Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
ECON 1001 Mock Final
It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means:



Complete the midterm in 3 hours.
Work on your own and attempt every question.
Keep your notes and textbook closed.
After the time limit, go back over your work with a different colour or on a separate piece of paper and
try to do the questions you are unsure of. Record your ideas in the margins to remind yourself of what
you were thinking when you take it up at PASS.
The purpose of this mock exam is to give you practice answering questions in a timed setting and to help
you to gauge which aspects of the course content you know well, and which are in need of further
development and review. Use this mock exam as a learning tool in preparing for the actual exam.
Please note:

Complete the mock exam before attending the take-up session. During the session you can work
with other students to review your work.

Often, there is not enough time to review the entire exam in the PASS workshop. Decide which
questions you want to review the most – the Facilitator may ask students to vote on which
questions they want to discuss in detail.

Facilitators will not distribute an answer key for mock exams. The Facilitator’s role is to help
students work together to compare and assess the answers they have. If you are not able to
attend the PASS workshop, you can work alone or with others in the class.

PASS worksheets and mock exams are designed as a study aid only for use in PASS workshops.
Worksheets and mock exams may contain errors, intentional or otherwise. It is up to the
student to verify the information contained within by attending the PASS workshop.
Good Luck writing the Mock Exam!
Take-up Session #1: Thursday, December 14th 12:35pm-2:25pm in LA A720 (max capacity
66)
Take-up Session #2 Friday, December 15th 10:05am-11:55am in LA A720 (max capacity
66)
Office Hour: Thursday, December 14th 3:05pm-3:55pm in ML 413
Contact Information: rebeccafrederick@cmail.carleton.ca
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
Section 1 – Multiple Choice (40 Questions)
1. The demand curve
a) A law stating what goods consumer are allowed to buy
b) A graph showing the relationship between the price of a good and the
quantity demanded
c) Legally binding in Canada
d) A table showing the relationship between the price of a good and the
quantity demanded
2. Opportunity cost can be defined as
a) Whatever must be given up to obtain some item
b) An opportunity cost in an opportunity lost
c) The time you give up in exchange for money
d) The money you give up in exchange for items
3. Suppose the government places a price floor of $6 on the sale of t-shirts.
According to the graph below which of the following statements is true?
a)
The price floor is binding
b) The price floor is nonbinding
c) The price floor causes a shortage
d) Both a and c are correct
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
4. Refer to the graph above. Now suppose the government places a price ceiling
of $2 on the sale of t-shirts. According to the graph below which of the
following statements is true?
a) The price ceiling is binding
b) The price ceiling is nonbinding
c) The price ceiling causes a shortage
d) Both a and c are correct
5. Which of the following is a normative statement?
a) Taxes create deadweight loss
b) The government should lower taxes
c) The government creates tax policies
d) Taxes reduce total surplus
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
6. Comparative advantage is
a) The comparison among producers of a good according to their productivity
b) The comparison among producers of a good according to their opportunity
cost
c) The comparison of goods to see which is more valuable
d) The comparison of goods to see which can be most efficiently produced
7.
Chris and Nick each produce chocolate and candy canes. Chris produces 20 chocolates
and 12 candy canes per hour. Nick produces 15 chocolates and 10 candy canes per hour.
Which of the following statements is true?
a)
Nick has the absolute advantage in the production of chocolates and Chris has the
absolute advantage in candy canes
b)
Chris has the absolute advantage in the production of chocolates and Nick has the
absolute advantage in candy canes
c)
Chris has the comparative advantage in the production of chocolates and Nick has
the comparative advantage in candy canes
d)
Nick has the comparative advantage in the production of chocolates and Chris has
the comparative advantage in candy canes
8. Rice and pasta are substitutes. An increase in the price of rice will cause
a) An increase in the price of pasta
b) An increase in the demand for pasta
c) A decrease in the price of pasta
d) A decrease in the demand for pasta
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
9. Which of the following events may cause a demand curve for delivery food to shift up?
a) A worker loses her job and is hired at a new lower paying job
b) A worker currently holds a minimum wage job, but expects to get a better paying job
by next month
c) A popular article shares the negative environmental impacts of delivery cars
d) The price of gas increases
10. An elastic curve would be _____ on a graph
a)
Vertical
b)
Horizontal
c)
Diagonal sloping down
d)
Diagonal sloping up
11. Which of the following is the correct formula for computing the price elasticity of
demand?
a) = percentage change in QD/ percentage change in price
b) = percentage change in price/ percentage change in QD
c) = percentage change in income/ Percentage change in QD
d) = percentage change in QD/ percentage change in income
12. The burden of tax falls more heavily on the side of the market that
a) Is determined by the government
b) Is determined by the amount of the tax
c) Is more elastic
d) Is less elastic
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
13. The equilibrium price for shoes is $25. Suppose the government places a price ceiling at
$20. Which of the following is true?
a)
The price ceiling is binding
b)
