02 Jun Question ECO 2144C (Microeconomic Theory I) Midterm Exam 1 2014
Question
ECO 2144C (Microeconomic Theory I) Midterm Exam 1
2014
Instructions: Fill in your name and student number on every page of this questionnaire. There are 25 questions in total – 20 multiple choice, 3 true/false and 2 short answer. This midterm exam has 7 pages – check that your copy has all of them. You may use a
non-programmable calculator.
MULTIPLE CHOICE. (40 points – 2 points per question)
Circle the letter of the choice that best completes the statement or answers the question. If you
need to change your answer, very clearly cross out your previous answer, and circle and put an arrow identifying the correct answer. If the distinction between your old and new answers is not clear, no points will be awarded.
1. When two goods are substitutes, a shock that raises the price of one good causes the quantity of the other good to
A) increase.
B) remain unchanged.
C) change in an unpredictable manner. D) decrease.
2. Suppose the demand for Digital Video Recorders (DVRs) is given by Q = 250 – .25p + 4pc, where Q is the quantity of DVRs demanded (in 1000s), p is the price of a DVR, and pc is the price of cable television. How much does the quantity demanded for DVRs change if the p rises by $40?
A) increases by 16,000 DVRs B) increases by 4,000 DVRs C) drops by 10,000 DVRs
D) drops by 2,500 DVRs
3. If the demand for oranges is given by Q = 100 – 5p, then the inverse demand function is
A) Q = 5p – 100
B) p = 20 – .2Q C) p = 20 – 5Q D) Q = 20 – .2p
4. Consider the two demand functions:
i) Qd = 250 – 2P. ii) Qd = 300 – 3P.
Which of the two demand functions reflects a higher level of consumer income?
A) i
B) ii
C) i and ii reflect the same consumer incomes. D) More information is needed.
5. The expression “increase in quantity supplied” is illustrated graphically as a
A) leftward shift in the supply curve.
B) movement up along the supply curve.
C) movement down along the supply curve. D) rightward shift in the supply curve.
6. Suppose the demand curve for a good is expressed as Q = 50 – 2p. If the good currently sells for $3, then the price elasticity of demand is
A) -3 ? (2/50). B) -3 ? (44/2). C) -2 ? (50/3). D) -2 ? (3/44).
7. If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for orange juice is
A) -1.25.
B) inelastic.
C) Both A and B above.
D) Neither A nor B above.
8. Consumers will always pay the entire amount of a specific tax whenever
A) demand is perfectly inelastic. B) supply is perfectly elastic.
C) Both A and B above.
D) Either A or B above but not at the same time.
9. If a government wants to maximize revenues from a tax, it should
A) impose it on consumers. B) impose it on sellers.
C) choose a good with a relatively elastic demand.
D) choose a good with a relatively inelastic demand.
10. It is appropriate to use the supply-and-demand model if, in a market,
A) costs of trading are low.
B) firms sell identical products.
C) everyone is a price taker with full information about the price and quality of the good.
D) All of the above.
11. If two indifference curves were to intersect at a point, this would violate the assumption of
A) completeness. B) transitivity.
C) Both A and B above. D) None of the above.
12. If the utility function (U) between food (F) and clothing (C) is represented as = × , the marginal rate of substitution of clothing for food equals
A) -F/C. B) -C/F.
C) – / . D) – / .
13. The marginal rate of transformation of y for x represents
A) -Px/Py.
B) the rate at which the consumer must give up y to get one more x.
C) the slope of the budget constraint.
D) All of the above.
14. The consumer is in equilibrium when
A) MRT = MRS.
B) the budget line is tangent to the indifference curve at the bundle chosen.
C) Px/Py = MUx/MUy.
D) All of the above.
15. A movement upward along an upward-sloping Engel curve corresponds to
A) a parallel shift in the budget constraint. B) crossing indifference curves.
C) a rotation in the budget constraint. D) upward-sloping indifference curves.
16. The substitution effect can be measured holding _ constant.
A) the price of all goods
B) income
C) the price of one good
D) utility
17. The fact that consumers often react more to changes in the posted price of a good as compared to changes in the sales tax that is not posted is an example of
A) salinity.
B) rational ignorance.
C) the endowment effect. D) salience.
18. The figure above shows Bobby’s indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks assuming he has $20 to spend on these goods. Which of the foll
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