econ302-m2-fall07-solution - University of Illinois at...

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University of Illinois at Urbana-Champaign ECON302 Intermediate Microeconomics Exam 2 November 7, 2007 Solutions Part I. Multiple Choice Questions (50 points) 1. If an Engel curve has a positive slope a. both goods are normal. b. the good on the horizontal axis is normal c. as the price of the good on the horizontal axis increases, more of both goods in consumed. d. as the price of the good on the vertical axis increases, more of the good on the horizontal axis is consumed. 2. Suppose that a consumer regards two types of soap as perfect substitutes for one another. The price consumption path generated by changing the price of one type of soap is a. always upward sloping b. always horizontal c. always vertical d. overlaps the axes corresponding to the cheaper soap e. overlaps the axes corresponding to the more expensive soap 3. Suppose two goods coffee and creamer provide the consumer with utility but only if they are consumed in fixed proportions. An increase in the price of coffee will yield a. a substitution effect and an income effect in opposite directions. b. a substitution effect and an income effect in the same direction. c. a substitution effect but no income effect. d. an income effect but no substitution effect. 4. If the demand for a product is elastic, then a rise in price will a. cause total spending on the good to increase. b. cause total spending on the good to decrease. c. keep total spending the same, but reduce the quantity demanded. d. keep total spending the same, but increase the quantity demanded. 1
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5. Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows: MUc = Qd MUd = Qc Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3. What quantity Qc will maximize Daniel's utility given the information above? a. 0 b. 24 c. 40 d. 60 e. none of the above 6. A production function defines the output that can be produced a. at the lowest cost, given the inputs available. b. with the fewest amount of inputs. c. if the firm is technically efficient. d. in a given time period if no additional inputs are hired. e. as technology changes over time. 7. Graphically, the average productivity of labor would be illustrated by a. the slope of the total product curve at the relevant point. b. the slope of the marginal productivity curve at the relevant point. c. the negative of the slope of the marginal productivity curve at the relevant point. d. the slope of the chord connecting the origin with the relevant point on the total output curve. 8. What describes the graphical relationship between average product and marginal product? a.
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This note was uploaded on 04/29/2008 for the course ECON 302 taught by Professor Toossi during the Spring '08 term at University of Illinois at Urbana–Champaign.

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econ302-m2-fall07-solution - University of Illinois at...

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