Econ_11_Prac_Exam_1-1

Econ_11_Prac_Exam_1-1 - Practice Exam 1 Econ 11...

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Practice Exam 1 1 Econ 11 Microeconomics Practice Exam 1 I-1 1. The study of economics is primarily concerned with: a. keeping private businesses from losing money. b. demonstrating that capitalistic economies are superior to socialistic economies. c. determining the most equitable distribution of society’s output. d. choices that are made in seeking to use scarce resources efficiently. I-2 2. Why do economists assume that people are selfish? a. It fits the experience of the real world. b. It is simpler to model this than to include terms for other peoples’ happiness. c. It fits the behavior of firms, which do the bulk of economic activity. d. all of the above e. The premise of the problem is false. Economists do not assume that people are purely selfish.
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Practice Exam 1 2 I-3 3. Barack says that “The imposition of a tax on beer will raise its price.” Hillary argues that “Taxes should be imposed on beer because college students drink too much.” We can conclude that: a. Barack’s statement is normative, but Hillary’s is positive. b. Hillary’s statement is normative, but Barack’s is positive. c. Both statements are normative. d. Both statements are positive. III-1 4. Excluding corner solutions, in consumer equilibrium, which of the following is true? a. The marginal rate of substitution equals the slope of the budget constraint. b. The indifference curve is tangent to the budget constraint. c. The consumer is maximizing utility given the constraints. d. All of the above are true. e. (b) and (c), but not (a) or (d). III-2 5. A consumer’s utility function increases with the product of the quantities of two goods X and Y, as well as the sum of the quantities of good X and one and a half times the quantity of good Y: U(X, Y) = XY + X + 1.5 Y. The consumer faces a budget constraint. Here income is $90 and the prices of X and Y are $5 and $7.50 respectively. The utility maximizing bundle is: a. X = 3, Y = 10 b. X = 9, Y = 6 c. X = 6, Y = 8 d. X = 12, Y = 4 e. X = 15, Y = 2 The Lagrangian problem is thus: Max L = XY + X + 1.5 Y – λ (5X + 7.5Y – 90) The first order conditions are:
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Practice Exam 1 3 (5.1) d L = d(XY + X + 1.5Y) – 5 λ = _________ – _____ λ = 0 dX dX (5.2) d L = d(XY + X + 1.5Y) – 7.5 λ
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Econ_11_Prac_Exam_1-1 - Practice Exam 1 Econ 11...

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