ECO 303 - ECO 303 - FALL 2009 Midterm Exam 1 NAME: ID: I...

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ECO 303 - FALL 2009 Midterm Exam 1 NAME: ID: I understand that cheating is unacceptable in ECO 303. By signing below, I pledge my honor that I will be honest during the exam by not copying solutions from others, not using any notes, textbooks, and other related materials. SIGNATURE:
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1) Along any downward sloping straight-line demand curve: A) both the price elasticity and slope vary. B) the price elasticity varies, but the slope is constant. C) the slope varies, but the price elasticity is constant. D) both the price elasticity and slope are constant. Answer: B Diff: 2 Section: 2.4 2) Which of the following pairs of goods are most likely to have a negative cross price elasticity of demand? A) Hotdogs and hotdog buns B) Coke and Pepsi C) Rail tickets and plane tickets D) A Luciano Pavarotti compact disc and a Placido Domingo compact disc (Both Pavarotti and Domingo are opera stars.) Answer: A Diff: 1 Section: 2.4 3) Consider the demand curve of the form Q = a - bP. If a is a positive real number, and b = 0, then demand is A) completely inelastic. B) inelastic, but not completely. C) unit elastic. D) elastic, but not infinitely. Answer: A Diff: 2 Section: 2.4 4) A freeze in Florida's orange growing regions will: A) result in a sharp increase in the price of oranges in the short run because demand and supply are highly inelastic. B) result in a sharp increase in the price of oranges in the short run because demand and supply are highly elastic. C) result in a sharp decrease in the price of oranges in the short run because demand is highly inelastic and supply is highly elastic. D) result in little change in the price of oranges in the short run because supply is infinitely elastic. Answer: A Diff: 2
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Section: 2.5 5) For computers and other business equipment, small changes in business earnings tend to generate relatively large short-run changes in the demand for this equipment. In the long run, the responsiveness of demand for business equipment with respect to income changes tends to be: A) even more responsive. B) less responsive. C) equally responsive. D) none of the above Answer: B Diff: 2 Section: 2.5 6) When a person consumes two goods (A and B), that person's utility is maximized when the budget is allocated such that: A) the marginal utility of A equals the marginal utility of B. B) the marginal utility of A times the price of A equals the marginal utility of B times the price of B C) the ratio of total utility of A to the price of A equals the ratio of the marginal utility of B to the price of A. D) the ratio of the marginal utility of A to the price of A equals the ratio of the marginal utility of B to the price of B. Answer: D Diff: 2 Section: 3.5 7) Jane is attempting to maximize utility by selecting a market basket of goods. For each of the goods in the market basket the marginal utility per dollar spent is equal. There are some goods which are affordable but do not appear in the Jane s market basket. If Jane has maximized utility, the marginal utility per dollar spent on each of the goods that does
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ECO 303 - ECO 303 - FALL 2009 Midterm Exam 1 NAME: ID: I...

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