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Midterm Review Questions

Midterm Review Questions - ECONOMICS 201 MIDTERM REVIEW...

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ECONOMICS 201 MIDTERM REVIEW Fall, 2007 V.1 Geoffrey Jehle Multiple choice questions on the midterm exam will be very similar to these review questions. If you can do all of these, you are on top of all your problem sets, and you know what’s going on in class you should be in good shape.

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2 Multiple Choice 5 10 15 20 X 10 20 30 40 50 60 70 Y Figure 1: 1. A consumer’s budget constraint is depicted in Figure 1. If the price of X is \$1 per unit, the price of Y must be a. \$7/2 b. \$7/2 c. \$70 d. \$2/7 2. The price of X declines and Kevin’s total spending on X decreases. The own-price elasticity of Kevin’s demand for X is 3. Arjun consumes goods X and Y , and his utility function is u ( x, y ) = (3 / 10) x + (1 / 3) y . Which of the indifference maps in Figure 2 represents his preferences? 4. Casey’s utility function is u ( x, y ) = max( x, y ). He maximizes utility subject to a budget constraint. The price of X is \$8 and the price of Y is \$7. If Casey’s income is \$280, how many units of X and Y will he buy? a. no units of X and 40 units of Y . b. 56/3 units of X and 56/3 units of Y . c. no units of Y and 35 units of X . d. no units of X and no units of Y .
Multiple Choice 3 1 2 3 4 5 6 7 8 9 10 X 1 2 3 4 5 6 7 8 9 10 Y Minus c Minus 1 2 3 4 5 6 7 8 9 10 X 1 2 3 4 5 6 7 8 9 10 Y Minus d Minus 1 2 3 4 5 6 7 8 9 10 X 1 2 3 4 5 6 7 8 9 10 Y Minus a Minus 1 2 3 4 5 6 7 8 9 10 X 1 2 3 4 5 6 7 8 9 10 Y Minus b Minus Figure 2: 5. Arjun buys only X and Y , and the own-price elasticity of his demand for X is equal to -1/2. If his income elasticity of demand for X is equal to 3/4, what is his cross-elasticity of demand for X with respect to the price of Y ? 6. Asya’s utility function is u ( x, y ) = min(6 x, 5 y ). She maximizes her utility subject to a budget constraint. The price of X is the same as the price of Y . If the price of X falls and the price of Y and her income remain constant, then her consumption of Y

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4 Multiple Choice 7. If she spends all her income, Rachel can just afford 8 units of X and 15 units of Y per week. She could instead use her entire budget to buy 16 units of X and 6 units of Y per week. The price of X is 3 dollars per unit. What is the price of Y ? a. \$3/8 b. \$16/3 c. \$20/3 d. \$8/3
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