ECO100: Past Year’s Final Exam Solutions

Question 1
Which of the following shocks described below will cause the market demand curve for steak in Ontario to shift to
the right? Select all that apply.
a. A decrease in income.
b. An increase in income.
c. A decrease in the price of steak.
d. An increase in the price of steak.
e. The price of chicken (a popular substitute for steak) increases.
f. The price of chicken (a popular substitute for steak) decreases.
g. Public health officials urge Canadians to reduce their consumption of red meat, including steak.
h. Health study finds that beef (including steak) has lower levels of cholesterol than pork, urges the public to
eat more beef.
i. Ontario’s population grows by 25%.
j. Ontario’s population falls by 20%.


Question 2
Suppose the demand and supply curves in the market for burritos have the following functional forms: QD = 88 – 3P
and QS = 34 + 3P. The equilibrium quantity sold in equilibrium is _______ burritos, at a price equal to $______ for
each burrito. Hint: it might help to draw a simple graph.

At a price of $____ there would be an excess _______ (supply/demand) of 18 burritos.

Answer: Q = 61 burritos, P = $9, P = $12, supply


Question 3
Suppose the market for liquor is perfectly competitive, where market demand and market supply curves have the
following functional form: P = 460 – 4QD and P = -120 + 6QS, where P is measured in cents. Round all your answers
in this question to the nearest integer. If applicable, do not include the comma in your answer.

If the government imposes a 60 cent tax per unit of liquor, the total tax revenues generated is _______ cents.

Consumers will pay ______ cents of the tax, which represents _____% of the tax. Producers will pay _____ cents of
the tax, which represents ______% of the tax.

Answer: revenue = 3120, consumers pay = 24 cents, producers pay = 36 cents, consumers pay 40%, producers pay
60%


Question 4
Assume the price of movie theatre snacks is $14 and the price of a movie ticket is $20. At these prices, Aerin
consumes 13 snacks and watches 18 movies. Her marginal utility from the last snack consumed is 165 and her
marginal utility from the last movie watched is 259.

Without changing her income, Aerin can increase her utility by consuming _______ (more/fewer/the same number
of) snacks and _______ (more/fewer/the same number of) movies.

Question 5
Consider the following graph for Don’s Hand Crafted Archery equipment plant that produces bows and arrows. The
MPL function is plotted in red, and the APL function is drawn in blue.





















From these 2 functions, you can conclude that
? the total product curve (measuring q on the vertical axis and L on the horizontal axis) reaches a maximum
when there are _____ workers hired.
? the steepest point of the total product curve has a slope equal to ____.
? the firm’s AVC of production is minimized when there are _____ workers hired.
? the MC curve will lie above the AVC curve when there are _____ (less than/more than/exactly) _____
workers hired.

Answers: Max TP curve when L = 18, max slope of TP curve = 13, min AVC when L = 11, MC will be higher than AVC
when there are more than 11 workers hired.



L
MPL
APL
MPL, APL
2 4 6 8 10 12 14 16 18 20
20


18


16


14


12


10


8


6


4


2


Question 6
The table below shows Barilla’s marginal product of capital and labor for each of several methods of producing
1,000 kg of dried pasta per day.
Production
Method
MPK MPL
A 20 6
B 19 9
C 18 12
D 17 15
E 16 18
F 15 21
G 14 24

If each unit of capital costs $5 and each worker is paid $5.60, the production method that minimizes the cost of
producing 1,000 kg of dried pasta per day is ____. For production methods listed in rows above the cost-minimizing
combination you just specified, Barilla should use more _________ (capital/labor/raw materials) in order to
minimize its costs.

Answer: E, capital

In addition to how many units of capital to use, Barilla’s long-run decision will also require they decide on the size
of their plant/factory. Suppose dried pasta can be manufactured in either a small- or large-sized factory with the
following short-run average total cost curves. If Barilla plans on producing 400 kgs of pasta each day, they should
choose to produce using a ______ (small/large) factory, where the ATC of production is $_____.



Answer: small, $4.50


Quantity of pasta (kg)
Question 7
Consider the figure below which indicates the short-run cost data for a tomato farmer in a perfectly competitive
tomato industry.

This firm will shut down when the price of one bushel of tomatoes falls below $_____.

If the price faced by the perfectly competitive firm is equal to $60 per bushel, this firm will produce ____ bushels of
tomatoes and will earn total profits equal to $_____.

If there are 430 identical firms in this industry, there will be _____ bushels of tomatoes supplied in the market.

In the next period, we expect the number of firms in this industry will _____ (increase/decrease/remain the same).



