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Econ 100B – Spring 2009
Midterm Exam  Version 1
May 5, 2009
Instructions:
Write your name, perm #, TA, and Version # on your Scantron sheet.
There are 20 multiplechoice questions on this exam.
Answer as many questions as
possible in the time allowed.
No calculators are allowed.
I do not expect everyone to be
able to answer all 20 questions.
If you get stuck on something, I strongly suggest moving
on and coming back later if/when you have time.
Good luck!
1)
Neumann has a block of uranium worth $1000, but with probability onethird, half the
block will decay into worthless lead, leaving him with only $500 of uranium.
If the price
of insurance is
p = .5
, what is Neumann’s statecontingent budget constraint?
(Let
c
d
and
c
nd
be Neumann’s respective wealth if the uranium decays and doesn’t decay,
respectively.)
a.
c
nd
= 1250  .5c
d
b.
c
nd
= 1500  c
d
c.
c
nd
= 1250  2c
d
d.
c
nd
= 1500  .5c
d
e.
c
nd
= 750  2c
d
ANS:
B, c
nd
= 1500  c
d
2)
If Neumann’s utility of money is given by
U(x) = ln(x)
, what is his utilitymaximizing
condition? (math hint:
the derivative of
ln(x)
with respect to
x
is
1/x.
)
a.
c
nd
= c
d
b.
c
nd
= .5c
d
c.
c
nd
= 2c
d
d.
c
nd
= c
d
/3
e.
c
nd
= 3c
d
ANS:
C, c
nd
= 2c
d
3)
Nacho has a demand function for burritos that is given by the equation q(p) = 10  .5p.
If the price of burritos is $6, how much is Nacho’s gross consumer surplus and net
consumer’s surplus, respectively?
a.
$70 and $49
b.
$91 and $42
c.
$91 and $49
d.
$100 and $42
e.
$100 and $49
ANS: C, $91 and $49
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4)
Claudia’s preferences can be represented by the utility function, U(x,y) = min{x,y}.
She currently has an income of $20 and faces prices ($1, $1).
If the price of good x
increases by $2 and the price of y remains the same, then the compensating variation:
a.
equals the equivalent variation
b.
is $10 smaller than the equivalent variation
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 Spring '08
 KILENTHONG

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