Grade 12 Economics Practice Test and Answer Key: Introductory Concepts

Transcription

1 Grade 12 Economics Practice Test and Answer Key: Introductory Concepts Graphing and Analysis 24 Marks 1. A society is able to produce two goods chairs, and computers. If all of the factors of production are utilized, this society can produce 1,000 chairs, or 750 computers. i) Construct and Label a PPC for this society. (2 marks) ii) iii) Label a point (A) on the graph that would represent an unattainable level of output, a point (B) that would represent full use of resources, and a point (C) that would represent an inefficient level of output. (3 marks) Illustrate the effect that an increase in population would have on this PPC. (2 mark) 2. The Mayor of Kingston has issued a price ceiling for all rental housing. This ceiling is below the natural equilibrium that would occur without the mayor s intervention. i) Construct a graph that illustrates the concept of a price ceiling. (4 marks) ii) Explain how a price ceiling would affect the availability of rental housing in Kingston. What else should the government do if they impose a price ceiling? (4 marks) Page 1

2 3. Assume that the government of Ontario imposes an excise tax of $0.50 per litre of gas. After this tax, the equilibrium price increases from $1.10 a litre to $1.50 a litre, and the equilibrium quantity decreases from 1,800,000 litres to 1,650,000 litres per week. i) How much money did the gas sellers earn per litre BEFORE the tax? (1 mark) ii) How much money do the gas sellers earn per litre AFTER the tax? (1 mark) iii) How much money per week will the government generate from the entire market with this tax? (1 mark) iv) How much of the government s weekly market revenue is raised from the producers, and how much is raised from the consumers? (2 marks) 4. i) Use the following demand and supply schedule to construct supply and demand curves for roasted coffee beans. * NOTE: Label your graph! (4 marks) Supply (lbs Demand (lbs Price (Per lb) per week) per week) ii) Assume that the cost of roasting fuel, used in the manufacturing of roasted coffee beans, has just increased. Using the above graph, illustrate the effect that this will have on the supply and demand curves that you already established. (2 marks) Page 2

3 Section C: AP Question (Insurance Questions for Graphing and Analysis Section) 5 Marks Page 3

4 Answer Key 1. A society is able to produce two goods chairs, and computers. If all of the factors of production are utilized, this society can produce 1,000 chairs, or 750 computers. i) Construct and Label a PPC for this society. (2 marks) ii) iii) Label a point (A) on the graph that would represent an unattainable level of output, a point (B) that would represent full use of resources, and a point (C) that would represent an inefficient level of output. (3 marks) Illustrate the effect that an increase in population would have on this PPC. (2 mark) Page 4

5 2. The Mayor of Kingston has issued a price ceiling for all rental housing. This ceiling is below the natural equilibrium that would occur without the mayor s intervention. i) Construct a graph that illustrates the concept of a price ceiling. (4 marks) ii) Explain how a price ceiling would affect the availability of rental housing in Kingston. What else should the government do if they impose a price ceiling? (4 marks) A price ceiling would increase the quantity demanded for the less expensive rental housing, but decrease the quantity supplied for this housing. Thus, a market shortage would result. The government should either subsidize private production of rental housing or provide rental housing through a public program. Either would shift the supply curve to hopefully meet the new demand. Page 5

6 3. Assume that the government of Ontario imposes an excise tax of $0.50 per litre of gas. After this tax, the equilibrium price increases from $1.10 a litre to $1.50 a litre, and the equilibrium quantity decreases from 1,800,000 litres to 1,650,000 litres per week. i) How much money did the gas sellers earn per litre BEFORE the tax? (1 mark) $1.10 ii) How much money do the gas sellers earn per litre AFTER the tax? (1 mark) $1.00 (Which is the NEW, after-tax, market price MINUS the tax! Thus, $ = $1.00) iii) How much money per week will the government generate from the entire market with this tax? (1 mark) $0.50 x 1,650,000 units = $825, iv) How much of the government s weekly market revenue is raised from the producers, and how much is raised from the consumers? (2 marks) The consumer side of the market: Before the tax, consumers paid a market price of $1.10 on 1,800,000 units. Thus, before the tax, they spent: $1.10 x 1,800,000 = $1,980, After the tax, consumers paid a market price of $1.50 on 1,650,000 units. Thus, after the tax, they spent: $1.50 x 1,650,000 = $2,475, The difference between these two figures is the amount of money that the consumers are either contributing to the tax, or saving as a result of the tax. If they spend MORE money, then they are contributing to the tax. If they spend less, then they are saving as a result of the tax (as a market). $2,475, $1,980, = $495, consumer contributions toward the tax! The producer side of the market: Before the tax, producers earned a market price of $1.10 on 1,800,000 units. Thus, before the tax, they earned: $1.10 x 1,800,000 = $1,980, After the tax, producers earned (i.e. kept) $1.00 on 1,650,000 units. Thus, after the tax, they spent: $1.00 x 1,650,000 = $1,650, The difference between these two figures is the amount of money that the producers are contributing to the tax. If they earn LESS money, then they are contributing to the tax. They may even lose more than the tax if the consumers end up saving money, in which case the producer s loss has subsidized the consumer savings from the overall market. $1,650, $1,980, = $330, producer contributions toward the tax! Consumers pay: $495, Producers pay: $330, Page 6

7 4. i) Use the following demand and supply schedule to construct supply and demand curves for roasted coffee beans. * NOTE: Label your graph! (4 marks) ii) Assume that the cost of roasting fuel, used in the manufacturing of roasted coffee beans, has just increased. Using the above graph, illustrate the effect that this will have on the supply and demand curves that you already established. (2 marks) Page 7

8 Answers to AP Question Page 8