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practiceexam2 (2)

practiceexam2 (2) - ECON 251 Practice Exam for Fall 2007 1...

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ECON 251 Practice Exam# for Fall 2007 1. Bobby buys only soda and pizza and is buying the amounts that maximize his utility. The marginal utility from a soda is 10, and the price of the soda is $1. The marginal utility from a slice of pizza is 20. At this point, what is his marginal rate of substitution if pizza is graphed on the x axis? a. ½ b. 1 c. 2 d. 10 2. When a consumer is maximizing utility given a budget, 3. Let’s say you spend all of your money on yogurt and raspberries. Yogurt prices increased from $2 per carton to $3 per carton over the last year, while raspberry prices increased from $3 per pint to $6 per pint over the last year. If you were to graph the quantity of yogurt on the x axis and the quantity of raspberries on the y axis, the slope of your budget line will have changed over the last year from ______ to ________. 4. Based on the information in the problem above, if you are currently consuming yogurt and raspberries where the budget line is steeper than the indifference curve, what do you need to do to maximize your utility, given your budget?
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5. Consider the graph above. Good X is a normal good, while good Y is an inferior good. Your initial budget line was GH. Your new budget line is AB. What must have happened to your income? a. your income rose b. your income fell c. your income didn’t change, but the price of good X went down d. your income didn’t change, but the price of good Y went up 6. Again consider the graph above. Good X is a normal good, while good Y is an inferior good. Your initial budget line was GH, and your initial equilibrium point is at E. Your new budget line is AB. Where do you expect to have the new equilibrium point?
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