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w09 exam_one - on the vertical axis plot Uncle Milt’s...

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Exam 1 Econ 100A, Winter 2009 Thomas Koch Write your name here: This test consists of two sections—15 multiple choice questions worth 1 point each, and a short-answer section worth 10 points. Fill out your Scantron with your name, perm number and test form. Partial credit will be awarded for the short answer section, so show all work . The points available per short-answer question are indicated at the beginning of each question. 1
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Part I: Short Answer Question 1 Let’s think about the coffee consumption for your weird Uncle Milt. He has twenty dollars, and he can spend it on coffee from either Starbucks or Coffee Bean. He likes to spend money at these two stores as if they are perfect substitutes. That is, his preferences can be expressed by the utility function: u coffee ( x ST , x CB ) = x ST + x CB , where x ST is cups of Starbucks coffee, and x CB is cups of Coffee Bean coffee. 2 points With coffee from Starbucks on the horizontal axis, and that for Coffee Bean
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Unformatted text preview: on the vertical axis, plot Uncle Milt’s indifference curves for coffee. • 2 points How many cups of coffee from each store will Milt buy if Starbucks coffee costs $2 a cup, and Coffee Bean coffee costs $2.50 a cup? 2 Question 2 Your weird Uncle Milt has grown unhappy with Starbucks. Because of this, coffee from Coffee Bean is twice as satisfying to him as coffee from Starbucks, though still perfect substitutes. • 2 points Draw his new indifference curves, with Starbucks coffee on the horizontal axis, and Coffee Bean coffee on the vertical axis. • 2 points How much of each kind of coffee will Milt buy if he has these new preferences while the price of coffee does not change? • 2 points What is one possible utility function that represents Milt’s new preferences for coffee? 3...
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