Exam 2 Ec302, secs 7 and 13. Rashid. You will have to answer 50 MC or T/F questions.
There are more than 50 questions on the exam, but there are no bonus questions. If you do an-
swer more than 50 ,all your wrong answers will be included in your grade. So if you answer 53
questions and get 50 correct, you will only get 47
It will help if you cross out all the questions you wish to omit at the very beginning
.
(The extra
questions are there in case you missed a topic, or there is ambiguity in the question etc)
No calculators allowed
Multiple Choice
Identify the choice that
best
completes the statement or answers the question.
____
1.
Sir Plus has a demand function for mead that is given by the equation
D
(
p
) = 100 –
p
. If the price of mead is
$85, how much is Sir Plus’s net consumer’s surplus?
a.
15
b.
225
c.
56.25
d.
112.50
e.
7,650
____
2.
Bernice has the utility function
u
(
x
,
y
) = min{
x
,
y
}, where
x
is the number of pairs of earrings she buys per
week and
y
is the number of dollars per week she has left to spend on other things. (We allow the possibility
that she buys fractional numbers of pairs of earrings per week.) If she originally had an income of $20 per
week and was paying a price of $2 per pair of earrings, then if the price of earrings rose to $5, the compensat-
ing variation of that price change (measured in dollars per week) would be closest to
a.
$20.
b.
$41.
c.
$40.
d.
$10.
e.
$39.
____
3.
If Bernice (whose utility function is min{
x
,
y
}, where
x
is her consumption of earrings and
y
is money left for
other stuff) had an income of $16 and was paying a price of $8 for earrings when the price of earrings went up
to $10, then the equivalent variation of the price change was
a.
$3.56.
b.
$1.45.
c.
$2.91.
d.
$7.11.
e.
$3.23.
____
4.
Lolita’s utility function is
U
(
x
,
y
)
, where
x
is her consumption of cow feed and
y
is her con-
sumption of hay. If the price of cow feed is $.10, the price of hay is $1, and her income is $2 and if Lolita
chooses the combination of hay and cow feed that she likes best from among those combinations she can af-
ford, her utility will be
a.
0.40.
b.
3.40.
c.
1.90.
d.
2.40.
e.
1.40.
____
5.
Kitty’s utility function for BMWs and money is given by 16,000
x
+
y
, where
x
is the number of BMWs she
has and
y
is the amount of money she has. Her income is $23,000. Her reservation price for one BMW is