ECMA04H - VERSION A
Sketchy Solutions to First Term Test, written on October 26, 2007
These are the answers to VERSION A.
Q1:
B
On the PPF, if X = 10, Y = 30 - 3/2 = 28.5, so the point (10,28) is inside the PPF
Q2:
E
opportunity cost of X = -dY/dX = 30/(30-X)
2
;
at X = 20, cost = 30/100 = 0.3
Q3:
D
opportunity cost of Y = -dX/dY
at X = 28, -dY/dX = 30/4 = 15/2,
so
-dX/dY = 2/15
Q4:
H
V = 5X + 180 - 180/(30-X)
to maximize, set dV/dX = 0
dV/dX = 5 - 180/(30-X)
2
= 0
so
(30-X)
2
= 36,
30-X = 6,
X = 24
Q5:
E
I is true because you give up money to pay tuition and books;
II is false because food and rent
must be paid whether or not she goes to university;
III is true because you do surrender
leisure when you go to university.
Q6:
B
The rise in the price of a complement shifts demand to the left
Q7:
F
If wages fall in the pizza delivery industry, supply shifts down (or right)
Meanwhile, if subs fall in price, this reduces the demand for pizza, because subs and pizza are
substitutes.
D shifts left.
Price clearly falls, but we are not sure what happens to quantity, because the effects on Q go in
opposite directions.
Q8:
J
The rise in wages shifts supply up and to the left.
Meanwhile, the technological innovation
shifts supply down or to the right.
So overall the supply curve can go either way.
Q9:
A
The newspaper story increases the demand for pizza, so D shifts to the right; the rise in income
also shifts demand to the right;
thus overall demand shifts right.
Q10:
E
The rise in the price of an input causes supply to shift up (or left).
The fall in the price of a
complement (beer) shifts demand right or up.
Q11:
E
As long as the demand curve is flatter than the supply, we are stable, because a rise in price
will still generate excess supply, causing price to fall.
Q12: