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Fall09MT1b - 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 (20 points) A researcher studying the market for dinners at Turkish restaurants has estimated the following demand and supply functions for this good in a particular city, where quantity Q is measured in hundred meals per week and price P is measured in dollars: Demand: Q D = 380 – 7P + 5Y Supply: Q S = – 3 + 6P – 3W. Here Y represents residents’ per-capita annual income in thousands of dollars and W represents the hourly wage in dollars of waiters in this city. (a) (2 points) According to this demand function are dinners at Turkish restaurants a normal good or an inferior good? Explain briefly. (b) (2 points) Suppose Y = 10 and P = 2. Find the income elasticity of demand for Turkish dinners. 1
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(c) (5 points) Suppose that W = 5 and Y = 8. On a diagram with quantity on the horizontal axis, sketch the supply and demand curves given these values of W and Y, showing slopes and intercepts clearly.
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