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.

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 TAS NAME?

PLEASE CIRCLE BELOW!

LAB DAY

___________________________

LAB TIME ________________________________

LECTURE TIME

________________________________________________________________________

Student Information
SURNAME

________________________________________________________________________

GIVEN NAME

____________________________________(NICKNAME)_______________________

STUDENT NO.

_______________________________________________________________________

EMAIL

_______________________________________________________________________

SIGNATURE

_______________________________________________________________________

FOR OFFICE USE ONLY

TA

______________ 01 Marks (0 minutes)

Part A

_____________

05 Marks (5 minutes)

Part B

_____________

15 Marks (15 minutes)

Part C

_____________

10 Marks (10 minutes)

Part D

_____________

09 Marks (10 minutes)

Part E

_____________

10 Marks (10 minutes)

Total

_____________ / 50 Marks (50 minutes)

EXAMINATION ASSESSMENT

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 arms 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.

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.

TA SCHEDULE

PROFESSOR R. GATEMAN

PART A

(5 QUESTIONS; 5 MARKS TOTAL)

KNOWLEDGE

Faris wants you to define the following five (5) terms precisely and concisely:
One mark each; either they get it, or they dont.
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 doesnt 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.

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
Queens
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 terms, how prices at other universities differ from Calgary prices. The index values are
as follows:
University
Dalhousie
Laval
McGill
Queens
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

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.

B3
Ruluca is curious. She suspects that the specialization of labour is more efficient than selfsufficiency. Explain two reasons why Rulucas 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

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 firms 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 S 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.

13

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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