Answers: $12 shut-down price, q = 5 bushels, profits = $100, 2,150 bushels supplied, rise


10
12
32
40
P
ri
ce
(
$
)
Bushels of Tomatoes
28
Question 8
The table below summarizes the prices and quantities of goods consumed by the typical university student over a
three year period, where we treat 2012 as the base year. Round your CPI answers to the nearest integer and carry
your rounded answers throughout the rest of the problem. Round the inflation rate to 1 decimal place.

2012 (Base Year)
Product Quantity Price 2018 Price 2019 Price
Rent 1 $60 $120 $95
Food 20 12 18 16
Coffee 20 5 5 6

The CPI in 2018 is equal to _____. The CPI in 2019 is equal to _____.

The inflation rate between 2018 and 2019 is equal to _____%.

Answer: 145, 133.75, -7.76%


Question 9
The table below provides macroeconomic data for Taiwan, quoted in constant Canadian dollars.

Year Actual Output
(billions of $)
Potential Output
(billions of $)
Unemployment
Rate (%)
2000 401 403 7.1
2001 408 411 7.2
2002 415 415 6.1
2003 420 418 5.9
2004 422 420 6.0
2005 420 422 7.2
2006 440 430 5.9

Out of the 7 years of data provided in the table, Taiwan experienced a recessionary gap in ____ of those years.

When Taiwan’s labor market is experiencing full-employment, the unemployment rate is equal to _____%. Round
your answer to one decimal place.

Which 2 kinds of unemployment do not exist during full employment? List your answer in alphabetical order:
__________ , ___________ (cyclical/frictional/seasonal/structural).


Answer: 3 years, 6.1%, cyclical, seasonal



Question 10
Using the same number of resources, Canada and India initially produce both wheat (W) and rice (R) according to
the following equations. Canada: R = 150 – (1/3)W; India: R = 360 – 2W

Canada’s initial consumption without trade is 210 bushels of wheat and 80 bushels of rice. India’s initial
consumption without trade is 90 bushels of wheat and 180 bushels of rice. Suppose the two countries now decide
to trade with the following proportions: each country will specialize and keep 60% of their own production, while
trading the remaining 40% to the other country.

Part (a): Canada will specialize in producing _______ (wheat/rice), producing a total of __________ bushels.

Part (b): India will specialize in producing _______ (wheat/rice), producing a total of _________ bushels.

Part (c): With trade, Canada will consume ________ bushels of wheat and _______ bushels of rice.

Part (d): With trade, India will consume _________ bushels of wheat and _______ bushels of rice.


Question 11
Each month, you allocate your income across 2 goods, burgers (B) and soft drinks (S), to maximize your utility.
When burgers cost $4 and soft drinks cost $2.50, you purchase 60 burgers and 48 soft drinks. Add negative signs to
your answers as necessary.

Your utility function for the two goods is: U(B, S) = B1/2S1/4, with MUB = S1/4/(2B1/2) and MUS = B1/2/(4S3/4).

Part (a): When the price of soft drinks rises to $3, you will now consume ______ burgers and _____ soft drinks.

Part (b): The substitution effect on burgers is _______ and on soft drinks is ________.

Part (c): The income effect on burgers is ______ and on soft drinks is ________.

Part (d): Calculate the value of the appropriate elasticity to determine if burgers and soft drinks are complement,
substitute, or unrelated goods.
Elasticity = ________
Burgers and soft drinks are ________ (complement/substitute/unrelated) goods.

Part (e): Suppose you found that consuming 54 soft drinks at a price of $3 maximized your utility. Soft drinks are
a(n) ______ (normal/inferior/Giffen/luxury/necessary) good.



W
R
450
360
unrelated
60 40
4 -5
-4 -3
0
Giffen
Question 12
One of Morocco’s top import goods is wheat. Domestic market demand is described as QD = 69 – 3P, and domestic
producers supply wheat according to the function QS = (5/6)P, where Q is measured in millions of bushels. The
perfectly competitive world price of wheat is $6 per bushel.

Part (a): ________ million bushels of wheat are imported under the competitive world price.

Part (b): Suppose the Moroccan government introduces an import quota equal to 23 million bushels of wheat. The
new price is $______ per bushel of wheat.

Part (c): As a result of this import quota, domestic producers gain $________ million. You must draw and label a
graph that enables the TA to follow all of your intermediate steps.

Part (d): Suppose the Moroccan government wanted to achieve the same outcome (reduce imports to 23 million
bushels of wheat) with a tariff instead. Relative to the import quota equilibrium, a tariff would cause market
efficiency to ___________ (increase/decrease/be the same) by $__________ million. You must add on to your
existing graph to help the TA to follow your thought process and calculations.


46
12
45
increase 138