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Concordia COMM 220: Fall 2023

Midterm 1 Mock Exam #4

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Booklet

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Table of Contents
1. Mock Exams

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1 .1 . Midterm 1 Mock 4

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1. Mock Exams

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1.1 Midterm 1 Mock 4

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1 .1 .1
1. If P = 100 - 0.20QD and P = 40 + 0.20Qs and the world price (Pw) is $68, then consumer surplus
and producer surplus would be:

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a. $3,000 and $1,800, respectively
b. $2,500 and $1,500, respectively.
c. $2,560 and $1,960, respectively.
d. $2,250 and $2,250, respectively.
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2. The demand and supply of labour are estimated by W = 28 - 0.001Lp and W = 16 +0.0005Ls,
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where W is the hourly wage rate and L is labour. If the government imposes a payroll tax of $3 per
hour on the employer, the new wage rate employers pay would be:
a. $23
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b. $19
c. $22
d. $17
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3. If a production quota is introduced for an agricultural good,

a. the consumer surplus would increase.
b. the supply curve would be perfectly elastic.
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c. total revenue would increase if demand is inelastic.

d. None of the listed options.
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4. In 2004 the price of 200 cigarettes was $70.28 in Canada and in 2020 it was $126.30. If the CPI

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(2002=100) increased from 104.7 to 137.0 over this period, the real percentage change in price was:
a. None of the listed options
b. 31.9%
c. 37.3%

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d. 30.5%

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5. Between 2017 and 2021 your employer increased your wage from $52 to $57, while the CPI
increased from 104 to 115. Which of the following describes your situation best?
a. You are better off because your real wage increased.
b. You are worse off because your real wage decreased.
c. You are better off because your nominal wage increased.
d. You are worse off because your real wage increased
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6. If Q = 40K 0.25 L0.5 , the unit cost of capital = $1,000 and the unit cost of labour= $500, then the
optimal capital-labour ratio would be:
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a. ½
b. 1/3
c. None of the listed options
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d. 1
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7. If P = 500 - 0.05QD and P = 125 + 0.025Qs and a per unit tax is imposed on suppliers, the burden
of the tax on buyers and sellers would be:

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a. 0.50 and 0.50, respectively.
b. None of the listed options.
c. 0.67 and 0.33, respectively.
d. 0.80 and 0.20, respectively.

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8. Assume that the labour market for IT consultants is competitive and clears. The supply of labour is
Ls = 10 + 3W, and demand for labour is LD = 190 - 3W, where L is the quantity of IT consultants and

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W is hourly wage. If current wage is $25, then
a. there is an excess supply of labour and the wage will increase
b. there is an excess supply for labour and the wage will decrease.
c. there is an excess demand for labour and the wage will increase.
d. there is an excess demand for labour and the wage will decrease.
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9. If the price of capital decreases and the demand for labour decreases, then
a. the scale effect and substitution effect offset each other.
b. the scale effect is greater than the substitution effect.
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c. the scale effect is less than the substitution effect.

d. capital and labour are gross complements.
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10. Suppose the demand curve for a product is given by: Q = 210 - 9P + 8Ps, where P is the price of
the product and Ps is the price of a substitute good. The price of the substitute good is $8.7. Suppose

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the price of the product is $10. What is the cross- price elasticity of demand?
a. -0.47
b. -0.41
c. 0.37

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d. 0.42
e. None of the above

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11. Suppose demand and supply of gasoline are given by the following linear functions:
Qd = 100 - 20P
Qs = 50 + 10P

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where Q is the quantity in millions of litres and P is the price per litre. Suppose a tax of $1.00 per litre
is imposed on gasoline. The deadweight loss equals:
a. $2.13 million
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b. $3.33 million
c. $4.03 million
d. $2.70 million
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12. Suppose the labour market is characterized by the following functions:

Ld = 100 - 5W
Qs = 20 + 5W

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where Ld and Ls are demand and supply for labour, and W is the hourly wage rate. Assume
government pays a subsidy of $3 per hour of work for each worker. How does this subsidy change
the hourly wages?
a. Increases wages received by workers by $1.50.

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b. Increases wages received by workers by $2.50.
c. Increase wages received by workers by $1.00.
d. Decreases wages paid by employers by $3.00.

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13. The burden of a tax and the benefit of a subsidy falls mainly on consumers:
a. if demand is inelastic.

