain what would happen if Greenpeace purchased a large number of pollution permits and “retired” them? 3 marks If Greenpeace, or any other group for that matter, purchases pollution permits and then retires them (meaning that they do not use the permits to produce pollution), the equilibrium price of permits will rise and the legally permitted amount of pollution will fall. The supply curve effectively shifts to the left, as would happen if the government decided to reduce the outstanding number of permits by buying them back from current owners. This is shown by the shift of S to Sʹ′ in the figure. This question reveals one of the advantages of tradable pollution permits — it allows the public to express its preferences for less pollution by “putting its money where its mouth is” and purchasing existing pollution permits. Naturally, the increase in the scarcity of pollution permits, with no change in the underlying demand, leads to a rise in their price. End of Part C

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PART D

(1 QUESTION; 9 MARKS TOTAL)

APPLICATION

The daily demand curve by school age children facing Translink has been estimated by Department of Economics, UBC, grad students to be: QD = 46 – 0.2P where quantity is in thousands (10 = 10,000) and price is in cents (100 = $1.00). When the study was done, the current fare was $1.30 and there were 20,000 riders per day. Translink has hired you to determine how much it should increase its fare in order to maximize its revenues. D1?

What advice would you give Translink? Explain in detail.

The midpoint at which e =1 and rvnue is maximized is at 23 ridters. Ther revenue max price is 0.2P = 23 cents, P = 115. The current fare of 130 is greater than 115, so it is on the elastic part of the d curve. Raising P would reduce revenue (ie. Expend of reiders) not increase it. You should advise Translink to reduce the fare to 114. End of Part D

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PART E

(1 QUESTION; 10 MARKS TOTAL)

EVALUATION

Please read the preceding article from the Globe and Mail, and then answer the following questions that Jessica has posed. Ottawa— The Canadian Press Published Friday, May. 20, 2011 7:12AM EDT High gas prices at the pump kept Canada's inflation rate above the Bank of Canada's comfort zone for the second straight month in April, with the overall price index remaining at an elevated 3.3 per cent. Gasoline prices jumped 6.4 per cent in one month in April and were 26.4 per cent higher That brings gasoline prices within 5 per cent of the record set in the summer of 2008. Overall, energy prices were 17.1 per cent higher in Canada last month than they were a year ago, with fuel oil rising by 32.4 per cent and electricity by seven per cent. Bank of Canada governor Mark Carney warned on Monday that volatility in energy prices would likely keep the annual inflation rate above the bank's one-to-three per cent range, and well above the two per cent target, for a few months. But Mr. Carney also said he believed prices would soon begin to moderate and nothing in Friday's report suggests the outlook has changed. Excluding energy, the consumer price index would be exactly where the central bank wants it at two per cent. And the bank's core index, which overlooks volatile items such as gas and fresh vegetables, actually edged down one-tenth of a point to 1.6 per cent. On a month-to-month basis, prices overall were 0.3 per cent higher in April, a steep drop from the 1.1 per cent monthly increase experienced in March. The rest of the inflation story in April was mostly one of cresting or falling prices. Food purchased at stores rose 3.7 per cent in April, the same annual increase as in March, while overall food prices rose at a 3.3 per cent rate. The agency said consumers paid more for meat and bakery products. Shelter costs rose by 2.3 per cent, but mortgage interest costs fell by 2.1 per cent. On a monthly basis, prices fell on fresh vegetables, furniture, women's clothing, non-alcoholic beverages and dairy products, the agency said. Regionally, inflation was highest in Nova Scotia at 4.2 per cent, and lowest in Iqaluit, where prices averaged only 1.3 per cent higher than a year ago.

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E1 Jenny has just graduated and is interested in purchasing a house in Vancouver in the next six months. Relying on this article, Jenny suspects that elasticity plays a critical role in determining the effect of the inflationary gasoline pressures mentioned in the article on her dilemma on whether to buy now. Be a best friend forever and advise Jenny. P e of D for gas probably inelastic Thus, an increase in price will increase expenditures This will decrease disposable income Income e of D for housing probably positve. Thus a decrease in income will cause a decrease in D Which will cause the P of housing to fall.

I HOPE.

End of Examination

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