The price ceiling is not binding
c)
The price ceiling causes a surplus
d)
The price ceiling has no effect
14. Consumer surplus is
a)
The area above the demand curve and below the equilibrium price
b)
A buyer’s willingness to pay minus the price
c)
The money a buyer saves when purchasing a cheaper product
d)
Like a rewards program for buyers
15. Producer surplus is computed by
a) Value to buyers – Amount paid by buyers
b) Amount received by sellers – cost to sellers
c) Value to buyers – cost to sellers
d) Amount received by sellers – amount paid by buyers
16. In a market with a tax, total surplus is computed by
a) Consumer surplus + Producer surplus
b) Consumer surplus + producer surplus – deadweight loss
c) Consumer surplus + producer surplus + tax revenue Government benefits too
d) Consumer surplus + producer surplus + tax revenue – deadweight loss
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
17. Elasticity of the tax base is defined as
a) The factor that determines whether the tax base is large or small
b) The sensitivity of the tax base to changes in the tax rate
c) The sensitivity of the tax base to changes in price
d) The sensitivity of the tax rate to changes in the tax base
18. Which of the following is not an example of a benefit of trade?
a) Increased variety of goods
b) Lower prices
c) Increased competition
d) Enhanced flow of ideas
19. Which of the following would have a positive externality?
a) Bob smokes a cigarette at the local park
b) Bob drives his car to work
c) Bob cuts his grass and weeds his garden
d) Bob leaves his garbage on a cafe table
20. Which the following is not a public policy towards externalities?
a) Regulation
b) Corrective Taxes and Subsidies
c) Tradeable pollution permits
d) Corrective laws and punishments
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
21. A club good is
a) Goods that are rival but not excludable
b) Goods that are excludable but not rival
c) Goods that are neither excludable nor rival
d) Goods that are both excludable and rival
22. Suppose 5 farmers take their sheep to the same field. There is enough grass for each
farmer to have 3 sheep. One farmer decides that if he brings one additional sheep the
effect on the field will be negligible. Each farmer thinks this way and continues to bring
an extra sheep. This scenario demonstrates which of the following?
a) Tragedy of the commons
b) Tragedy of the common resources
c) Tragedy of the resources
d) Tragedy of the sheep
23. Ally has a hat business. Each hat she makes has an opportunity cost of $20. She sells her
hats for $25 each. Bill is willing to pay $30 for a hat, and Martha is willing to pay $40.
Suppose the government places a $10 tax on hats so Ally raises the price of her hats to
$35. In this market, the deadweight loss would be ____ and the tax revenue would be
____.
a) $10, $15
b) $15, $10
c) $10, $10
d) $15, $15
24. Total surplus is computed by
a) Value to buyers – Amount paid by buyers
b) Amount received by sellers – cost to sellers
c) Value to buyers – cost to sellers
d) Amount received by sellers – amount paid by buyers
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
25. The correct formula for calculating profit is
a) = Total revenue + total cost
b) = Total cost x total revenue
c) = Total cost – total revenue
d) = Total revenue – total cost
26. ATC stands for
a) Added total cost
b) Average total cost
c) Additional total cost
d) Air traffic control
27. A firm decides to shut down in the short run when
a) The revenue it would earn from producing is less than its marginal cost of
production
b) The revenue it would earn from producing is less than its average total cost of
production
c) The revenue it would earn from producing is less than its average fixed cost of
production
d) The revenue it would earn from producing is less than its variable costs of
production
28. A firm would decide to enter a market in the long run when
a) P > ATC
b) P < ATC
c) TR < TC
d) TR/Q < TC/Q
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
29. A monopoly is
a) A firm that competes with a small number of other firms who sell near identical, or
identical products
b) A firm that is the sole seller of a product without close substitutes
c) A market structure in which many firms sell products that are similar but not
identical
d) A boardgame
30. Which of the following graphs represents the demand curve for a monopoly?
a)
b) B
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
c)
31. A monopolistically competitive firm will produce the quantity found at the point where
which of the following two curves intersect?
a) ATC and demand
b) MC and ATC
c) MR and MC
d) MR and demand
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
32. Which of the following products fits the definition of a monopolistically competitive
firm?
a) Gasoline
b) Vanilla ice cream
c) Beans
d) Pop
33. An agreement among firms in a market about quantities to produce or prices to charge
defines which of the following terms?
a) Collusion
b) Game theory
c) Cartel
d) Oligopoly
34. Exports alter market outcomes by
a) Decreasing producer surplus
b) Increasing producer surplus
c) Decreasing producer surplus
d) Increasing consumer surplus
35. Which of the following is not a core principle of economics?
a) Cost benefit principle
b) Opportunity cost principle
c) Marginal principle
d) Independence Principle
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
36. Select the option that could lead to a market failure
a) Deadweight loss
b) Equilibrium
c) Market power
d) Market loss
37. Market power can lead businesses to do all but
a) Charge a lower price
b) Sell a smaller quantity
c) Earn larger profits
d) Survive with inefficiently high costs
38. Free entry pushes economic profits to ____ in the long run.
a) Increase
b) Decrease
c) Zero
d) Double
39. What will price discrimination do to the quantity a firm sells?
a) Increase
b) Decrease
c) Zero
d) Double
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
40. Select the correct definition for non-price competition
