reviewmidterm2 - Review Problems Midterm 1: Part 1...

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Review Problems Midterm 1: Part 1 Economics 304K: Principles of Microeconomics Prof. Meg Ledyard You do not need to turn these in, but you would be well advised to go through these questions, and be able to answer them. 1. If a perfectly competitive industry has firms with the same costs, what does the supply curve look like? What is the long run price? Why might we expect the supply curve to slope upwards in the long run? 2. Suppose that Richard consumes only hamburgers and milkshakes. Hamburgers cost $5 and milk shakes cost $3. a. Draw a diagram showing Richard’s optimal consumption bundles, assuming that hamburgers and milkshakes are neither perfect substitutes nor perfect compliments and that his income is $60. Put milk shakes on the x-axis. b. Now suppose that the price of milkshakes falls to $2. Show a diagram where the income effect is bigger than the substitution effect for hamburgers. c.
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This note was uploaded on 09/14/2009 for the course ECON 304K taught by Professor Ledyard during the Fall '08 term at University of Texas.

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