Econ100B midterm S09

# Econ100B midterm S09 - Econ 100B Spring 2009 Midterm Exam...

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1 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 multiple-choice 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 one-third, 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 state-contingent 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 utility-maximizing 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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2 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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Econ100B midterm S09 - Econ 100B Spring 2009 Midterm Exam...

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