a) Competing to lower your prices until profit is non-existent
b) Canceling competitions to improve firm cooperation
c) Competing to win customers by differentiating products
d) Competing to steal costumers through non-price tactics
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
Part 2 – Written Answers (9 Questions)
1. Chose 5 of the following points below. For each, provide a definition and if
applicable an example or explanation of its application.
- Equity & efficiency
- Opportunity cost
- Externality
- Production possibilities frontier (PPF)
- Positive & normative statements
- The circular flow diagram
- Market economy
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
2. Buddy the Elf and Papa Elf are making toy trains and toy dolls. They agree to trade with
each other. In one hour, Buddy can make 4 trains or 8 dolls. In one hour, Papa Elf can
make 8 Trains or 10 dolls.
a) In terms of dolls, what is each elf’s opportunity cost for making one train? Who
has absolute advantage in dolls? Who has comparative advantage in dolls?
b) In terms of trains, what is each elf’s opportunity cost for making one doll? Who
has absolute advantage in trains? Who has comparative advantage in trains?
c) Who will give away dolls in exchange for trains?
d) What is a potential trade Buddy and Papa Elf decide on? Explain how you
determined this, and the limits of their trading. How does this allow them each
to benefit?
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
3.
a) Consider the following events on a market for wreaths. An above average
number of people stay home for the holidays due to inflation and higher priced
holiday trips. At the same time, an unusually cold summer shortens the growing
and farming season. Explain the effects of these changes on the equilibrium price
and quantity for wreaths. Illustrate these changes and your findings on a graph.
b) Now suppose there is worldwide sale on vacation prices, so more people decide
to go on winter holiday. How does this change your answer to question a)?
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
4. The following chart shows the demand for plane tickets at varying prices and
income levels.
Price
Quantity of tickets
demanded when income is
$63800
5
4
3
2
1
$980
$1250
$2200
$3500
$4000
Quantity of tickets
demanded when income is
$95200 per year
9
7
5
4
2
a) First when you are making $63800 per year, then when you are making
$95200 per year, what is the price elasticity of demand for plane tickets as
the price increases from $1250 to $2200?
b) Based on your answers to part a), is demand elastic or inelastic at each
income? Is demand more elastic when income is higher or lower? How do
you know?
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
c) Calculate the income elasticity of demand for plane tickets when your
income increases from $63800 to $95200, and the price of plane tickets is
$1250.
d) Based on your answer to part c), is elasticity income elastic, income
inelastic, or negative income elastic? What type of good do you assume
plane tickets to be? Why?
5. Consider the market for bikes.
a) Does this product have an externality? If so, is it positive or negative? Explain your
thinking.
b) Use a graph to create a diagram for the market for bikes. Your diagram should
include a labelled supply, demand, and a social-value or social-cost curve.
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
c) What is the equilibrium price and output? What is the efficient level of output? Do
these differ or are they the same? Explain your answer.
d) Suppose the value of the externality is $10 (loss or benefit depending on your
answer to part a)) What type of government policy would make this true? Give an
example.
6. Given the following equations for supply and demand create a properly labeled graph
for the market for skates.
Qd = (-2)x+14
Qs = 1x+2
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
a) What is the before-tax market equilibrium? What is the producer, consumer, and
total surpluses in this market? Be sure to include these on your graph.
b) Suppose the government introduces a $3 tax on the purchase of skates. Draw a new
labeled graph showing this tax.
c) In the after-tax market, what is the new market equilibrium? What is the new
producer, consumer, and total surpluses in this market? What is the tax revenue? Is
there a deadweight loss? If so, what is it? Be sure to include all these on your graph.
d) How much of the tax is on buyers and how much is on sellers? Why?
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
7. Complete the table below. Define each of the variables and state the formula you used
to solve for each. Create a graph showing the MC, ATC, AVC, and AFC curves.
Output
0
1
2
3
4
5
TC
FC
VC
AFC
AVC
ATC
$8.00
$0.50
-----------
-----------
-----------
$8.00
$1.10
$8.00
$1.80
$8.00
$2.60
$8.00
$3.50
$8.00
$4.50
MC
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
8. Compare and contrast the main features of the following types of markets: perfect
competition, monopoly, oligopoly, and monopolistic competition. For each you should
provide a definition, an example, and an explanation including details about the price in
each, the decision on how much to produce, the profits and actions in the short and
long run, and anything else you think is important to know about each. Once you have
completed that, draw graphs to illustrate each market.
Peer Assisted Study Sessions (PASS)
Facilitator: Rebecca Frederick
9. Suppose the government is trying to discourage the consumer purchase of plastic water
bottles due to the environmental impacts they have. To try and achieve this, it imposes
a tax on buyers of $1 per bottle. For a market with the following supply and demand
schedule, draw a graph and illustrate the effects of this tax. How is the burden of tax
divided? Do buyers or sellers carry a larger burden of the tax? What is the burden on
buyers? What is the burden on sellers? What is the new equilibrium price and quantity?
Price per bottle
Quantity Demanded
Quantity Supplied
5
2
4
4
3
6
2
8
$2
$3
$4
$5