Fall09MT1a

# Fall09MT1a - Economics 420K(Microeconomic Theory First...

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Economics 420K (Microeconomic Theory) First Midterm Examination University of Texas at Austin, Fall 2009 YOUR NAME: Instructions Write your name in the space at the top of this page. This is a closed-book examination. A calculator will be useful. There are six pages. Check that you have all pages. Answer each question in the space provided. The examination is worth 50 points. Points are indicated in parentheses at the beginning of each question. Provide all the information asked for by each question. No credit will be given unless clearly demonstrated reasoning is shown. Partial credit will be given for work in the right direction. Question 1 (18 points) Consider the demand for movie tickets in a certain market. Let P and Q D respectively denote the price (in dollars) and quantity demanded of movie tickets. Let T denote the price of home-theater units, and let Y denote the income of consumers in this market. Suppose that the demand function for movie tickets is: Q D = 246 – 12P + 5T – 4Y . (a) (2 points) According to this demand function, are movies and home-theater units substitutes or complements? Explain briefly. (b) (2 points) According to this demand function, are movie tickets a normal or an inferior good? Explain briefly. (c) (2 points) What is the cross-price elasticity of demand with respect to the price of home-theater units if P=5, T=10 and Y=8? 1

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(d) (3 points) Suppose that T=10 and Y=8. Neatly sketch the above demand function with quantity on the horizontal axis, showing slope and intercepts clearly. (e) (3 points) Let Q
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Fall09MT1a - Economics 420K(Microeconomic Theory First...

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