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Unformatted text preview: Ecn 100 - Intermediate Microeconomic Theory University of California - Davis October 16, 2009 Instructor: John Parman Midterm 1 - Solutions You have until 11:50am to complete this exam. Be certain to put your name, id number and section on both the exam and your scantron sheet and fill in test form A on the scantron. Answer all multiple choice questions on your scantron sheet. Choose the single best answer for each question; if you fill in multiple answers for a question you will be marked wrong. Answer the long answer questions directly on the exam. You must show your work for full credit. Answers may be left as fractions. Please place a box around final answers when appropriate. Good luck! Name: ID Number: Section: SECTION I: MULTIPLE CHOICE (60 points) 1. Which of the following pairs of utility functions would represent the same preferences? (a) U ( x,y ) = 2 xy and V ( x,y ) = xy . (b) U ( x,y ) = x 2 y 2 and V ( x,y ) = xy . (c) Neither (a) nor (b). (d) Both (a) and (b). (d) Notice that in both cases, the two utility functions would give you exactly the same marginal rate of substitution ( MRS =- y x ) and that x and y are both goods. This tells us that both utility functions would generate the same indifference curves and represent the same preferences. 2. In which of the following cases would the demand curve for good x and the Engel curve for good x have the same sign? (a) When good x is a normal, ordinary good. (b) When good x is an inferior, Giffen good. (c) When good x is an inferior, ordinary good. (d) Both (b) and (c). (c) If x is an inferior good the Engel curve will be downward sloping (when income goes up, demand goes down). If x is an ordinary good, the demand curve will be downward sloping (when price goes up, demand goes down). 3. Suppose that every extra cookie increases Abes utility by four units. Which of the following must be true? (a) Abes marginal utility of cookies is zero. (b) Abes marginal utility of cookies is increasing. (c) Abes marginal utility of cookies is diminishing. (d) Abes marginal utility of cookies is positive. (d) If an extra cookie increases utility, marginal utility must be positive. Since every extra cookie increases utility by four units, the marginal utility of cookies is constant (and equal to four). 2 Midterm 1 - Solutions 4. Betty is indifferent between eating 2 apples and 6 oranges and eating 6 apples and 2 oranges. Betty prefers eating 4 apples and 4 oranges to eating 2 apples and 6 oranges. We can say for certain that: (Note: This was changed at the beginning of the exam to say Betty prefers (2 apples, 6 oranges) to (4 apples, 4 oranges).) (a) Bettys preferences are not transitive. (b) Bettys preferences are not convex....
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This note was uploaded on 10/22/2010 for the course ECN 100 taught by Professor Parman during the Fall '08 term at UC Davis.
- Fall '08