Practice Exam 1-Solution0

# Practice Exam 1-Solution0 - University of Illinois at...

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University of Illinois at Urbana-Champaign ECON302 Intermediate Microeconomics Exam 1 October 1, 2008 Solution PART I: Multiple Choice Questions (50 points) 1 Which of the following represents an example of positive analysis? a) How will the equilibrium price of corn be affected by a government subsidy? b) What is the best way to assist low-income families with affordable housing? c) Would taxes on emissions be the best way to reduce pollution? d) How can the government best design a tax cut? 2 Which of the following would cause an unambiguous decrease in the equilibrium quantity in a market? a) a rightward shift in supply and a rightward shift in demand. b) a rightward shift in supply and a leftward shift in demand. c) a leftward shift in supply and a rightward shift in demand. d) a leftward shift in supply and a leftward shift in demand. 3 Identify the truthfulness of the following statements: I. The price elasticity of demand must be negative if demand slopes downward. II. One special case of a linear demand curve is an isoelastic (constant elasticity) demand curve. a) Both I and II are true. b) Both I and II are false. c) I is false; II is true. d) I is true; II is false. 4 When a linear demand curve can be expressed as Q d = 40 - 5 P , which region corresponds to the elastic portion of the demand curve? a) Price ranges from 4 to 0. b) Price ranges from 8 to 4. c) Quantity ranges from 20 to 40. d) Only where quantity equals 20. 5 Suppose that when the price of good A is \$5, the quantity demanded of good B is 30 units, and when the price of good A increases to \$10, the quantity demanded of good B decreases to 15 units. From this we can conclude that: a) The cross price elasticity of demand of good B with respect to the price of good A is 0.5 b) The goods are substitutes c) The cross price elasticity of demand of good B with respect to the price of good B is negative d) The goods are complements because the cross price elasticity is -0.5 1

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6 The assumption that preferences are complete requires the consumer a) to rank any two baskets. b) to say that basket C is preferred to basket A if basket B is preferred to basket A and basket C is preferred to basket B. c) to rank a basket with more units of all goods higher than a basket with fewer units of all goods. d) to have a diminishing marginal rate of substitution. 7 Marginal utility a) is the ratio of total utility to total consumption. b) will always be equal to the product’s price. c) is the rate at which total utility changes as the level of consumption rises. d) tells us nothing; we’re only concerned with total utility. 8 If two goods are perfect complements, then a) the marginal rate of substitution is constant. b)
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## This note was uploaded on 03/24/2009 for the course ECON 302 taught by Professor Avrin-rad during the Spring '09 term at University of Illinois, Urbana Champaign.

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Practice Exam 1-Solution0 - University of Illinois at...

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