10ans2300A - YORK UNIVERSITY ECONOMICS DEPARTMENT...

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YORK UNIVERSITY: ECONOMICS DEPARTMENT AP/ECON:2300D F/W 2010: INTERMEDIATE MICROECONOMICS Midterm Exam: October, 2010 ANSWERS SECTION A: 1. The slope of the budget line is (9B – 3B)/(12M – 10M) = 6/2 = P M /P B . You are given that P B = 8. Therefore, P M = 24. Hence, her income is 9x8 + 24x10 = 312. 2. (4x, 12y) is average of (2x, 16y) and (6x, 8y). This bundle would therefore be preferred if indifference curves are convex. 3. The intercept of the new budget line will double for the good whose price hasn’t change but will remain the same for the good whose price has doubled. Hence, the new budget line will lie entirely above the old line except for the maximum quantity of the good whose price doubled. Consumer would be better off as long as she doesn’t only consume the more expensive good. 4. False. Even though, MUs are constant MRS = y/x declines as x increases and y falls. 5. Since the goods are always consumed in constant proportion, consumption must lie on a line from the origin for both price and income changes.
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