29 Dec A) increase.
ECO2144C(MicroeconomicTheoryI)
MULTIPLECHOICE.
Circletheletterof thechoicethatbest completesthestatementoranswersthequestion. If you
needto change youranswer,veryclearlycrossout yourpreviousanswer,andcircleandputan arrow identifyingthecorrectanswer. If the distinctionbetweenyouroldandnewanswersisnot clear,nopointswillbe awarded.
1. Whentwogoodsaresubstitutes,ashockthatraisesthepriceofonegoodcausesthequantityof theothergoodto
A) increase.
B) remainunchanged.
C) changein anunpredictablemanner. D) decrease.
2. 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.
6. 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.
11. If twoindifferencecurvesweretointersectatapoint,thiswouldviolatetheassumptionof
A) completeness. B) transitivity.
C) BothAandBabove. D) None oftheabove.
.1/AppData/Local/Temp/msohtmlclip1/01/clip_image001.gif”>12. Iftheutilityfunction(U)betweenfood(F)andclothing(C)isrepresentedas = × ,the marginalrateofsubstitutionofclothingfor foodequals
A) -F/C. B) -C/F.
.1/AppData/Local/Temp/msohtmlclip1/01/clip_image002.gif”>.1/AppData/Local/Temp/msohtmlclip1/01/clip_image003.gif”>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.
.1/AppData/Local/Temp/msohtmlclip1/01/clip_image005.jpg”>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
19. 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.
23. 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?
? ?
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