spring 05quiz1

# Intermediate Microeconomics: A Modern Approach, Seventh Edition

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ECONOMICS 300 QUIZ 1 SPRING 2005 PLEDGE:____________________________ NAME:______________________________ 1. (10 points) Courtney, Monica, Frank, Drew and Kristen each want a room in the new dorm complex on the North Quad. The college assigns dorm rooms through a lottery system. Everyone pays the same price to the college (\$2000), regardless of willingness to pay. The following table shows the reservation price of the Allegheny students. Reservation Price Courtney \$5000 Monica \$4500 Frank \$3500 Drew \$3000 Kirsten \$2000 On the graph below, draw the demand curve for dorm rooms. Carefully label your graph. If the only three available dorm rooms are assigned via the lottery to Frank, Drew and Kirsten, are there any Pareto improving trades that can be made? Explain carefully.

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2. (10 points) Christo and Jeanne-Claude are artists who consume only two goods:
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Unformatted text preview: Cloth (C) and masking tape (T). They get their goods from two competing stores, Store A and Store B, both of which sell the goods only bundled together. In neither store can tape and cloth be bought separately. If they spend all of their income at Store A, they can buy 10 units of cloth and 5 rolls of masking tape. If they spend all of their income at Store B, they can buy 5 units of cloth and 10 rolls of masking tape. a. Draw Christo and Jeanne-Claude’s budget constraint on the following graph. Label carefully. T M b. This budget line is a line segment that lies on the line with what equation? c. If Christo and Jeanne-Claude have a positive income, what is the opportunity cost of consuming an additional unit of masking tape? Explain this concept....
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