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ECON 302 EXAM 1 - ECON 302 Exam I Summer 2009 Form A 165...

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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 Neuman-Morgenstern 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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ECON 302 EXAM 1 - ECON 302 Exam I Summer 2009 Form A 165...

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