Unformatted text preview: VICTORIA UNIVERSITY OF WELLINGTON FACULTY OF COMMERCE AND ADMINISTRATION SCHOOL OF ECONOMICS AND FINANCE MIDTRIMESTER TEST, 2007 ECON 201: MICROECONOMICS INSTRUCTIONS:
· Duration of test: 50 minutes.
· Total marks: 100, 20 mult iple cho ice quest ions @ 5 marks each.
· Pocket calculators can be used, but not notes or books.
· Please fill in your student ID number and cho ice of answer for each quest io n carefully on the separate onepage answer sheet.
· For any calculat ions, use the back of the quest ion pages, or the margins or any empt y space on the quest ion pages. Only the answer sheet is to be returned at the conclusio n of the test.
· There are SEVEN pages of quest ions – check that your set is co mplete. Question 1 The diagram below shows a change in the equilibrium price and quantit y of co ffee: P B P2 A P1 Q1 Q2 Qcoffee The change could be due to which of the fo llowing? (a) (b) (c) (d) A failure of the coffee harvest in Brazil which drives up the price A rise in consumers’ inco mes when coffee is an inferior (but not a Giffen) good) A sharp increase in the pr ice o f tea (which is a substitute for coffee) A change in consumer tastes away fro m coffee in favour of wine Question 2 Nonsatiat ion implies that: (a) (b) (c) (d) Wit h standard convexit y assumpt ions, indifference curves have negative slope Consumers are unable to attain their constrained optimum Marginal ut ilit y is negat ive at the optimum The Marginal Rate of Subst itution of x for y is increasing Question 3 At the choke price on a linear demand curve: (a) (b) (c) (d) Elast icit y o f demand is zero Elast icit y o f demand is (minus) one Elast icit y o f demand is (plus) 100 Elast icit y o f demand is (minus) infinit y ECON 201 2007 Midtrimester test 1 Question 4 On the demand curve Q = 600 – 40P, when P = 5, the elast icit y o f demand is (a) (b) (c) (d) 0.1 0.5 1.25 2.0 Question 5 - If the demand curve is Q = 6 P (a) (b) (c) (d) 1 2 and P=37, t he elast icit y o f demand is 1.0 0.5 0.75 3.0 Question 6 For two goods i and j the crossprice elast icit y o f demand is: (a) DQi P j ×
DP Q j i (b) DQi P × i DP Q j i (c) (d) DQi P j ×
DPi Q i DQi Pi ×
DPi Q i Question 7 A negat ive crossprice elast icit y o f demand between two goods means that the goods are (a) (b) (c) (d) subst itutes Giffen goods complements nondurable goods ECON 201 2007 Midtrimester test 2 Question 8 Consistency o f preferences implies that (a) (b) (c) (d) If A f B and C f B then A f C If A f B and B f E then A f E If A f C and E p C then A p E If A f B and B p E then the consumer is indifferent between A and E Question 9 A consumer’s utilit y funct ion is U=4xy and the prices of the two goods are Px=8 and Py=24. The consumer’s inco me is 1,200. Which of the fo llowing is correct? (a) (b) (c) (d) The consumer’s optimal quantit y of good x is 50 The consumer’s marginal ut ilit y o f income is 12.5 The consumer’s optimal quantit y of good y is 75 1 The MRSxy at the optimum is /4 Question 10 A consumer’s preferences over two goods are represented by: U ( x , y ) = 1 3 2 x y 50 The prices are Px and Py , and an amount of money E can be spent on these goods. The two utilit y maximis ing demand funct ions are: (a) 6 E 1 E x = × and y = × 7 Py 7 Px (b) 2 E 3 E x = × and y = × 5 Py 5 Px (c) 2 E 1 E x = × and y = × 3 Py 3 Px (d) x = 37 E 3 E ×
× and y = 50 Py 50 Px ECON 201 2007 Midtrimester test 3 Question 11 0 4 7
Consider the CobbDouglas production function Q = 18 L . K 0. . This is an example o f (a) (b) (c) (d) Decreasing returns to scale Perfect subst itutabilit y of inputs A Leont ieff production funct ion Increasing returns to scale Question 12 The demand curve for a good is Q = 48,000 – 120P. When the price is $50, consumer surplus is (a) (b) (c) (d) $14.7 millio n $2.1 millio n $9.6 millio n $7.35 millio n Question 13 Composite g o o d y M K R E
A C U2 B U 1 xA xC x In the diagram, Co mpensating Variat ion is the distance (a) (b) (c) (d) KM AB KR BE ECON 201 2007 Midtrimester test 4 Question 14 In a Leontieff (fixedproportions) production function, the elast icit y o f subst itution is given by (a)
(b) (c) (d) s = ¥
s = 1
s = 0
1 £ s < ¥ Question 15 2
A firm has total shortrun cost C = 5q + 90 and half o f its fixed costs are sunk. Its shutdown price is (a) $20 (b) $30 (c) $35 (d) $40 Question 16 The market for widgets is in lo ngrun equilibrium. All suppliers face the same 2
average cost curve, AC = 300 – q + 0.02q . The demand curve is D(P) = 642,000 – 36P. The number of suppliers is (a) 37,165 (b) 21,054 (c) 25,266 (d) 63,149 ECON 201 2007 Midtrimester test 5 Question 17 Suppose the production o f cars is characterised by the production funct io n
2 L + K Q = L + K , with marginal products
MPL = and
L L + K MPK = . K ( ) ( ) ) ( The price of labour is $10 per unit and the pr ice of capital is $1 per unit. If a car manufacturer wishes to produce 121,000 cars, its costminimis ing quant it ies of labour and capital will be (a) L = 100 and K = 10,000 (b) L=121 and K = 1,210 (c) L=1,210 and K = 121,000 (d) L = 1,000 and K = 100,000 Question 18 For the production funct ion Q = LK , when the price o f labour is w and the price o f capital is r, the demand curve for labour is (a) (b) (c) (d) rQ w r L = Q w wQ L = r L = L= Q w ECON 201 2007 Midtrimester test 6 Question 19 2
A firm faces the production funct ion Q = L K 3 . The price of labour is w = 10 and the price o f capital is r = 5. The Lagrangian mult iplier in the firm’s cost minimisat ion problem is (a) l = (b) l = (c) l = (d) l = 1
2 LK 3 5
L K 2 5 LK 3 5
3 2 LK Question 20 K per period Q=100 before technical progress Q=100 after technical progress L per period The technical progress shown in the diagram above is (a) (b) (c) (d) Capitalsaving Laboursaving Neutral Eliminated by the change in relat ive factor prices ******************************************** ECON 201 2007 Midtrimester test 7 ...
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- Fall '10
- Microeconomics, Elast icit, MIDTRIMESTER TEST