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October202006.VersionA

# October202006.VersionA - ECMA04H VERSION A Sketchy...

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ECMA04H - VERSION A Sketchy Solutions to First Term Test, written on October 20, 2006 These are the answers to VERSION A. Q1: C On the PPF, if X = 7, Y = 20 - 12.8 = 7.2, so the point (7,7.4) is unattainable Q2: E opportunity cost of X = -dY/dX = .4(1+X); at X = 3, cost = 1.6 Q3: B opportunity cost of Y = -dX/dY at X = 5, -dY/dX = 2.4, so -dX/dY = 5/12 Q4: E V = 2X + 20 - .2(1+X) 2 to maximize, set dV/dX = 0 dV/dX = 2 - .4(1+X) = 0 so .4(1+X) = 2, 1+X = 5, X = 4 Q5: F I is false because the PPF has nothing to do with tastes; II is true because bowing out means that the opportunity cost of X rises as X increases; III is true because the PPF is the boundary between attainable and unattainable, indicating that there are limited amounts of X and Y, hence scarcity. Q6: A The rise in income shifts demand to the right Q7: H If wages rise in the tennis racquet industry, supply shifts to the left. Meanwhile, if golf clubs fall in price, this reduces the demand for tennis racquets, because golf clubs and tennis racquets are substitutes. D shifts left. Quantity clearly falls, but we are not sure what happens to

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October202006.VersionA - ECMA04H VERSION A Sketchy...

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