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b. if the quantity demanded is relatively large in the consumer's basket.
c. if the ratio of the price elasticity of demand to the price elasticity of supply is large.
d. if the ratio of the price elasticity of demand to the price elasticity of supply is small.
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14. Consider the following statements to answer this question:
I. When labour markets are uncompetitive, both business owners and workers are price takers.
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II. When labour markets are competitive, both business owners and workers are price makers.
a. Both I and Il are correct
b. I is correct, Il is incorrect.
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c. Both I and Il are incorrect

d. I is incorrect, Il is correct
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15. Suppose that, at the market-clearing price of natural gas, the price elasticity of demand is -0.8
and the price elasticity of supply is 0.4. What will result from a price increase of 10 percent above
the market-clearing price?

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a) A surplus equal to 4 percent of the market-clearing quantity.
b) A surplus equal to 1.2 percent of the market-clearing quantity.
c) A surplus equal to 0.4 percent of the market-clearing quantity.
d) A surplus equal to 12 percent of the market-clearing quantity.

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16. The price elasticity of gasoline supply in Canada is 0.58. If the price of gasoline rises from $1.20
a litre to $1.38, what is the expected change in the quantity of gasoline supplied in Canada?

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a) 4.8%
b) 7.6%
c) 6.4%
d) 8.7%
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17. When the wage rate rises, the quantity of_______________ demanded will _______________, but
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the effect on _______________is uncertain.
a) labour; decrease; capital
b) capital; increase; labour
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c) labour; increase; capital

d) capital; decrease; labour
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18. According to the table below, in which year were the real earnings of workers in the widget
industry the lowest?

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a) 1990
b) 2000
c) 2010

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d) 2020

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19. The cross-price elasticity of demand for butter with respect to the price of bread is - 0.2. If we
expect the price of bread to decline by 20%, what is the expected change in the quantity demanded
for butter?
a) +20%
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b) +40%
c) -4%
d) +4%
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20. For two inputs that are substitutes in production, if an increase in the price of input shifts the
demand for another input to the left, then
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a) The two inputs cannot be used at the same time.

b) The two inputs are gross complements.
c) The two inputs could be either gross complements or gross substitutes.
d) The two inputs are gross substitutes.
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21. The market supply function Is Qs = -10 + P and the market demand function is Qd = 35 - 0.5P.
What is the change in consumer surplus associated with a minimum floor price of $44?
a) -$111

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b) -$204
c) -$231
d) -$144

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22. Suppose the demand function is Qd = 65 - 0.5P and the supply function is Qs = 5 + 2P, where P is
the price of wheat in dollars per bushel, and Q is the quantity in millions of bushels. Further suppose
that the government imposes a price floor of $29.40 per bushel and guarantees to purchase any

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excess supply from the market. What will be the total cost to the government?
a) $580.90 million
b) $396.90 million
c) $486.40 million
d) $620.10 million
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23. An increase in quantity supplied of a product is due to
a. Greater technology.
b. None of the choices.
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c. An increase in the price of the product.

d. An increase in the price of a complement in production.
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24. The demand and supply of unskilled labour are estimated by Ld = 550 - 25W and Ls =
-500+50W, respectively, where L is millions of hours of labour and W is the wage rate. If the
government introduces a minimum wage of $18, the surplus of labour would be
a. 225
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b. none of the choices

c. 75
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d. 50
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25. The wage rate is $20 per hour and the cost of capital is $30 per hour. At the current output, the
firm’s MPL is 6 units and MPK is 8 units in order to maximize profit without changing the production
level, the firm should____.

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a. rent less capital and hire more labour
b. Keep is current level of labour and capital inputs.
c. hire less labour and rent less capital
d. rent more capital and hire less labour

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26. Which of the following statements is true with regards to the law of diminishing marginal returns
applied to the demand for labour?

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a. The marginal product of labour decreases in the short run because the stock capital is fixed.
b. The marginal product of labour is always negative in the short run.
c. The marginal product of labour always increases in the short run.

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d. Adding more labour will produce progressively greater increments of output.

27. If Qd = 40 - 2P and Qs = -20 + 2P, the producer surplus at equilibrium is

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a. $57.6
b. $61.2
c. $25
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d. $90
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28. Consumers may suffer a net loss as a result of a price ceiling when
a. Demand is inelastic and supply is elastic.
b. Demand is elastic and supply is elastic.

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c. Demand is inelastic and supply is inelastic.
d. Demand is elastic and supply is inelastic.

29. If P = 12, Q = 40, and Qd = 46 - 0.5P, then the point price elasticity of demand would be

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a. -1.25
b. none of the choices
c. -0.80

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d. -0.15

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30. Suppose that labour supply is perfectly elastic at an hourly wage of $28.5 up to a quantity of
labour of 8550 and for an hourly wage greater than or equal to $28.5 the labour supply curve is Ls =
–8550 + 600W. The labour demand curve is Ld = 39300 – 600W. Calculate the total amount of
economic rent at the market equilibrium.
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