MODR 1710 Study Guide - Final Guide: Perfect Competition, Arc Elasticity, Longrun
29 Feb 2020
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Principles of Microeconomics: Final Exam, Sample #2, Answers
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Principles of Microeconomics
Final Exam: 2012, Answers
Duration - 3 hours
No Aids Allowed
Non-programmable calculators only
INSTRUCTIONS:
This examination consists of TWO PARTS
Part I 10 diagrammatic/calculation questions of which you are expected to answer
any EIGHT
(10 marks each for a total of 80%). If you answer more than 8
questions, only the worst 8 marks will be counted.
Part II 10 multiple choice questions
worth 2 marks each for a total of 20%. Wrong
answers will not be deducted from right in grading Part II.
All questions are to be answered in the spaces provided in this question paper booklet
Do not remove any pages or add any pages. No additional paper will be supplied.
The blank backs of pages may be used for rough work. Show your work where applicable.
Print your name and student number clearly on the front of the exam and on any loose
pages.
Student Name:
(Family Name) (Given Name)
______________________________________________________
Student Number:
______________________________
There are 14 pages
to the exam.
Principles of Microeconomics: Final Exam, Sample #2
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PART I: Diagrammatic/Calculation:
Place your answers (and work where necessary) in the space provided.
ANSWER ONLY 8 OF THE 10 QUESTIONS
1. Demand and Supply (10 marks)
The diagrams below represent the original equilibrium position for Old Age Homes, an
inferior good. Home Nursing Services are a substitute in consumption for Old Age Homes
and Meals are a complement in consumption. Bingo Games are a complement in
production and Rental Apartments are a substitute in production for Old Age Homes.
Labour is an input into production.
Evaluate the statement given in each part to show the shift in the demand curve and/or
the supply curve or movement along either curve in the short-run
a) The price of Rental Apartments increases and
the price of Meals increases.
. Mark the new
equilibrium price P1 and the new equilibrium quantity Q1. Designate Qs and Qd if there is
no market equilibrium. Analyze each question independently of the other questions. No
explanations are required. (2 marks per graph)
1 mark: Supply falls (shifts left)
1 mark: Demand falls
b) Incomes increase due to an increase in old age
pensions and Wages of workers increase.
1 mark: Demand decreases
1 mark: Supply falls (shifts left)
c) The ‘Baby Boomer’ generation begins to
require old age care and Bingo Games become
more popular.
1 mark: Demand increases
1 mark: Supply increases (shifts right)
d) The government substantially increases the
licensing fee for Old Age Homes and there is a
change in societal attitude towards more home
care of older people by relatives.
1 mark: no change in supply
1 mark: Demand falls
e) Technological change reduces the cost of old
age care and there is a decrease in the price of
In-Home Nursing Services
1 mark: Supply increases
1 mark: Demand falls
Po
Qo
Do
So
Po
Qo
Do
So
Po
Qo
Do
So
Po
Qo
Do
So
Po
Qo
Do
So
Principles of Microeconomics: Final Exam, Sample #2
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2. Share (Incidence) of a Subsidy (10 marks)
The Federal government is considering a subsidy of $500/car on Hybrid (gas and
battery) Cars to reduce dependence on gasoline. Draw a diagram in the space below
indicating the buyers’ share and the sellers’ share of this subsidy to show who would
benefit the most if the demand for Hybrid Cars was relatively elastic and the supply of
Hybrid Cars was relatively inelastic. Be sure to clearly label your diagram. In
particular:
a) Draw a diagram depicting an initial market equilibrium (Po, Qo) for Hybrid Cars if
demand was relatively elastic and supply was relatively inelastic. (1 mark)
b) Depict the new equilibrium price (P1) and quantity (Q1) that would result from a
subsidy per unit on Hybrid Cars (e.g., $500/car). (3 marks)
c) Now indicate on your diagram the Buyers Share (BS) per unit of the subsidy, the price
(PSeller) received by sellers (producers) after receiving the subsidy, and the Sellers’
Share (SS) per unit of the subsidy. (3 marks)
d) Who receives more of the subsidy/unit, Buyers or Sellers
e) Finally, clearly indicate (e.g., by shading) the total cost to the government of the
subsidy. (2 marks)
(circle one)? (1 mark)
So
D
P
Q
Po
Qo
PSeller = P1 +$500
P1
Q1
BS
{
SS
S1
{
Po-$500
Subsidy
1 mark: D relatively flat and S relatively steep at equilibrium (Qo, Po)
1 mark: shift Supply down (does matter exactly where)
1 mark: Supply shifts down by exactly amount of the subsidy (shift S down through Qo and
Po- Subsidy). Do not worry about exact numbers, e.g., $500
1 mark: P1 < Po but > Po-subsidy and Q1 > Qo
1 mark: BS = Po - P1 – Po (must be indicated on diagram, not merely stated as a formula)
1 mark: PSeller from original supply curve at Q1 (i.e., P1 + Subsidy at Q1)
1 mark: SS = PSeller - Po (must be indicated on diagram)
1 mark: Sellers
1 mark: Indication of one correct dimension either Q1 or PSeller–P1 (between So & S1 at Q1)
1 mark: both dimensions of government expense correct (see shaded area)
Document Summary
Principles of microeconomics: final exam, sample #2, answers. 10 diagrammatic/calculation questions of which you are expected to answer any eight (10 marks each for a total of 80%). If you answer more than 8 questions, only the worst 8 marks will be counted. 10 multiple choice questions answers will not be deducted from right in grading part ii. worth 2 marks each for a total of 20%. All questions are to be answered in the spaces provided in this question paper booklet. Do not remove any pages or add any pages. The blank backs of pages may be used for rough work. Print your name and student number clearly on the front of the exam and on any loose pages. Place your answers (and work where necessary) in the space provided. The diagrams below represent the original equilibrium position for old age homes, an inferior good.
