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# practice_questions__2 - EC 301 Practice Questions for...

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EC 301 Practice Questions for Midterm Exam #2 1) Long-run average cost is never greater than short-run average cost because in the long run (a) capital costs equal zero. (b) wages always decrease over time. (c) the firm can change all inputs to minimize the production cost. (d) wages always increase over time. Table 1 2) Table 1 shows the short-run production function for Albert’s Pretzels. The marginal productivity of labor (a) is less than or equal to the average productivity of labor for all amounts of labor. (b) rises then falls as the amount of labor increases. (c) falls then rises as the amount of labor increases. (d) is greater than or equal to the average productivity of labor for all amounts of labor.

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3) A Giffen good has (a) a decline in the quantity demanded as price rises. (b) a decline in the quantity demanded as price falls. (c) a decline in the quantity demanded as income rises. (d) none of the above. 4) Suppose Lisa spends all of her money on books and coffee. When the price of coffee decreases, the (a) substitution effect on coffee is positive, and the income effect on coffee is positive. (b) substitution effect on coffee is ambiguous, and the income effect on coffee is ambiguous. (c) substitution effect on coffee is positive, and the income effect on coffee is ambiguous. (d) substitution effect on coffee is ambiguous, and the income effect on coffee is positive. 5) In the case of a normal good (a) demand curves always slope downward. (b) the income effect and substitution effect are in the same direction. (c) the Engel curve slopes upward. (d) All of the above. Figure 3 ( NOTE: There is a typo in the figure. ‘e 1 ’ should be ‘e 2 ’ and ‘e 2 ’ should be ‘e 1 ’. ) 6) Figure 3 shows Bobby’s indifference map for soda and juice. B1 indicates his original budget line. B2 indicates his budget line resulting from a decrease in the price of soda. What change in quantity best represents his substitution effect? (a) 3 (b) 10 (c) 15 (d) 7
7) Figure 3 shows Bobby’s indifference map for soda and juice. B1 indicates his original budget line. B2 indicates his budget line resulting from a decrease in the price of soda. What change in quantity best represents his income effect? (a) 3 (b) 10 (c) 15 (d) 7 8) If a person supplies more hours of labor in response to a wage increase, then (a) the substitution effect is greater than the income effect. (b) the income effect is greater than the substitution effect. (c) the income effect equals the substitution effect. (d) the person is not maximizing utility. 9)

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practice_questions__2 - EC 301 Practice Questions for...

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