ECON 2144 C First
ECO2144C(MicroeconomicTheoryI) MULTIPLECHOICE. Circletheletterof thechoicethatbest completesthestatementoranswersthequestion. If you needto change youranswer,veryclearlycrossout yourpreviousanswer,andcircleandputan arrow identifyingthecorrectanswer. If the distinctionbetweenyouroldandnewanswersisnot clear,nopointswillbe awarded.
- Whentwogoodsaresubstitutes,ashockthatraisesthepriceofonegoodcausesthequantityof theothergoodto
A) increase. B) remainunchanged. C) changein anunpredictablemanner. D) decrease.
- SupposethedemandforDigitalVideoRecorders(DVRs)isgivenbyQ=250-.25p+4pc, whereQisthequantityofDVRsdemanded(in1000s),pisthepriceof
aDVR,andpcisthe priceof cabletelevision.HowmuchdoesthequantitydemandedforDVRschangeiftheprisesby$40? A) increasesby16,000DVRs B) increasesby4,000DVRs C) dropsby10,000 DVRs D) dropsby2,500 DVRs
3. If thedemandfororangesisgivenbyQ=100-5p,thentheinversedemandfunctionis
A) Q=5p-100 B) p=20-.2Q C) p=20-5Q D) Q=20-.2p
4. Considerthetwodemandfunctions:
i)Qd=250-2P. ii)Qd=300-3P. Whichofthetwodemandfunctionsreflectsahigherlevel of consumerincome? A) i B) ii C) iandiireflectthesameconsumerincomes. D) Moreinformationisneeded.
5. Theexpression"increaseinquantitysupplied"isillustratedgraphicallyasa
A) leftwardshiftinthesupplycurve. B) movementupalongthesupplycurve. C) movementdownalongthesupplycurve. D) rightwardshiftinthesupplycurve.
- SupposethedemandcurveforagoodisexpressedasQ=50-2p. Ifthegoodcurrentlysells for$3,thenthepriceelasticityofdemandis
A) -3?(2/50). B) -3?(44/2). C) -2?(50/3). D) -2?(3/44).
7. If
the priceoforangejuicerises10%,andasaresultthequantitydemandedfallsby8%,the priceelasticityofdemandfororangejuiceis A) -1.25. B) inelastic. C) BothAandBabove. D) NeitherAnorB above.
8. Consumerswill alwayspaytheentire amountofaspecifictaxwhenever
A) demandisperfectlyinelastic. B) supplyisperfectlyelastic. C) BothAand Babove. D) EitherAor Babovebutnot at thesametime.
9. If agovernmentwantstomaximizerevenuesfromatax,itshould
A) imposeitonconsumers. B) imposeitonsellers. C) chooseagoodwitharelativelyelasticdemand. D) chooseagoodwitharelativelyinelasticdemand. 10. It is appropriatetousethesupply-and-demandmodelif,inamarket, A) costsoftradingarelow. B) firmssell identicalproducts. C) everyoneisapricetaker with fullinformationaboutthepriceandqualityofthe good. D) Alloftheabove.
- If twoindifferencecurvesweretointersectatapoint,thiswouldviolatetheassumptionof
A) completeness. B) transitivity. C) BothAandBabove. D) None oftheabove.
12. Iftheutilityfunction(U)betweenfood(F)andclothing(C)isrepresentedas = × ,the
marginalrateofsubstitutionofclothingfor foodequals A) -F/C. B) -C/F. C) - /. D) - /.
13.Themarginalrateoftransformationofyforxrepresents
A) -Px/Py. B) therateatwhichtheconsumermustgiveupytoget one morex. C) theslopeofthebudgetconstraint. D) Alloftheabove.
14.Theconsumerisin equilibriumwhen
A) MRT=MRS. B) thebudgetlineistangenttotheindifferencecurve at thebundlechosen. C) Px/Py=MUx/MUy. D) Alloftheabove.
15.Amovementupwardalonganupward-slopingEngel curve correspondsto
A) aparallelshiftinthebudgetconstraint. B) crossingindifferencecurves. C) a rotationinthebudgetconstraint. D) upward-slopingindifferencecurves. 16.Thesubstitutioneffectcanbemeasuredholding_ constant. A) thepriceof allgoods B) income C) thepriceofone good D) utility
17.Thefactthatconsumersoftenreactmoretochangesinthepostedpriceofagoodascompared
to changesinthesalestaxthat isnotpostedis an exampleof A) salinity. B) rationalignorance. C) theendowmenteffect. D) salience. 18.ThefigureaboveshowsBobby'sindifferencemapforjuiceandsnacks. Alsoshown arethree budgetlinesresultingfromdifferent pricesforsnacksassuminghehas$20tospendonthese goods. WhichofthefollowingpointsareonBobby'sdemandcurveforsnacks? A) p=2,q=10 B) p=1,q=20 C) p=2,q=5 D) p=2,q=13
- Iftheincomeelasticityofpotatoesis-0.7,thentheincomeeffectcausedbyapricedecreaseof potatoes
A) islessthanthesubstitutioneffect. B) tendstodecreasethe consumptionofpotatoes. C) tendstoincreasetheconsumptionofpotatoes. D) None oftheabove.
20.AConsumerPrice
Index adjustmentovercompensatesforinflationbecauseit ignores A) that some goodsareinferior. B) that thesubstitutioneffectmayoffsettheincomeeffect. C) theincomeeffectwhenrelativeprices change. D) thesubstitutioneffectwhenrelativepriceschange. TRUE/FALSE. Forthefollowing,answer"True" or"False"andbrieflyexplainwhy. 21.Theslopeofthebudgetlinerepresentstherateatwhichtheconsumeriswillingto tradeone good foranotheratanygivenbundle. 22.Duringthewinterof1997-1998,eastern Canadaexperiencedwarmerthanusual weatherconditions. The priceofhomeheatingoilwaslessthanitwasduringtheprevious winter,butpeopleboughtlesshomeheatingoil. ThiscontradictstheLawofDemand.
- IfMRS>MRT,thentheconsumerisbetteroffthanatequilibrium.
SHORTANSWER.
24.Supposethemarketforpotatoescanbeexpressedas follows: Supply: QS=-20 +10p
Demand: QD=400-20p Solvefortheequilibriumpriceandquantity. 25.David’spreferencesaregivenby , =20. + . a) WriteDavid’sconstrainedoptimizationproblem. Clearlyindicatetheobjective functionandtheconstraint. b) Derivethedemandequationsfor and. Assumeprices and incomeare suchthat bothgoodsareconsumedinstrictlypositivequantities. c) IfDavid’sincomeis$1,000, thepriceof good1is$20perunit,andthepriceof good2is$10perunit,whatisDavid’soptimalbundle? ? ?