midterm 2 review questions

# Principles of Macroeconomics

This preview shows pages 1–4. Sign up to view the full content.

Review Questions for Midterm 2 Econ 101, Lecture 4, Spring 2007 Professor Korinna K. Hansen TAs: Jonathan Thornhill, Kyoung Jin Choi, Woo Jin Choi and Jim Lin 1) In a world of two goods X and Y with prices P X and P Y , an increase in both prices P X and P Y will cause an _______________ in consumer’s budget line. a) inward shift b) outward shift c) ambiguous (inward or outward) shift d) none of the above Use the following information to answer the next two questions: The graph below shows Fred’s indifference curves and budget line for goods X and Y. Y A C B D X 2) The following is true for consumption combinations A and B for Fred: a) Fred is indifferent between consuming combination A or B. b) Fred cannot afford combinations A or B. c) Combinations A and B are preferable to combination C for Fred. d) All of the above. 3) The following is true for consumption combinations A, B, C and D for Fred: a) Fred strictly prefers combination C to combination D. b) Combination D is not affordable for Fred c) Fred will maximize utility when consuming A or B d) None of the above 4. If Betty’s marginal rate of substitution between bus rides and taxi rides is -8, MU t /MU b = -8, and the price for a bus ticket is \$2 but the price for a taxi ride is \$20, then Betty (at her current

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
position along her budget line) must be consuming: a) too many taxi rides. b) too few taxi rides. c) all of the above. d) none of the above. Use the following information to answer the next two questions: Michael has \$100 to spend on DVDs and books. DVDs cost \$20 per unit and books \$25 per unit and Michael has the following utility function for these two goods: # of Total # of Total DVDs Utility Books Utility 1 50 1 40 2 90 2 70 3 120 3 90 4 135 4 105 5 145 5 115 6 150 6 120 7 153 7 122 5) Therefore Michael is experiencing: a) increasing marginal utility for both goods b) decreasing marginal utility for both goods c) increasing marginal utility for books but decreasing for DVDs d) decreasing marginal utility for books but increasing for DVDs 6) Given all the information given above Michael will choose to consume: a) three DVDs and one book b) four DVDs and one book c) three DVDs and two books d) two DVDs and two books 7) John receives the following levels of total utility after consuming one, two, three, four, five and six ice-ream cones at the Union in a day: 10, 18, 25, 31 and 35, and 36. Therefore, John’s preferences are consistent with the law of: a) diminishing returns to labor b) increasing returns to labor c) diminishing marginal utility d) increasing opportunity cost 8) Find Jim’s optimal consumption bundle for the following 4 items. He is ready to spend \$32.
Goods Price Utility of 1 st consumption Utility of 2 nd consumption Utility of 3 rd consumption Utility of 4 th consumption Burrito \$8 160 40 20 8 Tacos \$2 10 10 5 4 Salad \$4 40 20 10 10 Soda \$1 4 3 3 3 a) 3 Burritos. 3 Tacos 1 Salad. b) 2 Burritos, 2 Tacos, 2 Salads, 4 Sodas.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 20

midterm 2 review questions - Review Questions for Midterm 2...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online