ECON 302 Exam I  Summer 2009
Name: ____________________
Form A – 165 points total
Multiple Choice (5 points each)
Identify the choice that best completes the statement or answers the question.
____
1.
Bella’s budget line for
x
and
y
depends on all of the following except
a.
the amount of money she has to spend on
x
and
y
.
b. her preferences between
x
and
y
.
c.
the price of
x
.
d. the price of
y
.
e.
None of the above.
____
2.
Lorenzo’s demand function is given by.
2
1
2
1
1
3
2
)
,
,
(
p
p
m
m
p
p
x
+
=
From this we can tell that
____
3. Ike’s utility function is
U
(
x
,
y
) = 25
xy
. He has 12 units of good
x
and 8 units of good
y
. Ben’s utility function
for the same two goods is
U
(
x
,
y
) = 4
x
+ 4
y
. Ben has 9 units of
x
and 13 units of
y
.
a.
Ike prefers Ben’s bundle to his own bundle, but Ben prefers his own bundle to Ike’s.
b.
Since they have different preferences, there is not enough information to determine who
envies whom.
c.
Ben prefers Ike’s bundle to his own, but Ike prefers his own bundle to Ben’s.
d.
Each prefers the other’s bundle to his own.
e.
Neither prefers the other’s bundle to his own.
____
4.
The demand curve for a good is given by
p
= 60 – 8
q
, where
p
is the price and
q
is the quantity of the good.
Suppose that the number of consumers in the economy doubles; a “clone” of each consumer, who has exactly
the same demand curve as the original consumer, appears. The demand curve for the doubled economy is
described by
____
5. Charlie has the utility function
U
(
x
A
,
x
B
) =
x
A
x
B
. His indifference curve passing through 35 apples and 18
bananas will also pass through the point where he consumes 5 apples and
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____
6.
Socrates owns just one ship. The ship is worth $200 million dollars. If the ship sinks, Socrates loses $200
million. The probability that it will sink is .02. Socrates’ total wealth including the value of the ship is $225
million. He is an expected utility maximizer with von NeumanMorgenstern utility
U
(
W
) equal to the square
root of
W.
What is the maximum amount that Socrates would be willing to pay in order to be fully insured
against the risk of losing his ship?
a.
$2 million
b. $4.82 million
c.
$3.84 million
d. $5.96 million
e.
$4 million
____
7.
Stephen only eats two things: steak and eggs.
At current prices of $5 for a pound and $2 for a dozen eggs, his
utility maximizing bundle of steak and eggs is 6 pounds of steak and zero eggs.
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