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Unformatted text preview: Ecn 100 - Intermediate Microeconomics University of California - Davis April 21, 2010 Instructor: John Parman Midterm 1 - Solutions You have until 1:00pm 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. Suppose apples and bananas are perfect substitutes. On a graph with apples on the horizontal axis and bananas on the vertical axis, if the price of bananas doubles: (a) The indifference curves will get steeper. (b) The budget line will get steeper. (c) The indifference curves will get flatter. (d) The budget line will get flatter. (d) If the price of bananas goes up, the slope of the budget line (- p a p b ) will get smaller in magnitude, meaning a flatter budget line. 2. Ansel likes dogs more than he likes cats, likes cats more than he likes snakes and likes snakes more than he likes dogs. We can say for certain that Ansels preferences: (a) Are not monotonic. (b) Are not convex. (c) Are not transitive. (d) Are not complete. (c) If his preferences were transitive, Ansel liking dogs more than cats and cats more than snakes would imply that he likes dogs more than snakes. Since this is not true, his preferences cannot be transitive. 3. Suppose that an ice cream store gives you your first ice cream cone for free. After that, each ice cream cone costs $1. Cookies cost $2. If you consume only ice cream cones and cookies, the budget line on a graph with ice cream cones on the horizontal axis and cookies on the vertical axis will: (a) Have one segment that is a vertical line and one segment that has a slope of -.5. (b) Have one segment that is a horizontal line and one segment that has a slope of -2. (c) Have one segment that is a horizontal line and one segment that has a slope of -.5. (d) Have one segment that is a vertical line and and one segment that has a slope of -2. 2 Midterm 1 - Solutions (c) The budget line will have a horizontal segment for the upper left portion of the budget line (along this segment, the person is spending all of his money on cookies but can also consume anywhere between 0 and 1 ice cream cones because the first cone is free). The rest of the budget line will be a standard, downward sloping budget line with a slope given by- p I p C which is- 1 2 ....
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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